A Major Part of Biden’s Student Loan Repayment Plan, SAVE, Is Restored

Major components of President Biden’s student loan repayment plan can continue to operate as lawsuits challenging it wind through the legal system, a federal appellate court ruled on Sunday. That frees the administration to cut certain borrowers’ payments by as much as half, a benefit that had been previously scheduled but blocked.

The order, from the U.S. Court of Appeals for the 10th Circuit in Denver, is the latest twist in a saga that began to unfold last week after two federal judges temporarily suspended parts of the plan known as SAVE. That program, which has about eight million enrollees, ties borrowers’ monthly payment amounts to their income and household size.

Two judges, one in Kansas and another in Missouri, last Monday issued separate preliminary injunctions, which are tied to lawsuits that were filed in the spring by two groups of Republican-led states that seek to upend the SAVE program.

The Kansas order suspended parts of the program that were not yet in place, including a big decrease in monthly payments for people with undergraduate debt — to 5 percent of their discretionary income from 10 percent — which was to take effect on July 1. The judge in Missouri blocked new debt cancellation through the SAVE program, though legal experts initially said it wasn’t clear how widely that ruling should be interpreted.

To comply with the Kansas district court’s injunction, the Education Department said on Friday that it would pause monthly bills for borrowers in the SAVE program who are required to make payments as it reconfigured those amounts once again. (More than four million low-income borrowers qualify for $0 monthly payments.) More than 124,000 borrowers had already received billing notices calculated with their new lower payments, the Education department said in a court filing.

But now that an appeals court has temporarily lifted the Kansas injunction, the Biden administration can move forward and roll out the rest of the SAVE program, including the reduction in payments for undergraduate borrowers, while it appeals the preliminary injunction.

“Yesterday, the U.S. Court of Appeals for the 10th Circuit sided with student loan borrowers across the country who stand to benefit from the SAVE Plan,” Miguel Cardona, the education secretary, said in a statement. “Borrowers enrolled in the SAVE Plan can still access its considerable benefits, including undergraduate loan payments cut in half, as well as protection against interest accruing if borrowers are making their monthly payments.”

If a borrower with undergraduate debt already received a bill from their loan servicer with the new, lower amount, they should plan to make that payment this month. But if a borrower had been put into forbearance — before these court rulings, because of servicer recalculation processes — their first monthly payment will be due in August, and bills will reflect the reduced payment amount.

A “very small” group of borrowers may have been placed in forbearance after the Kansas injunction: Their payments will be paused in July, and they will owe their first, newly reduced bill in August. (Loan servicers will be in touch with specifics.)

The Missouri injunction, blocking certain loan cancellations through the SAVE program, is still in place. The Education Department said in a court filing that it believed the injunction was “legally unsound and should be reversed on appeal,” but it has not yet requested that it be lifted.

As a result, the Education Department said it was unable to implement the provision of SAVE that provides a shorter path to loan cancellation for enrollees with smaller loan balances. That’s because it is unable to wipe out the remaining debt at the end of that abbreviated term.

Under SAVE’s income-driven repayment plan, borrowers make payments based on their income and household size for 20 years (25 years for graduate degree borrowers). In a court filing, the Education Department said it believed it could continue to cancel those remaining debts.