A key component of President Biden’s student loan repayment plan can continue to operate as litigation moves through the legal system, a federal appeals court ruled Sunday, allowing the administration to cut certain borrowers’ payments by up to half, a benefit that was previously scheduled but blocked.
The order from the 10th U.S. Circuit Court of Appeals in Denver is the latest twist in a saga that began last week after two federal judges temporarily halted part of the plan known as SAVE, which has about 8 million enrollees and ties borrowers’ monthly payments to their income and household size.
Two judges in Kansas and Missouri issued separate injunctions Monday in response to lawsuits filed in the spring by two Republican-led groups seeking to overturn the SAVE program.
The Kansas order halted parts of the program that have not yet been implemented, including a significant reduction in the monthly payment for those with college debt from 10% to 5%, which was set to take effect July 1. A Missouri judge has blocked new debt cancellations through the SAVE program, but legal experts say it’s unclear at first how broadly the ruling should be interpreted.
To comply with a preliminary injunction from a Kansas district court, the Department of Education said Friday that it would suspend monthly billing for borrowers enrolled in the SAVE program. Those borrowers would have to restructure their payments once again. (More than 4 million low-income borrowers are eligible for a monthly $0 payment.) In a court filing, the Department of Education said more than 124,000 borrowers have already received billing notices that calculated their new, lower payments.
But now the appeals court After temporarily lifting the Kansas injunction, the Biden administration can continue implementing the rest of the SAVE program, including reducing student loan payments, while the injunction is appealed.
“Yesterday, the 10th Circuit Court of Appeals sided with student loan borrowers across the country who qualify for the SAVE Plan,” Education Secretary Miguel Cardona said in a statement. “Borrowers who enroll in a SAVE Plan will still receive significant benefits, including having their student loan payments reduced in half and protections against interest accrual if they make their monthly payments.”
If a borrower with college debt has already received a new, lower payment from their loan servicer, they should plan to make that payment this month. However, if the borrower entered a forbearance prior to this court ruling due to the servicer’s recalculation process, the first monthly payment is due in August, and the bill will reflect the reduced payment amount.
A “very small” group of borrowers may have entered a forbearance after the Kansas injunction. Their payments will stop in July and they will have their first new reduced bills in August. (Your loan servicer will provide specifics.)
A Missouri injunction blocking certain loan cancellations through the SAVE program remains in effect. The Department of Education said in a court filing that it believes the injunction “is not legally sound and should be overturned on appeal,” but has not yet requested a lifting of the injunction.
As a result, the Department of Education said it could not enforce the SAVE provision, which provides a shorter path to loan discharge for enrollees with lower loan balances, because it would not eliminate any remaining debt at the end of the shortened period.
Under SAVE’s income-based repayment plan, borrowers repay over 20 years (25 years for graduate degree borrowers) based on their income and household size. The Department of Education said in court filings that it believes it can continue to cancel the remaining debt.