The attorneys general of Kansas and Missouri have filed legal challenges against the SAVE Plan, questioning the Biden administration's authority to implement it. Kansas contends that the plan represents another attempt by the President to enact mass student loan forgiveness, following the Supreme Court's rejection of his initial proposal. Missouri, on the other hand, argues that the administration lacks the authority to enforce the SAVE repayment plan.
Both judges have issued a partial preliminary injunction, around the same time on Monday, effectively blocking parts of the SAVE Plan.
SAVE Plan History
When the SAVE Plan was introduced as a repayment option in September 2023, it was to be implemented in two phases. This plan, replacing the REPAYE Plan, aimed to reduce monthly payments for borrowers by basing the borrower's discretionary income and monthly payment on 225% of the federal poverty guidelines instead of 150%. The first phase rolled out in October 2023, and the second phase was slated for July 1, 2024. However, before the second phase could take effect, the Biden administration announced an early implementation of some phase two details, effectively creating a three-part rollout.
Federal Cases Against the SAVE Plan, Initial Ruling
In the case led by the state of Kansas, State of Alaska, et al., v. U.S. Department of Education, the court ruled that the U.S. Department of Education (the Department) is blocked from implementing any elements of the SAVE Plan scheduled to go into effect on July 1, 2024. Consequently, borrowers who were anticipating their monthly loan payments to drop from 10% to 5% will not see this reduction next week. The court, however, did not overturn any parts of the SAVE Plan that have already been implemented. (See July 1 update below)
In the case led by the state of Missouri, State of Missouri, et al., v. Joseph R. Biden, Jr., et al, the court granted a partial preliminary injunction against any further student loan forgiveness under the SAVE Plan until the case is decided on its merits. (See July 18 update below)
Update: July 18, 2024
On July 18, the 8th Circuit Court of Appeals issued a ruling that has entirely blocked the SAVE Plan. We are still awaiting guidance from the U.S. Department of Education. Borrowers enrolled in the SAVE Plan will need to stay tuned for updates on how this latest ruling will affect their monthly payments.
This court decision, along with previous ones, has created a sense of whiplash for student loan borrowers managing their repayment strategy. The Biden administration and the U.S. Department of Education have previously committed to defending the plan, and we anticipate more federal court actions in the near future.
Update: July 1, 2024
A federal court of appeals granted a stay on the decision from the Kansas court. This means that the SAVE Plan can move forward and lower a borrower's payments based on phase two of the repayment plan roll-out. Phase two of the SAVE roll-out plan was meant to be implemented on July 1, 2024. It would cut an undergraduate borrower's discretionary income to 5% from 10%, meaning it would cut their monthly payment in half.
The decision from the court of appeals did not affect the ruling from the state of Missouri which blocked forgiveness for borrowers under the SAVE Plan.
The decision of the appeals court comes after the Department notified three million borrowers enrolled in the SAVE Plan would be placed in a forbearance while their payments would be recalculated based on the recent decisions from the court in Kansas. The months in forbearance would not be counted toward income-driven repayment (IDR) plan forgiveness or public service loan forgiveness (PSLF). At this time, there is no update if the latest decision from the court of appeals will affect this borrower forbearance.
The Department currently has placed their online applications to enter an IDR plan, or to consolidate their student loans on hold. However, borrowers are able to complete and submit a paper application for IDR (IDR - English, IDR - Spanish) or Direct Loan Consolidation (Consolidation - English, Consolidation - Spanish) by downloading it from their website. In reaction to the court decisions, they have also included information for borrowers on their StudentAid.gov site.
SAVE Plan Challenges
Initially, 18 states participated in two lawsuits against the SAVE Plan. Recently, it was decided that not all states could provide adequate evidence of harm in the lawsuit led by Kansas. Eight out of the 11 states were dismissed, leaving only South Carolina, Texas, and Alaska.
The suit led by the state of Missouri includes seven states. They contended that the administration lacks authority to execute the SAVE Plan.
Moving Forward with Student Loan Repayment
The SAVE Plan remains active, allowing enrolled borrowers to continue their scheduled monthly payments. However, those anticipating additional relief and lower monthly payments from the full implementation of the SAVE Plan on July 1, 2024, will need to wait a bit longer to understand how the plan will work in the future.