Biden’s Student Loan Forgiveness Plan on Hold. Experts Weigh In on What’s Next for the SAVE Plan

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Key takeaways:

  • Two judges, in Kansas and Missouri, ruled against key parts of President Joe Biden’s SAVE plan, some of which were set to roll out on July 1, 2024.
  • According to the Department of Education, the SAVE plan has already lowered payments to $0 for more than 4.6 million borrowers and offered debt relief for more than 8 million. New changes were set to drop monthly payments even further.
  • This roadblock doesn’t affect borrowers who already received loan cancellation or impact other existing forgiveness and income-based repayment programs.

Millions of borrowers have faced a long road to student loan forgiveness, and a new roadblock may further delay or curb debt relief.

On Monday evening, two federal judges, in Kansas and Missouri, ruled against key parts of the Biden Administration and Department of Education’s income-driven repayment plan, SAVE (Saving on a Valuable Education). Some of the updates to this plan, set to go into place July 1, would’ve further slashed monthly payments in half for millions of borrowers.

“The courts’ decisions both have a significant impact to borrowers,” said Elaine Rubin, an expert on higher education finance and policy, and director of corporate communications for Edvisors. The rulings have temporarily stopped the implementation of parts of the SAVE plan and prevent the administration from forgiving additional loan balances under the plan until the judges decide on both cases, she added.

On Monday, US District Judge Daniel Crabtree of Kansas ruled against much of the White House’s newest student loan forgiveness plan proposals. However, he allowed some existing parts of the plan, including a component that lets borrowers who took out $12,000 or less in loans have their remaining balances forgiven after making payments for 10 years. 

US District Judge John Ross of Missouri also ruled against parts of the White House’s debt relief plan. He said that though the Department of Education doesn’t have constitutional authority to forgive loan balances in the future, it can lower monthly payments and limit interest accrual.

Ross’ preliminary ruling prevents the Department of Education from offering any new forgiveness under the SAVE plan until the court can make a permanent decision on the case.

Miguel Cardona, the Secretary of Education, responded on behalf of the Biden administration this morning, opposing the rulings. In a statement, Cardona said the SAVE Plan would help student loan borrowers have affordable monthly payments and stay out of default. 

 “Under SAVE, nearly 8 million Americans — one out of five borrowers — have breathing room from bills that, too often, compete with basic needs,” the statement reads. 

Karine Jean-Pierre, the White House press secretary, posted on X that the Department of Justice will appeal both decisions.

The SAVE repayment plan was launched last summer after a payment pause of more than three years, which began during the pandemic. Since then, more than 8 million borrowers have received some type of relief through SAVE, according to the Department of Education’s May 21 press release.

Does this decision impact other student loan forgiveness programs?

Neither ruling affects people applying for debt relief through the Public Service Loan Forgiveness program or other income-driven repayment plans, said Mark Kantrowitz, a financial aid expert and CNET Money expert review board member. It also doesn’t change the Department of Education’s one-time income-driven repayment count to maximize debt relief, which is happening right now, he added.

So, if you have a type of federal loan that wasn’t eligible for forgiveness in the past, consolidating before June 30 still gives you your best shot at receiving debt relief sooner.

This decision also doesn’t impact the Fresh Start program, which offers borrowers a way to get their student loans out of default. The deadline to apply is Sept. 30, 2024.

What should borrowers do next?

Right now the path forward for SAVE and future forgiveness through the program is unclear. If you applied for SAVE and are expecting forgiveness, be prepared for either of these outcomes: The plan could go forward as expected, or it could get quashed, said Lawrence Sprung, author of Financial Planning Made Personal.

“Start putting a budget together for both scenarios and make sure the payments will fit into your budget,” Sprung said. It’s better to have a plan to pay off your balance. You can use student loan payment calculators on the site to explore different payment plan options.

Rubin added that borrowers should continue to repay their student loans as required, but those in the SAVE plan need to be vigilant. “If all forgiveness is blocked under the SAVE Plan, it may be wise for borrowers to consider other income-driven repayment plans. But currently, we are still waiting guidance.”

Where does that leave borrowers? Kantrowitz encourages them to try not to worry too much until we receive a final verdict from the courts. The SAVE repayment plan has a sound statutory and regulatory basis, he said. “This is just the start of the legal process. The court rulings are preliminary and may be overturned on appeal.”

How long borrowers will have to wait for clarity also remains to be seen. But experts expect we’ll be waiting for several months.

“There is a good chance this will be left to the next administration unless this is completed in the courts well in advance of Election Day,” Sprung added.