Borrowers Win with IDR Adjustment and CFPB Ruling, But SAVE Plan Under Threat

The Biden administration has approved at least $167 billion in student loan forgiveness for millions of borrowers. More relief is coming — but the scope of that relief may depend in part on the outcomes of multiple legal challenges, all at various stages of the litigation process.

Several major updates to key challenges have occurred within the last month. A handful of judges may ultimately determine the fate of these programs and how much more relief borrowers will receive. Here’s a breakdown.

Victory for borrowers: Appeals court green-lights loan forgiveness adjustment

Last month, a federal appeals court released a long-awaited ruling that left intact a key student loan forgiveness initiative. 

The Sixth Circuit Court of Appeals upheld the dismissal of a legal challenge to the IDR account adjustment, a Biden administration program that provides a one-time “fix” to income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF). 

Widely documented problems with IDR and PSLF prevented many borrowers from receiving the full benefits of these programs, which provide for loan forgiveness after 10, 20 or 25 years (depending on the specific plan and whether the borrower is also pursuing PSLF). 

The adjustment allows the Education Department to credit borrowers with time toward their loan forgiveness term for periods that previously wouldn’t have counted, such as specific deferment and forbearance periods, repayment periods involving non-IDR plans, and payments made before loan consolidation. 

Who challenged the IDR account adjustment?

Two conservative-leaning nonprofit organizations challenged the IDR account adjustment as an illegal executive overreach by the Biden administration that Congress did not authorize. To demonstrate that the program would harm these groups — a necessary step to have “standing” to sue in federal court — they argued that the retroactive loan forgiveness credit would dilute the benefits of PSLF and make it harder for them to recruit and retain employees. A federal district court judge rejected these arguments as speculative and dismissed the challenge last summer. 

The groups then appealed to the Sixth Circuit.

In May 2024, the circuit court issued a ruling upholding the lower court’s dismissal of the case, agreeing that the groups could not sufficiently demonstrate that they would be harmed. “Plaintiffs’ complaint does not explain how the adjustment reduces the financial incentive for borrowers to remain in public service jobs,” wrote the court. “Instead, the complaint makes broad, conclusory assertions.”

Impact and next steps

With the challenge dismissed, the Biden administration can continue implementing relief under the adjustment. More than 1 million borrowers have already received $51 billion in student loan forgiveness under the program, and more borrowers are being approved in batches every two months. The Education Department anticipates concluding the program by this fall. 

It’s unclear if the challengers will seek further recourse by appealing to the U.S. Supreme Court.

Related: 160,000 Borrowers Just Got Their Loans Forgiven: Could You Be Next?

CFPB continues enforcement actions after Supreme Court decision

Also in May, the U.S. Supreme Court issued a major decision upholding the funding structure of the Consumer Financial Protection Bureau (CFPB) following a significant challenge by financial institutions. The CFPB is an independent federal agency that oversees and regulates the financial services sector, which includes student loans. 

“For years, lawbreaking companies and Wall Street lobbyists have been scheming to defund essential consumer protection enforcement. The Supreme Court has rejected their radical theory that would have devastated the American financial markets,”  said the agency in a statement.  “The Court repudiated the arguments of the payday loan lobby and made it clear that the CFPB is here to stay.”

With its funding structure upheld, the CFPB continued its oversight and enforcement activities. In May, the agency issued an enforcement action against National Collegiate Student Loan Trusts and the Pennsylvania Higher Education Assistance Agency (PHEAA), alleging “multi-year servicing failures” impacting private student loan borrowers.

“The CFPB alleges that [the trusts and PHEAA] violated the Consumer Financial Protection Act,” said the agency in a statement. “The CFPB’s complaint alleges that from 2015 until 2021, thousands of borrower requests—often seeking forms of payment relief—went unanswered. These included requests for co-signer release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other forms of payment or interest rate reduction.”

Penalties and compensation for borrowers

The agency sought court approval to impose over $2 million in penalties and an additional $3 million in “redress to harmed borrowers.”

Related: How to File a CFPB Student Loan Complaint: A Step-by-Step Guide

Biden’s SAVE plan under fire as legal challenge heats up

Meanwhile, a coalition of Republican-led states in the south and west have filed two legal challenges to derail President Biden’s new Saving on a Valuable Education (SAVE) plan. The SAVE plan is a new IDR option that can provide lower monthly payments, an interest subsidy to prevent negative amortization, and accelerated student loan forgiveness for borrowers who took out small balances. More than eight million people have already signed up for the plan. 

Legal arguments and justifications

The coalition of states, led by Missouri, argues that the program is illegal and not authorized by Congress. This is similar to the arguments the challengers made in the IDR account adjustment lawsuit and in the earlier suit (brought by several of the same GOP-led states) that ultimately blocked President Biden’s first student loan forgiveness plan last year. 

But the SAVE plan was established under a different statutory authority than the IDR account adjustment and Biden’s initial debt relief program. Unlike those programs, the SAVE plan went through a lengthy negotiated rulemaking process that involved public comment and input from a variety of stakeholders. The Biden administration believes this may put the SAVE plan on stronger legal footing.

Preliminary injunction: What it means for borrowers

Nevertheless, the challengers filed a motion for a preliminary injunction. This is a legal mechanism used to stop or block a program while a lengthy litigation process plays out. To prevail, the challengers must show that they would be imminently harmed if the program is allowed to continue. 

Earlier this week, a federal court in Missouri heard oral arguments on the coalition’s request for a preliminary injunction. If approved, the parties suggested during the hearing that the order would block any new borrowers from enrolling in SAVE but would not impact those who have already signed up or received loan forgiveness through the program. A decision is expected within the next two weeks.