Student loan relief and payment cuts for millions on hold after courts block parts of Biden's SAVE plan

By Jillian Berman

The Biden administration can't move forward with parts of its SAVE plan while litigation works its way through the court system, new rulings say

A major initiative by the Biden administration to lower student-loan payments and provide debt cancellation to more borrowers is in jeopardy after two courts temporarily blocked parts of the plan.

The decisions issued Monday by federal courts in Kansas and Missouri prevent the Biden administration from going forward with certain aspects of SAVE, a repayment plan officials launched last year. About 8 million borrowers are enrolled in SAVE and roughly 54,300 borrowers have had $613 million in debt wiped out so far as part of SAVE.

The decisions stem from two separate lawsuits brought by Republican state attorneys general challenging the legality of the plan. Some borrowers were slated to see lower payments through SAVE in the coming months, a provision the Kansas court's decision stops from going into effect while the case is litigated. The Missouri court ruling temporarily prevents the Biden administration from cancelling more debt under SAVE while the case there plays out.

Are you enrolled in SAVE or trying to sign up? We want to hear from you. Email jberman@marketwatch.com.

It appears that borrowers already enrolled in SAVE won't see their current payments change as a result of the decisions, at least for now. Nonetheless, "this is going to be incredibly chaotic," said Persis Yu, the deputy executive director of the Student Borrower Protection Center, an advocacy group. In addition, a key component of SAVE - that the government covers any unpaid interest a borrower's income-tied payment can't reach - doesn't appear to be affected by the rulings.

"It's going to be really hard for servicers to explain this to folks," she said. It will take a lot of work on the part of the Department of Education and servicers to figure out exactly what the decisions mean and how to implement them, she said.

"Some things are staying the same, but some really critical pieces are not going in place," Yu added.

The Department of Justice plans to appeal the rulings, White House Press Secretary Karine Jean-Pierre wrote in a social media post. Biden administration officials said they "strongly disagree" with the rulings and plan to "vigorously defend" SAVE.

Ongoing legal and political battle

The courts' decisions offer the latest examples of the legal and political battle raging around student-debt relief. The rulings come nearly a year after the Supreme Court blocked the Biden administration's plan to cancel up to $20,000 in student debt for a wide swath of borrowers. The Department of Education is in the middle of pursuing a new avenue towards mass debt relief. Monday's decisions don't impact that process, but they provide a window into the challenges the White House could face implementing a new broader debt-relief plan.

SAVE builds on a program established in the early 1990s called income-driven repayment. Since then, borrowers have had the ability to repay their federal student loans as a percentage of their income and then have the remainder of the debt cancelled after at least 20 years of payments. The Biden administration modified this program, called income-driven repayment, to create SAVE, which is the most generous version of income-driven repayment to date.

Opponents of SAVE say the program goes well beyond what Congress intended when it established income-driven repayment. Secretary of Education Miguel Cardona said in a statement that the Department of Education "has relied on the authority under the Higher Education Act three times over the last 30 years to implement income-driven repayment plans."

"President Biden, Vice President Harris, and I remain committed to our work to fix a broken student loan system and make college more affordable for more Americans," Cardona said in the statement.

Under SAVE, borrowers can earn more money before they're required to make payments on their student loans than under previous plans. In addition, borrowers with only undergraduate loans can put just 5% of their discretionary income towards their debt - the minimum in previous plans was 10%. That provision was scheduled to take effect July 1, but the Kansas decision appears to block it.

In addition, borrowers who originally took on $12,000 or less in debt can have their debt cancelled after just 10 years of payments under SAVE. Over the past few months, the Biden administration has been cancelling borrowers' debt under this provision on a rolling basis. The Missouri decision temporarily prevents officials from wiping out more debt through the plan.

Uncertain future for SAVE

While Republican attorneys general have challenged SAVE in the courts, Republican policymakers have also expressed their opposition to the plan in other ways. Members of Congress introduced a bill last year that, if passed, would have unwound SAVE. In addition, in Project 2025, a presidential transition document authored by the conservative Heritage Foundation, proposes phasing out current income-driven repayment programs.

Meanwhile, Daniel D. Crabtree, the Kansas federal court judge, said the future of debt-relief plans should be left up to elected officials.

"This order does not decide whether student-loan forgiveness is good policy or bad policy," Crabtree wrote in the order. "The popularly elected branches of our government - the president and the Congress - properly control that decision."

-Jillian Berman

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06-25-24 1119ET

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