Two New Court Decisions Are Bad News for Student Loan Borrowers

Two significant court rulings were issued this week, and both may be bad news for millions of student loan borrowers.

The first ruling came in response to a legal challenge over the Trump administration’s decision to allow access to Department of Education data containing sensitive information on student loan borrowers. The second decision was related to an ongoing legal challenge over the Saving on a Valuable Education (SAVE) plan, but the scope of the decision could have even broader ramifications.

Here’s what borrowers should know.

DOGE allowed access to student loan borrower data

Earlier this month, a California student association filed a legal challenge against the Department of Education after officials allowed staff affiliated with the Department of Government Efficiency (DOGE) to access sensitive data systems. These data systems contain a wealth of information on millions of Americans, including personal identifying data (like Social Security numbers, account numbers, and birth dates) as well as information like income and assets that would be reported on the FAFSA form or in conjunction with income-driven repayment (IDR) plan applications.

“Members of Congress wrote a letter to ED raising ‘serious concerns’ with reports that DOGE staff ‘have reportedly gained access to internal Department data systems, including financial aid systems that include personally identifiable information on millions of students,’ and raising an alarm about an apparent ‘broader plan to dismantle the federal government until it is unable to function and meet the needs of the American people,” reads the complaint filed by Public Citizen and the National Student Legal Defense Network on behalf of the University of California Student Association.

But on Monday, a federal court in Washington, D.C., declined to issue a temporary restraining order to block DOGE staff from accessing the Department of Education data. The court noted that the Department of Education provided sworn affidavits from DOGE staffers indicating that they were complying with federal rules related to accessing sensitive information and that the data was not being disseminated to outside parties.

“Mere ‘access’ to personal data by government employees who are not formally authorized to view it, without more,” does not create “an irreparable injury,” the court wrote in its decision. An imminent threat of an “irreparable injury” would normally be the basis of a temporary restraining order. Concerns about identify theft and the possible future dissemination of the sensitive data to other parties “are entirely conjectural,” said the court.

The decision does not end the litigation, and the court noted that if DOGE employees wind up violating federal law by (for example) unlawfully disseminating the data, the California student association may have recourse. But for now, the court allowed DOGE to continue accessing the Department of Education data.

Separate lawsuit filed to stop DOGE from accessing student loan borrower data

In the meantime, a coalition of labor unions filed a separate lawsuit to try to stop DOGE from accessing sensitive data at the Department of Education and two other federal agencies. That lawsuit, which was filed in federal district court in Maryland, could have a different outcome. 

“Defendants Department of Education and Acting Secretary of Education Denise L. Carter have improperly disclosed information maintained in the National Student Loan Data System,” reads that complaint. “That system contains information on almost 43 million borrowers and their families necessary to manage federal student loan programs. This includes sensitive personal information such as Social Security numbers, bank records, tax returns, home addresses, employment data, documentation of marital status, mortgage statements, bank records, tax returns, child support, investments, family financial status and records, dependent care cost, death, divorce, job loss, immigration status, and demographic data about student-borrowers— and, often, also for their parents, spouses, or other family members.”

Why student loan forgiveness through a FERPA violation is not real

Despite online rumors that borrowers can request student loan forgiveness under FERPA, a federal law that protects students’ privacy, that is not the case. FERPA confers no right on an individual to file a lawsuit for a privacy violation, and student loan forgiveness is not an available remedy for a FERPA violation.

Student loan borrowers who are concerned about their student aid data should take steps to preserve their records by downloading and retaining key materials from their StudentAid.gov and loan servicer accounts, such as payment histories, loan forgiveness progress, and current balance information.

New court ruling expands block on student loan forgiveness under SAVE, PAYE and ICR plans

On Tuesday, another court decision was issued that will also impact millions of student loan borrowers. The 8th Circuit Court of Appeals issued a ruling affirming and expanding the preliminary injunction blocking the SAVE plan, as well as student loan forgiveness under the Pay As You Earn (PAYE) and Income Contingent Repayment (ICR) plans.

The SAVE plan, which was launched by President Biden in 2023 to be the most affordable IDR option, has been mired in a legal battle for nearly a year after a group of Republican-led states filed a lawsuit to block it. Last August, the 8th Circuit granted a preliminary injunction that prevented the Department of Education from further implementing the SAVE plan while the litigation continued.

The injunction forced millions of borrowers into a forbearance. While borrowers don’t have to make payments during the forbearance, and their loans aren’t accruing interest, the time isn’t counting toward loan forgiveness under IDR or Public Service Loan Forgiveness (PSLF). The court also blocked student loan forgiveness at the end of the 20- or 25-year term under the PAYE and ICR plans, which were created under the same legal authority.

On Tuesday, the 8th Circuit issued a new decision that extended the preliminary injunction and doubled down on the court’s original legal reasoning: that Congress, when it authorized the creation of IDR plans more than 30 years ago, did not envision student loan forgiveness at the end of the repayment term, and never expressly permitted the generous repayment terms associated with these plans, particularly the SAVE plan.

The Biden administration and advocates have countered that Congress clearly intended for loan forgiveness to occur at the end of the IDR term and gave the Department of Education broad latitude in drafting regulations governing these programs.

The court concluded that because Congress did not expressly use the words “loan forgiveness” or a similar phrase when it first authorized IDR plans, while Congress did use such words when creating the separate Income-Based Repayment (IBR) plan, lawmakers never meant for loan forgiveness to occur at the end of the 20- or 25-year term for PAYE, ICR or SAVE. The court reasoned that, instead, Congress meant for borrowers to repay their student loans in full under these plans — even though there is no such phrasing in the statute.

“The federal officials claim the absence of the phrase ‘full repayment’ and the presence of the words ‘income contingent’ signify Congress expected loan repayment to be fully contingent on whether a borrower earned enough income and borrowed a small enough amount of money. We disagree,” wrote the court. “The amount paid on the loan for each year depends on the borrower’s income, but his ultimate liability is still to repay the loan. As enacted by Congress, it is not a program that allows a borrower to evade full repayment because of his income.”

What the ruling means for student loan borrowers

The 8th Circuit’s legal conclusions completely upend more than 30 years of Department of Education regulations, loan contract language, and guidance provided to borrowers across multiple Democratic and Republican administrations. Borrowers have been consistently told to expect student loan forgiveness at the end of their IDR term.

For now, the court’s order is simply an extension and modest expansion of the original August injunction blocking SAVE and student loan forgiveness under PAYE and ICR. It is not a final ruling. But the future does not look bright for any of these plans at the moment, and it is very possible that SAVE will get completely struck down, while student loan forgiveness at the end of 20 or 25 years gets struck down for ICR and PAYE.

The IBR plan and loan forgiveness at the end of 20 or 25 years under that plan remain intact for now, and the 8th Circuit concedes that student loan forgiveness is allowable under IBR. Similarly, PSLF is also not subject to this legal challenge. Payments made under SAVE, ICR and PAYE can count toward student loan forgiveness under IBR and PSLF. But if the former programs are struck down or fundamentally altered, millions of borrowers may need to consider changing repayment plans.

For now, according to public guidance, the Department of Education is continuing to accept new enrollments in all IDR plans except for SAVE, which remains blocked. But the department is only granting student loan forgiveness under IBR, not under PAYE and ICR. Borrowers who reach their loan forgiveness threshold under PAYE and ICR would be moved into a forbearance while the litigation continues, says the Department of Education. The guidance does not indicate that loan forgiveness under PSLF is affected.

If you need help navigating your own plan during this time, we'd love to help.