The federal student loan system has been thrown into upheaval once again after the 8th Circuit Court of Appeals halted a key Biden administration student loan forgiveness and repayment program known as the Saving on a Valuable Education, or SAVE, plan. The plan was created to offer borrowers a new income-driven repayment option with benefits such as lower payments, a generous income exemption allowing $0 monthly payments for those with lower income, an interest subsidy to prevent balance growth, and eventual loan forgiveness after 10 to 25 years of repayment.
Republican-led states filed lawsuits last spring, arguing that SAVE was more generous than Congress had authorized in 1993 when establishing income-driven repayment. Federal district court judges issued partial preliminary injunctions last month, blocking some elements of the program. The Missouri court blocked student loan forgiveness, while the Kansas court blocked reduced payments. The state of Missouri appealed to the 8th Circuit Court, which issued an order temporarily blocking the entire SAVE program, including all student loan forgiveness and lower payments.
Biden administration officials and borrower advocates warned of chaos for the more than eight million borrowers who have enrolled in SAVE or submitted applications. Secretary of Education Miguel Cardona condemned the court order, calling it devastating for borrowers struggling with unaffordable monthly payments. Advocates criticized the lawsuits as political gamesmanship that puts the financial security of borrowers at risk, while also causing confusion and chaos in the student loan system.
Republican lawmakers celebrated the 8th Circuit’s order, arguing that blocking the SAVE plan was necessary to stop what they deemed an unfair and illegal student loan forgiveness plan. They placed blame on the Biden administration for the disruptions, although they were the result of legal challenges brought by Republican-led states. Borrowers currently enrolled in SAVE will be placed in an interest-free administrative forbearance while the litigation continues. This may impact their progress towards student loan forgiveness under IDR or Public Service Loan Forgiveness.
The Education Department has indicated that the forbearance period will not count towards student loan forgiveness, posing a potential problem for those on track for forgiveness programs. It remains unclear how long the forbearance will last, but the 8th Circuit’s order will remain in effect until a ruling on the preliminary injunction request. The legal battle is likely to continue, with potential appeals to the Supreme Court. Despite the chaos caused by the court order, the fight over student loan forgiveness and reduced payments is far from over, leaving millions of borrowers uncertain about the fate of their loans.
