A federal court ruling on Friday has thrown the future of student loan forgiveness into uncertainty for millions of borrowers enrolled in the Saving on a Valuable Education (SAVE) plan. This decision is the latest in a series of legal challenges to President Joe Biden’s efforts to address student debt.
The Eighth Circuit of Appeals issued a preliminary injunction, just weeks after another federal court halted the income-driven repayment plan. The SAVE program, designed to be the most affordable repayment plan, was intended to provide loan forgiveness for borrowers with a principal balance of $12,000 or less, while those owing more would receive relief after 20-25 years. The plan featured payment amounts based on income and family size, potentially as low as $0 per month.
The ruling, made by judges appointed by Republican presidents, states that borrowers who have already received forgiveness under the program will not be required to repay their loans retroactively. However, the judges deem the program illegal, arguing that it is “broader” than any other repayment plan previously established by the Education Department.
U.S. Secretary of Education Miguel Cardona expressed strong disagreement with the Eighth Circuit’s decision, stating that politically motivated lawsuits are hindering lower payments for millions of borrowers. He warned that if upheld, the ruling would force borrowers to pay hundreds of dollars more each month and potentially deny loan forgiveness to individuals who had been expecting it after years of consistent repayments.
Earlier this year, in July 2023, the Supreme Court also rejected President Biden’s student loan forgiveness plan, preventing relief for approximately 16 million borrowers.
What happens now?
In July, following a previous court ruling that temporarily halted SAVE, borrowers were placed on an interest-free forbearance plan, meaning they were not obligated to make loan payments. Secretary Cardona assured borrowers that the Department would provide updates in the coming days.
The injunction will remain in place until either the Supreme Court or the Eighth Circuit of Appeals issues a different ruling.
Despite the uncertainty surrounding SAVE, borrowers can still apply for enrollment in income-driven repayment plans, including SAVE. However, the Department of Education has announced a temporary pause in the processing of income-driven repayment plan applications by servicers.
Through other relief efforts, the Biden Administration has provided student loan forgiveness to 4.8 million borrowers.
