The Biden administration made a suspension of student loan payments for three million borrowers starting this week, the decision was made after a series of court rulings that threatened to generate widespread chaos in the student loan system, the court decisions issued last week blocked elements of the Saving on a Valuable Education plan, a new income-based repayment option that offers borrowers lower monthly payments and, ultimately, student debt forgiveness.
The Supreme Court made a bigger decision just days later, overturning four decades of precedent and threatening a wide range of federal regulations, including potentially those governing key student debt forgiveness and repayment programs.
Borrower advocates had sounded a warning that the dizzying changes could wreck an already overburdened student loan system, “For 40 million people trying to manage their student loans, it’s chaos,” Abby Shafroth, co-director of advocacy at the National Consumer Law Center said in a statement the week before.
The Department of Education preferred to place some borrowers in an administrative moratorium while legal challenges continue.
President Joe Biden’s SAVE Plan Is at Risk?
Three important court decisions threaten to make alterations in the plans for forgiveness and repayment of education loans, for millions of people, a coalition of Republican states, led by Missouri and Kansas, filed legal challenges against President Joe Biden’s SAVE plan in the spring, seeking to collapse the program.
Initially launched last fall, SAVE offers lower monthly payments than other IDR plans, interest subsidies to take away runaway balance growth, and multiple avenues for education loan forgiveness.
Earlier Monday, judges in Missouri and Kansas granted the plaintiffs’ request for a preliminary injunction, blocking key elements of the SAVE plan. A judge blocked lower payments that were to take effect for handfuls of borrowers this month.
Another judge halted student loan forgiveness under the program. Other elements of the SAVE plan remain in place while the Biden administration appeals the rulings, though the ultimate fate of the program remains unknown.
What the Supreme Court Says
Days later, the U.S. Supreme Court issued a landmark decision overturning 40 years of precedent that required federal courts to defer to the experience of federal agencies in interpreting ambiguities in the text of laws and associated regulations.
While the ruling will have wide-ranging impacts for nearly every U.S. citizen for years to come, the most immediate consequences may fall on student loan borrowers as courts grapple with challenges to student loan forgiveness and repayment programs that have largely relied on Congress delegating regulatory authority to the Department of Education.
Last Minute Update: Key Elements of Biden’s Student Loan Repayment Plan Restored
A recent decision by federal appeals judges has allowed a significant portion of President Joe Biden’s student loan repayment plan to proceed while legal challenges are still being addressed. This ruling means that the administration can now reduce the payments for certain borrowers by up to half, a relief that was initially blocked.
The 10th Circuit Court of Appeals in Denver issued the order, providing a new twist in the ongoing legal battle that began last week. The conflict arose after two federal judges temporarily halted parts of the SAVE plan. This program, which ties monthly payments to borrowers’ income and family size, currently supports around 8 million enrollees.
The earlier rulings came from judges in Kansas and Missouri. They issued separate preliminary orders linked to lawsuits filed by Republican-led states aiming to dismantle the SAVE program. The Kansas judge’s order paused elements of the plan that were yet to take effect, such as the reduction of monthly payments for borrowers with college debt from 10% to 5% of their discretionary income, scheduled to start on July 1. Meanwhile, the Missouri judge’s order blocked the cancellation of new debts under the SAVE plan, though the extent of this decision was initially unclear.
Thousands Waiting On Their Debts to Be Wiped Out
In response to the Kansas order, the Department of Education announced it would temporarily pause billing for SAVE program borrowers who were required to make payments. This pause was intended to allow time to reconfigure the payment amounts. Over 124,000 borrowers had already received billing notices calculated with their new lower payments.
With the appeals court lifting the Kansas order, the Biden administration can now proceed with implementing the rest of the SAVE program, including reducing payments for college borrowers, while it appeals the preliminary court orders. This development offers immediate relief to many borrowers as the legal process continues.
