Republican Challenge to Block SAVE Plan: How Worried Should Student Loan Borrowers Be?

Last week, a group of Republican-led states filed a new legal challenge to the Biden administration, aiming to block the new Saving on a Valuable Education (SAVE) plan. The states argue that the plan — which includes generous repayment provisions and accelerated student loan forgiveness — goes beyond the scope of what Congress authorized in legislation.

The claims are eerily similar to the ones that GOP-led states made in the prior legal challenge against President Biden’s one-time debt relief plan. His previous plan would have enacted $10,000 or more in student loan forgiveness for upwards of 30 million borrowers. However, the Supreme Court ultimately sided with the challengers in that case. 

Notably, several states (and Republican leaders) from that successful lawsuit are spearheading this new effort against SAVE.

While the parties and the claims mirror the earlier challenge, the laws at issue here are different. What does that mean for student loan borrowers? And should borrowers be worried? Perhaps unsurprisingly, it’s complicated.

Here’s a breakdown.  

What does the SAVE offer to borrowers?

First, some background. The Biden administration rolled out the SAVE plan last fall, as the COVID-era forbearance came to an end and repayment resumed for the first time in three and a half years. 

Officially, SAVE’s regulations aren’t scheduled to go into effect until this July. Yet the Education Department has already exercised “early implementation” authority under the Higher Education Act (HEA), bringing forward many benefits to borrowers sooner than that.

Key benefits of SAVE for borrowers: Affordable payments and accelerated student loan forgiveness

SAVE replaces the older Revised Pay As You Earn (REPAYE) plan. There are a lot of myths about the new SAVE plan, but it has a number of beneficial, unique features. The benefits include:

• A more generous income exemption than other income-driven repayment (IDR) plans. This allows borrowers to earn more income and pay nothing before the repayment formula kicks in. All IDR plans have an income exemption — SAVE’s is just bigger.
• A complicated but potentially more affordable repayment formula. SAVE uses a similar discretionary income formula to Pay As You Earn (PAYE) and REPAYE when calculating a borrower’s monthly payment. However, this summer, the formula is set to become more generous for those with undergraduate student loans.
• Accelerated student loan forgiveness for some borrowers. SAVE typically provides for loan forgiveness after 20 or 25 years of repayment (similar to other IDR plans). But that timeline can be reduced to as little as 10 years for those who took on $12,000 or less in original student loan disbursements. 
• A unique interest subsidy that waives any interest accrual that exceeds a borrower’s monthly payment. This prevents future balance growth associated with negative amortization. REPAYE had a similar subsidy, but that plan capped the waiver at 50% of the excess interest accrual.
• Adjustments for married borrowers, allowing the exclusion of spousal income. This change applies only if spouses file taxes as married-filing-separately, just like under the Income Based Repayment (IBR), Income Contingent Repayment (ICR) and PAYE plans. Under REPAYE, spousal income was always factored into the borrower’s payment regardless of marital tax filing status.

Because of these benefits, SAVE is more affordable than most other IDR plans. More than 7 million borrowers have already transitioned to SAVE from REPAYE or applied to switch. 

Related: SAVE, PAYE & IBR Federal Student Loan Repayment Plans Compared

New lawsuit targets loan forgiveness and repayment benefits of SAVE

The coalition of nearly a dozen Republican-led states argues that SAVE goes too far and is just an under-the-radar mass debt cancellation initiative by the Biden administration. Whether a judge will agree with that core argument or not remains to be seen.

SAVE’s legal framework under the HEA

Importantly, the Biden administration enacted SAVE under the Higher Education Act (HEA), a different statute from the one that was the basis for the President’s first debt relief program, which the Supreme Court ultimately rejected. 

The HEA plainly provides for income-driven repayment plans with a maximum term of 25 years and expressly authorizes the Education Department to draft regulations that define the specific parameters for these programs. 

ICR, PAYE and REPAYE were all established under this HEA regulatory authority (IBR was enacted separately through Congressional statute). The department went through a typical negotiated rulemaking process — a standard requirement for HEA regulations and similar to what officials did when creating PAYE and REPAYE — to draft rules for the new SAVE plan.

Comparing HEA vs. HEROES Act

In contrast, Biden established his first student debt relief program under the HEROES Act. This statute — distinct from the HEA — gives the Education Department authority to modify or waive provisions in federal regulations pertaining to federal student loans in response to economic harms caused by a national emergency (in this case, the COVID-19 pandemic). 

The Education Department took the words in the HEROES Act at face value — that officials could waive essentially “any” rule or regulation pertaining to federal student loan repayment and discharge. 

But the conservative majority on the Supreme Court disagreed, finding that the program's scope ($430 billion in student loan forgiveness, by some estimates) necessitated rigorous judicial review. Ultimately, the Court concluded that Congress did not envision mass debt cancellation when it enacted the HEROES Act. 

Legal viability: Was SAVE built on stronger grounds?

In the case of SAVE, federal law is comparatively clearer that the Education Department has the authority to establish IDR plans with repayment terms of 25 years or less. The scope of the SAVE plan (by some estimates, around $150 billion), while significant, is much smaller than the projected debt relief under Biden’s one-time debt relief program. 

There’s also the question of standing — whether the states can sufficiently demonstrate they would suffer an injury as a result of the program (although the Supreme Court ultimately found that the states have standing to sue over Biden’s prior loan forgiveness plan). 

Taken together, this lead some legal observers to conclude that SAVE is on stronger legal footing than Biden’s initial debt relief plan.

How the SAVE lawsuit could affect student loan forgiveness and repayment benefits

A court may rule differently in the latest legal challenge because SAVE is a distinct program under an entirely different statutory authority. But of course, there’s just no way to know. And no one has a crystal ball.

Worst-case scenario: Impact of a negative ruling on SAVE

In a worst-case scenario, a court could side with the challengers and strike down the SAVE regulations. It’s not exactly clear what the impacts of that would be, but the most likely outcome is that the regulations would revert to what they were before SAVE went into effect. 

Since the SAVE regulations replaced the REPAYE regulations, that means that REPAYE would come back from the dead, replacing SAVE. 

Implications for enrolled borrowers if SAVE is struck down

What would happen to the borrowers already enrolled in SAVE in that scenario? That, too, is unclear. The Education Department might try to argue (in this hypothetical) that borrowers already enrolled in SAVE have some sort of vested, contractual interest that entitles them to remain in the plan they signed up for. 

If a hostile judge does not buy that, it could mean that these borrowers get involuntarily transitioned back to REPAYE, which could increase their monthly payments. 

The fate of early forgiveness under SAVE

It is also unclear what could happen to the approximately 153,000 borrowers who were already approved for “early” student loan forgiveness under SAVE by the Biden administration in February in the event SAVE gets struck down. 

Would a judge simply block that benefit for new borrowers or order the Education Department to claw back the relief that was already granted? 

Anything is possible, although the department will likely argue that reversing loan forgiveness on such a scale would be logistically challenging, impossible or even illegal. 

Continuing uncertainty: The road ahead for student loan borrowers

Importantly, borrowers should know that this legal challenge only targets the SAVE plan. The suit does not challenge Public Service Loan Forgiveness (PSLF), IBR or other loan forgiveness initiatives (although there are pending lawsuits against other programs, such as the IDR Account Adjustment and new regulations for Borrower Defense to Repayment).

Ultimately, there’s a lot of uncertainty here. Borrowers will just have to see how this all plays out.