What The New Supreme Court Ruling Means for the SAVE Plan and Student Loan Forgiveness

Last week, the Supreme Court issued a critical initial ruling in the ongoing legal battle over the SAVE plan, the Biden administration’s new income-driven repayment program. 

Here’s what the ruling means for the ongoing legal challenges and the future of the SAVE plan and student loan forgiveness more broadly.

The SAVE plan legal challenges in a nutshell

The Education Department debuted the SAVE plan last year as the COVID-19 forbearance wound down. The Biden administration established the SAVE plan using a 30-year-old provision of the Higher Education Act (HEA) that broadly authorizes the creation of income-driven repayment (IDR) plans and directs the department to craft rules that more clearly define how the programs should work. 

Basically, the HEA creates IDR as a mechanism for borrowers to make payments that vary based on their income, with a repayment period of no longer than 25 years; it then tells the Education Department to figure out the rest of the details and draft appropriate regulations.

Under this HEA authority, several IDR plans have been enacted over the years. The first was Income-Contingent Repayment (ICR), whose 1994 regulations clarify that borrowers are entitled to loan forgiveness at the end of the 25-year term. Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and SAVE — which replaced REPAYE – were all established under the same authority and call for loan forgiveness after 20 or 25 years. Income-Based Repayment (IBR) was separately authorized by Congress through legislation passed in 2007 and 2010. 

Key features of the SAVE plan

Like all IDR plans, SAVE uses a formula based on a borrower’s income and family size to calculate monthly payments, with any remaining balance forgiven after 20 or 25 years. But SAVE has several particularly beneficial features including:

• A more favorable repayment formula (particularly for undergraduate borrowers) compared to older IDR plans.
• An interest subsidy that halts any further runaway balance growth.
• Shorter loan forgiveness timelines for borrowers who took out small amounts of debt.

Legal challenges facing the SAVE plan

Two groups of Republican-led states — with Kansas and Missouri leading the charge — filed separate legal challenges in two jurisdictions to try to block SAVE. The gist of the challenges is that SAVE goes too far, is too generous, and isn’t what Congress originally intended. 

While the Biden administration argues that the HEA gives broad discretion to the Education Department to establish the parameters of IDR plans, the states argue that Congress did not expressly authorize the more generous provisions of SAVE, and the plan should therefore be struck down. 

The states argued that they would lose revenue as a result of SAVE’s student loan forgiveness provisions and lower payments.

The SAVE plan forbearance and student loan forgiveness

The two legal challenges filed in Kansas and Missouri resulted in two partial injunctions. An injunction is a court order blocking implementation of a law, policy, or program while the legal process plays out. Parts of the SAVE plan were blocked due to these injunctions, but much of the plan was allowed to proceed.

But the parties appealed these initial injunctions to federal appeals courts. The 10th Circuit Court of Appeals — which heard the appeal from the Kansas case — stayed (or paused) the partial injunction, effectively allowing the entire SAVE plan to move forward while the lawsuit proceeded back in the Kansas court. This was an initial victory for borrowers.

But the 8th Circuit, which heard the Missouri appeal, went in an entirely different direction and fully blocked all elements of the SAVE plan in August — including the lower payments, the interest subsidy, and student loan forgiveness on any timeline.

Impacts of the injunction on borrowers

As a result of this new nationwide injunction, the Education Department placed millions of borrowers who enrolled (or applied for) the SAVE plan into a forbearance. Here’s how this affects borrowers:

• No payments due during the forbearance.
• No interest accrual while forbearance is in effect.
• Time in forbearance won’t count toward student loan forgiveness under IDR plans or Public Service Loan Forgiveness (PSLF).

This leaves millions of borrowers in limbo.

The Supreme Court steps in – and then steps out

The Biden administration filed an emergency appeal of the 8th Circuit’s ruling with the U.S. Supreme Court. Attorneys for the administration argued that the injunction was “vastly overbroad,” and the immediate harm caused to millions of borrowers was far greater than the speculative financial losses the states suggested they could incur. 

The administration asked the Supreme Court to vacate, or reverse, the injunction, which would allow the Education Department to turn the SAVE plan back on for borrowers as the litigation continues.

But the Supreme Court declined to do that. In a short ruling issued last week, the Court kept the injunction in place. This does not represent a ruling on the merits of the SAVE plan legal challenges — it was a ruling just on the injunction blocking SAVE while the challenges continue. But it effectively keeps the SAVE plan on pause — and the SAVE plan forbearance in effect — and kicks the case back down to the 8th Circuit for further proceedings.

Advocates for borrowers slammed the ruling. “The decision to block the SAVE program is a grave and unjust mistake,” said Kristin McGuire, Executive Director at Young Invincibles, in a statement last week. “Keeping the SAVE program on hold will only continue to exacerbate the confusion and uncertainty felt by borrowers as they try to navigate repayment and decode competing narratives about their student loans. Rather than providing guidance or a pathway to repayment, borrowers are left in limbo, again.”

What’s next for the SAVE plan and student loan forgiveness

The Missouri-led legal challenge is now back at the 8th Circuit, while the Kansas-led challenge has been paused at the 10th Circuit while the battle continues. The 8th Circuit has set out a briefing schedule that runs through October. 

Critically, the court is not only considering the legality of the SAVE plan — it is also contemplating whether student loan forgiveness under other IDR plans that relied on the same HEA authority is authorized.

In its ruling imposing the nationwide injunction, the court suggested that because Congress did not include the term “loan forgiveness” in the original 1993 HEA provision authorizing the creation of IDR plans, while it did for other programs (like IBR), it could rule that there cannot be student loan forgiveness under other IDR plans including ICR, PAYE, and REPAYE, as well as SAVE. 

This would fly in the face of 30 years of bipartisan guidance and agreement. Administration attorneys and borrower advocates argue that the clear legislative intent was that borrowers should receive a discharge at the end of their IDR repayment term, and that there is no other logical conclusion where Congress specifically said that borrowers in IDR plans should not have to make payments for more than 25 years. 

A ruling from the 8th Circuit could arrive any time after October. And whatever that ruling is, it will certainly be appealed to the Supreme Court — and last week’s decision indicates that the Supreme Court fully expects that to happen. But even a fast-tracked Supreme Court ruling on the merits probably wouldn’t happen before the summer of 2025. Which means that borrowers impacted by the SAVE plan forbearance — and even borrowers on other IDR plans — are in for a very lengthy period of continued uncertainty.