What Could Happen to Student Loan Forgiveness if the SAVE Plan Gets Struck Down

The SAVE Plan is probably a dead man walking at this point.

The program, one of President Biden’s central student debt relief initiatives, was intended to be the most affordable income-driven repayment (IDR) plan ever. Saving on a Valuable Education (SAVE) features lower payments than most other IDR plans, an interest subsidy that waives excess interest accrual above a borrower’s minimum monthly payment amount, and multiple pathways to student loan forgiveness (in some cases, in less than 20 or 25 years, which is the typical repayment term for other IDR plans). Over eight million borrowers enrolled in SAVE after the Biden administration launched the program last year.

But as of November, the SAVE plan appears to be doomed. The 8th Circuit is poised to strike down the program in an upcoming ruling. And the incoming Trump administration is unlikely to defend the program further. While nothing is guaranteed at this juncture, the likeliest outcome is that the Trump administration simply chooses not to appeal the 8th Circuit’s decision. This would allow the SAVE plan to be overturned without having to go through a lengthy regulatory repeal process.

With the SAVE plan nearing its end, here’s what the landscape may look like for borrowers.

Best-case scenario: Narrow ruling could return borrowers to pre-SAVE landscape

A possible best-case scenario for student loan borrowers would involve a narrow ruling by the 8th Circuit. This could take a few different forms.

One possibility is that the court could strike down portions of the SAVE plan regulations. For example, the court could rule that loan forgiveness on a shorter timeline (i.e., less than 20 or 25 years) or the generous interest subsidy goes beyond the scope of what Congress authorized when it created income-driven repayment plans in 1993. In doing so, the court could allow the Education Department to retain the other provisions of SAVE, such as the lower monthly payments and student loan forgiveness at 20 or 25 years.

Another possibility is that the court could strike down the SAVE plan but leave the predecessor plan, Revised Pay As You Earn (REPAYE), intact. This would allow borrowers to essentially return to the pre-SAVE environment featuring all the prior IDR plans like Income Contingent Repayment (ICR), Income Based Repayment (IBR), Pay As You Earn (PAYE) and REPAYE.

But a narrow ruling does not appear to be the likeliest outcome.

Related: The Worst Case SAVE Scenario, and How Tax Planning Could Protect Against It

The more likely outcome: Broad ruling with major implications for student loan forgiveness and repayment

Based on the 8th Circuit’s language in its August decision authorizing the current injunction, and what several judges said during a key hearing last month, the court appears to be poised to issue a much broader ruling. 

In a broad decision, both SAVE and REPAYE could be struck down. The Biden administration had argued that a 1993 Higher Education Act (HEA) provision clearly delegates wide authority to the Department of Education to establish the parameters of IDR plans, and these plans fall well within the scope of that authority. But the 8th Circuit judges appear to be inclined to reject those arguments. Taking a narrow view of the 1993 statute, the court seems ready to adopt the argument that if Congress did not explicitly allow the provisions of SAVE and REPAYE, then the department had no authority to create these generous repayment plan programs.

A broad ruling could have even more far-reaching implications. Several other IDR plans, including ICR and PAYE, were created by the Education Department via the same process as SAVE and REPAYE, using the same 1993 provision of the HEA. 

The Republican-led states that filed the current lawsuit argue that this provision does not expressly provide for loan forgiveness at the end of a 20- or 25-year term; the statute simply provides for a maximum repayment period. The Biden administration counters that there is no other logical interpretation of this provision other than that it authorizes the cancellation of the borrower’s student loan debt at the end of the term. Administration attorneys have pointed to the legislative history of the HEA provision, 30 years of unchallenged regulations, bipartisan guidance issued by multiple administrations, and the inclusion of loan forgiveness under all IDR plans in Master Promissory Notes.

But if the 8th Circuit goes as far as the states want, loan forgiveness at the end of 20 or 25 years could be struck down not just for SAVE and REPAYE, but also for ICR and PAYE. This would leave IBR — which was separately established by Congress and expressly calls for loan forgiveness after 20 or 25 years in repayment — as the only viable IDR pathway to student loan forgiveness.

Notably, even if loan forgiveness gets struck down for the other IDR plans, payments made under all IDR plans should still separately count toward Public Service Loan Forgiveness (PSLF). PSLF, like IBR, was created by Congress, and payments made under those plans should still count as long as the borrower meets other PSLF criteria. 

Wildcards could make for chaotic year for borrowers pursuing student loan forgiveness and IDR

Assuming SAVE gets struck down, there are many unknowns about how everything would play out: 

First, it’s unclear how the Trump administration will respond to the anticipated ruling by the 8th Circuit. Borrowers typically must be given a choice of their repayment plan in most situations, so it may not be possible for borrowers in the SAVE plan to simply revert to REPAYE or IBR. Borrowers may have to affirmatively apply. 

The Education Department and loan servicers are already swamped with a backlog of IDR applications due to the 8th Circuit’s injunction and the administrative chaos it unleashed. It could take months for the Education Department and its loan servicers to update its systems again and recalculate everyone’s student loan payments under different repayment plans. This problem could get even more pronounced if the Trump administration follows through on its promises to make deep cuts to funding and staffing throughout the federal government, including the Department of Education.

In addition, it is unclear whether Congress may step in and, if so, what that might look like. Prior Republican-led efforts to phase out federal student loan forgiveness and repayment programs or overhaul the system went nowhere, even when Republicans controlled Congress and the White House during President Trump’s first term. Republicans will be contending with narrow majorities in both branches of Congress, giving them limited margins of error to pass sweeping legislation unless they can bypass the Senate filibuster or get Democratic support.

One thing is clear: the rollercoaster many student loan borrowers have been experiencing for months is showing no sign of ending anytime soon.