Written By Travis Hornsby, CFA®, CFP®
Updated on August 1, 2024
Key Takeaways:
- Appeals Court has put the SAVE plan on hold
- No new sign ups are allowed
- If you were already on SAVE, you're on an interest free forbearance
- Dept of Ed has confirmed this forbearance will NOT count for PSLF or IDR
- Borrowers need to exercise caution when consolidating
- Some borrowers on SAVE who are close to forgiveness might decide to switch to the IBR plan during litigation
In a one-page order, the Eighth Circuit Court of Appeals effectively blocked any new sign-ups for the Saving on a Valuable Education (SAVE) repayment plan pending further litigation. The ruling blocks the government from implementing any additional provisions of SAVE, and it probably suggests that the Court thinks the SAVE plan is not legal in its entirety.
We’ll cover what borrowers need to know.
SAVE is on hold temporarily (for now)
The Eighth Circuit ruling simply puts a hold on the SAVE income-driven repayment (IDR) plan, it doesn’t abolish it.
We’ll have to wait longer to see if SAVE is tossed entirely, but the probability of that being the end result went way up due to a Court putting the whole program on ice.
Missouri AG filed a lawsuit and then appealed a partial injunction
Why is this court involved in the first place?
The Missouri Attorney General filed a lawsuit in the Eastern District Court of Missouri against the SAVE plan earlier in 2024. The judge in that court granted a partial injunction against the government that stopped any further forgiveness under SAVE.
However, that partial injunction was not a total injunction. It allowed the Department of Education to continue implementing all of the new provisions that were supposed to go into effect under SAVE as of July 2024.
The Missouri AG didn’t like the partial injunction, and thus he appealed it to the Appeals Court for that particular jurisdiction where he filed the initial lawsuit.
Eighth Circuit goes broader than any court in blocking SAVE
The Eighth Circuit happens to be one of the most conservative courts in the country, with only one of its 11 members having been appointed by a Democratic President.
The Tenth Circuit, a different appellate court, recently ruled that a lower court’s injunction against SAVE was not appropriate.
But all it takes is one ruling to stop something like SAVE, and this was it.
In contrast to the lower court ruling that only blocked part of the SAVE plan, the appeals court ruling blocked ALL of it.
What does SAVE being blocked mean for borrowers?
Anyone who signed up for SAVE is currently on administrative forbearance, during which payments and interest are paused.
However, Department of Ed confirmed that this pause will NOT count for forgiveness.
The reason is that the new regulations that SAVE is under also list this administrative forbearance change below, which apparently the government thinks means they cannot grant forgiveness credit due to the court ruling.
Source: Federal Register
If the courts toss the entire SAVE plan, what does this mean for these new administrative forbearance rules?
This is not a final ruling, so it's temporary. And thus we're left in limbo.
Borrowers close to forgiveness might consider switching to the IBR plan.
Why borrowers won’t be able to sign up for SAVE
Since the entire plan is put on hold, borrowers will not be able to sign up for the SAVE plan unless they have already done so.
What other IDR plan can you sign up for?
If you need to access an IDR plan, the Income-Based Repayment (IBR) plan is guaranteed under the law.
That plan is 15% of income if you borrowed before July 2014 and 10% of income if you borrowed after July 2014 for the first time.
The “New IBR” terms are basically the same as the Pay As You Earn (PAYE) program if you happen to be familiar with that.
Related: SAVE, PAYE & IBR Federal Student Loan Repayment Plans Compared
PAYE and ICR are Back (For Now)
The PAYE and ICR plans were supposed to be blocked to new sign ups as of July 1, 2024. But with the Final Rule for SAVE on hold, that means there's no longer a regulation blocking access to these 2 IDR repayment plans.
Borrowers who want to access PAYE or ICR can now do so until a court rules that the SAVE plan is legal (if it does).
What happens next with SAVE?
The legal cases challenging the SAVE plan will continue to work their way through the courts. Ultimately, with a wide variety of rulings about SAVE coming out of the lower courts as well as Appeals Courts, we fully expect the final decision on SAVE to be made at the Supreme Court in the coming months.
Borrowers need to have a backup plan, as payments under alternative IDR plans that existed before the pandemic could require drastically higher monthly payments, and borrowers would be smart to start planning ahead of time.
If you need a backup plan for your student loans, we’d love to help with a consult with one of our experts.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation after the 2024 election on whether you should pursue PSLF, IBR, or refinancing (including the one lender we think could give you the best rate).
