What Do the SAVE Plan Lawsuits Mean for Borrowers?

Over a dozen Republican Attorneys General filed two major lawsuits against the Saving on a Valuable Education (SAVE) income-driven repayment (IDR) plan in 2024. Both resulted in initial injunctions from lower courts. These SAVE plan lawsuits could also eventually overturn the entire SAVE plan as it currently exists. 

For clarity, we’ll call the two lawsuits the “Missouri lawsuit” and the “Kansas lawsuit.” In this article, we’ll discuss the legal developments that borrowers need to know and how likely it is that the SAVE plan will be thrown out after all appeals have been exhausted.

Why lawsuits have been filed against SAVE

Republican officials tend to take legal action against student loan policies only when the cost is very large. The first major student loan legal fight centered on President Biden’s effort to cancel over $400 billion of student debt starting in 2022.

Other policies with a lower price tag, such as the IDR account adjustment and Public Service Loan Forgiveness (PSLF) waiver, didn’t draw significant legal opposition from Republicans.

The White House's $138 billion cost estimate of the SAVE plan assumed cancellation would be successful. 

However, with the Supreme Court shooting down cancellation, other nonpartisan estimates put the cost estimate of SAVE at $475 billion. Our own cost estimate is closer to $1 trillion (our number is higher due to a larger estimate of how much universities would raise their prices in response to a more generous IDR plan).

Whatever cost estimate you use, the price tag of SAVE clearly passes the “major student loan policy” threshold.

Much of the new SAVE plan was supposed to go into effect by July 1, 2024. It’s likely that Republican State Attorneys General simply took a while to figure out how to bring a lawsuit against the plan. Likely, the much lower payment for undergraduates that was about to go into effect in July 2024 was more controversial to them than the interest subsidies and slightly lower payments for graduate degree professionals.

Of course, 2024 is also an election year, so the SAVE plan became a target. Thus, two major lawsuits were filed against SAVE, possibly in the hopes that one of the two different approaches would be successful (the Missouri lawsuit and the Kansas lawsuit).

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What the SAVE plan lawsuits argue

Both lawsuits argue that the SAVE plan is illegal. The Missouri suit targets faster forgiveness, and the Kansas lawsuit targets lower payments under SAVE.

Both cases seek to eliminate the SAVE plan entirely but use different approaches to argue it.

The Missouri lawsuit uses MOHELA to try and block SAVE

The Missouri lawsuit argues that MOHELA is an instrumentality of the state of Missouri and that since the SAVE plan forgives borrowers in as little as 10 years, MOHELA loses revenue. Thus, the state of Missouri would lose revenue and has standing to sue.

The judge in the Missouri federal court where the lawsuit was filed said that Missouri had standing. He issued an injunction against further cancellation under the SAVE plan while the lawsuit is pending.

Related: Courts Blocking SAVE Plan Cause Chaos for Student Loan Borrowers, Advocates Warn

The Kansas lawsuit uses FFEL loans to try and block SAVE

The Kansas lawsuit argues that SAVE presents an enticement to consolidate Federal Family Education Loans (FFEL), which some states own through agencies and receive interest income on.

The judge in the Kansas Attorney General lawsuit ruled that three states of the many that sued have standing. He also found that the case was likely to succeed on the merits and issued an injunction against further implementation of SAVE while the lawsuit is pending.

One bright side of this judge’s ruling is that he allowed the parts of SAVE that had already been implemented to stand.

He questioned why Republican officials who sued to block SAVE didn’t do so earlier, and he only blocked the 5% of income and less than 20 years until forgiveness parts of SAVE.

Tenth Circuit Overturns the Injunction

Note that the government appealed the Kansas lawsuit to the Tenth Circuit, which is made up of seven appointees from Democratic Presidents and five from Republican Presidents (as of July 2024).

The Court found that the injunction was incorrect and allowed the government to proceed with full implementation of the SAVE plan while the lawsuit proceeds through the courts.

This reversal of the initial injunction on the Kansas lawsuit doesn’t apply to the Missouri court ruling blocking forgiveness under the SAVE plan during litigation.

Department of Education responds by freezing some loans during litigation

Progressive groups and borrower advocates asked the administration to freeze student loans in response to the challenges by Republican officials, and they sort of did that.

I say “sort of” because only borrowers currently on the SAVE plan benefit from the “new pause,” and even then only borrowers with a non-zero payment will actually see any difference.

That’s a little more than 3 million borrowers enrolled in SAVE with a non-zero payment who will effectively get a new student loan pause on their accounts while the litigation plays out.

How could the SAVE plan lawsuits be resolved?

By filing the Missouri case, the Missouri Attorney General knew he could appeal to the Eighth Circuit, one of the country's most conservative appeals courts. It’s also the same court that helped to block cancellation.

The Kansas case is under the jurisdiction of the more moderate Tenth Circuit Court of Appeals, so we could see conflicting rulings on appeal over whether or not the SAVE plan will continue to exist in the coming months.

However, it’s almost certain that the Supreme Court will eventually be asked to weigh in. Due to the eye-popping $400 billion+ cost of the SAVE plan, the Supreme Court will likely take up the SAVE plan case.

How will the Supreme Court rule on SAVE? 

The current conservative majority Supreme Court has struck down the power of federal agencies to interpret laws as they see fit. Overturning a costly student loan decision by a federal agency is something that fits within their usual pattern.

Therefore, it’s highly likely that the Supreme Court will eventually limit or overturn the SAVE plan.

While it’s possible that some provisions of the SAVE plan would be allowed to stand, it’s probably more likely that the Supreme Court will eliminate the SAVE plan within the next few months. 

What replaces it will depend on the details of the ruling. If I had to guess, I’d bet on a return to the pre-pandemic status quo. Since no one sued over the Revised Pay As You Earn (REPAYE) or Pay As You Earn (PAYE) plans, it seems likely that the Roberts Court (i.e., the Supreme Court under Chief Justice John Roberts) might favor that approach instead of striking down any application of the Income-Contingent Repayment (ICR) statute that led to the creation of these programs in the first place.

In the meantime, the millions of borrowers on the SAVE plan will need to follow these developing SAVE plan lawsuits and come up with a Plan B in case the SAVE plan is overturned (we can help with that).