Biden’s Student Loan Plan Blocked, Pausing Payments: How to Avoid SAVE Lawsuits – NerdWallet

The 8th U.S. Circuit Court of Appeals has blocked the income-driven student loan repayment plan
Saving on a Valuable Education (SAVE)
. As a result, SAVE borrowers won’t owe payments until the legal situation is resolved, which could take months.

Thursday’s ruling was the latest update for borrowers who have endured back-and-forth legal decisions about SAVE since June, resulting from two lawsuits filed by groups of Republican-led states. About 8 million borrowers are enrolled in SAVE, accounting for 1 in 5 student loan borrowers.

“Today’s ruling from the 8th Circuit blocking President Biden’s SAVE plan could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect,” U.S. Education Secretary Miguel Cardona said in a Thursday evening statement. “It’s shameful that politically motivated lawsuits waged by Republican elected officials are once again standing in the way of lower payments for millions of borrowers.”

Thursday’s legal decision blocks the plan in its entirety, whereas decisions in recent weeks only blocked portions of the plan. However, the decision is also temporary — in place until the court rules on the plaintiffs’ request for a preliminary injunction.

If you’re enrolled in SAVE, here’s what you need to know.

Of the 8 million federal student loan borrowers enrolled in SAVE, about 4.6 million owe $0 payments based on their income.

If you’re among the 3.4 million SAVE borrowers who do owe monthly payments, you’re off the hook for now. The Education Department is putting all SAVE borrowers into an
administrative forbearance
indefinitely. Payments won’t be due.

“Borrowers enrolled in the SAVE Plan will be placed in an interest-free forbearance while our administration continues to vigorously defend the SAVE Plan in court. The department will be providing regular updates to borrowers affected by these rulings in the coming days,” Cardona said.

Check that your contact information is up to date in both
studentaid.gov
and
student loan servicer
accounts. This will help you stay informed of key SAVE updates that may impact your repayment.

The Education Department has not yet confirmed if borrowers will get credit toward
income-driven repayment (IDR)
loan forgiveness or
Public Service Loan Forgiveness
during this SAVE payment pause, but it’s likely. Borrowers typically get this credit during an administrative forbearance, including a separate July forbearance that applied to some SAVE borrowers.

The department also has not clarified if borrowers can still apply for IDR plans, including SAVE. As of Friday morning, the online IDR application on
studentaid.gov/idr
was inaccessible. And in a court document filed Wednesday before the plan was struck down, U.S. Solicitor General Elizabeth B. Prelogar said the Education Department would suspend online IDR and loan consolidation applications for six weeks if SAVE was blocked.

SAVE is more generous than other income-driven repayment (IDR) plans, which the government introduced in the 1990s. For example, SAVE offers lower monthly payments and an interest subsidy that prevents ballooning balances. It also forgives debt in as little as 10 years for those with principal balances up to $12,000, compared to forgiveness in 20 or 25 years on other IDR plans.

Portions of SAVE debuted to borrowers in August 2023. The final benefits of the plan — like capping payments on undergraduate loans at 5% of discretionary income, rather than 10% — were slated to roll out July 1. The Education Department has already forgiven $5.5 billion in student debt for 414,000 SAVE borrowers.

In March, a group of 11 Republican states led by Kansas sued to stop the SAVE plan, alleging that Biden did not have the authority to cancel student debt without congressional approval. In April, a separate group of seven Republican states led by Missouri filed a similar lawsuit.

As a result, two federal judges temporarily blocked different portions of SAVE in late June, days before reduced payments were scheduled to go into effect for millions of borrowers.

One of these rulings was lifted a week later by the 10th U.S. Circuit Court of Appeals, allowing lower payments to proceed, but not the accelerated 10-year forgiveness. However, the latest decision by the 8th Circuit on Thursday entirely blocks SAVE until a final decision can be made.

In a post on X, Missouri Attorney General Andrew Bailey called the Thursday decision a “HUGE win for every American who still believes in paying their own way.”

However, removing SAVE could leave borrowers with “intense confusion” and “significant and irreparable harm,” Prelogar said in the Wednesday court filing.