Biden’s SAVE Plan Blocked by Federal Court

A federal appeals court, in an unsigned order, blocked the Biden administration’s new income-driven student loan repayment plan Thursday, putting on hold a suite of benefits such as lower monthly payments for more than eight million borrowers nationwide.

Undergraduate borrowers had expected to see their payments cut in half this month, and 4.5 million people are currently paying $0 a month thanks to a more generous formula in the plan that determines how much they owe. The plan, known as Saving on a Valuable Education, or SAVE, also waives unpaid interest in an attempt to keep borrowers’ balances from ballooning. Those benefits and others under SAVE are now in question following the court order, which granted a request for an administrative stay from seven states that sued to block the plan.

Republican-led states have argued in multiple lawsuits that SAVE exceeds the Education Department’s authority and amounts to just another version of the broad-based debt-relief plan that the Supreme Court struck down last summer. One lawsuit is awaiting action from the high court, while Thursday’s court order stems from a suit filed by Missouri and six other states.

Debt-relief advocacy groups decried the decision and called on the Biden administration to pause all student loan payments, citing the uncertainty for borrowers that they expect the order to cause. Other experts predicted that the Education Department would likely pause payments only for borrowers enrolled in SAVE.

Biden administration lawyers had warned the court of chaos ensuing if the stay was granted.

“The department and its student loan servicers prepared for months to implement the SAVE plan, including by updating their computer systems and notifying borrowers of their new payment amounts,” they wrote in court filings. “Now, those processes will be thrown into disarray—and millions of borrowers plunged into uncertainty about their payment obligations—if this court grants the motion.”

Administration officials elaborated on that “disarray” in a filing with the Supreme Court as part of a separate lawsuit challenging the SAVE plan. Reverting to the pre-SAVE status quo would require the department and loan servicers to “reprogram their systems, retrain their staff, and recalculate monthly payments,” they said, which would take several months. “Borrowers would also stand to suffer significant and irreparable harm,” the administration argued.

The Education Department is “assessing the impacts” of the appeals court ruling, according to a spokesperson.

“Our administration will continue to aggressively defend the SAVE Plan,” the spokesperson said. “And, we won’t stop fighting against Republican elected officials’ efforts to raise costs on millions of their own constituents’ student loan payments.”

Adam Minsky, a student loan lawyer and Forbes contributor, said the ruling will cause “an enormous amount of uncertainty and confusion” for borrowers. After two court rulings blocked elements of SAVE late last month, the agency decided to place about three million borrowers into an administrative forbearance, which pauses their payments. He expects the department to take a similar step again.

“I think the administration is going to have to put everyone into a forbearance … at least for borrowers currently enrolled in SAVE,” Minsky said. “Of course, it’s not going to end with just this order. I don’t think it’s going to be possible for the department to implement this order in a timely fashion.”

The U.S. Court of Appeals for the Eighth Circuit offered no explanation for granting the request for a stay, which puts the entire SAVE plan on hold until the judges can rule on the states’ request for a preliminary injunction.

A district judge previously blocked the Biden administration from forgiving any loans under SAVE, which gives borrowers a quicker pathway to debt relief than other income-driven payment plans already on the books, but allowed other provisions of the plan to move forward.

The states argued in court filings that the district judge’s injunction didn’t go far enough in preventing irreparable harm to the states and sought an administrative stay from the appeals court.

“They created a ‘repayment plan’ that does not require ‘repayment’ at all,” the states wrote. “It slashes payment amounts well below actual repayment thresholds. For millions of people, it sets payment amounts to $0.”

While lawyers for the Biden administration argued that a stay would result in a mess, the states claimed that borrowers wouldn’t be harmed by an administrative stay, pointing to the department’s prior decision to pause payments for some.

The Biden administration countered that not all borrowers in the SAVE plan were placed into forbearance after the court rulings late last month. “Borrowers enrolled in SAVE are generally paying bills for July and receiving bills for August,” the administration’s lawyers wrote. “Putting borrowers into forbearance adds to the already significant confusion caused by this last-minute litigation.”

After the court issued the stay, Eileen Connor, president and executive director of the Project on Predatory Student Lending, a legal advocacy group for borrowers, called on the department to place all student loan borrowers back into forbearance until they “can access a fair, clear path to resolve their loans.”

“This decision threatens the entire federal student loan system and will cause complete chaos and confusion, impacting millions of student loan borrowers across the country,” Connor said in a statement. “The SAVE plan was created to allow low-income borrowers a fair path to repay their federal student loans, and instead they will now have a greater risk of default and serious financial consequences.”

Conservative advocacy groups and lawmakers, meanwhile, praised the ruling. Elaine Parker, president of Job Creators Network Foundation, said in a statement that the SAVE plan “threatened the rule of law and gave colleges a blank check to keep on overcharging.”

“The appeals court has stood up for ordinary taxpayers and current and future college students by blocking President Biden’s lawless student loan bailout workaround,” Parker said. “Today’s ruling sets the stage for meaningful bipartisan reform to address the root cause of the student loan crisis: price-gouging colleges that have raised tuitions at twice the rate of inflation over the past couple of decades.”