What You Should Know About Challenges to the SAVE Plan

Update: On June 30, 2024, a federal appeals court has decided that the SAVE plan’s payment reduction can move forward. The ruling does not affect the hold on the forgiveness provision.

Do you ever feel like you just can’t catch a break? That’s the sentiment among many student loan borrowers ever since the Supreme Court struck down President Biden’s initial student loan forgiveness plan last year. Just last week, borrowers got more bad news from the courts: two provisions of the SAVE plan have been (at least temporarily) halted by legal challenges.

Why have parts of the SAVE plan been halted?

Earlier this year, several state attorneys general banded together to file lawsuits in two states (Missouri and Kansas) challenging the SAVE plan. The states argued that the SAVE plan is a backdoor attempt to provide additional student loan forgiveness without the proper authority. Just last week, the judges in both cases issued a preliminary injunction—basically a temporary pause—against parts of the SAVE plan until the legal cases are resolved.

Which parts of the SAVE plan have been affected?

The preliminary injunctions have affected two parts of the SAVE plan. One is the provision that would lower SAVE plan payments on undergraduate loans to 5% of a borrower’s income from the current level of 10%, essentially halving the payment amounts for undergraduate borrowers. This provision was set to take effect on July 1, 2024. The second part of the SAVE plan that has been affected is shortened forgiveness timelines for loans with small principal balances. Under the SAVE plan, borrowers with a total initial balance of $12,000 or less could receive forgiveness after 10 years on an income-based repayment plan, rather than after 20-25 years. This part of the SAVE plan had already been implemented and more than 414,000 borrowers had received a total of $5.5 billion in forgiveness. The injunction does not affect those borrowers whose loans have already been forgiven under the program.

What about the SAVE plan is staying the same?

The judges declined to halt two other parts of the SAVE plan. Income-based payments under the SAVE plan will continue to be based on a lower discretionary income calculation which has already reduced payments compared to other income-based repayment plans. The government will also continue to cover any unpaid interest ensuring that borrowers’ balances won’t grow. While these provisions are safe for now, they are still potentially at risk until the final outcome of the cases, which are expected to eventually make their way to the Supreme Court.

What should borrowers know in the meantime?

The SAVE plan is still open for enrollment so borrowers can continue to take advantage of the provisions that are still in effect. In anticipation of the July 1st payment recalculation, some borrowers had been notified that their loans would be in administrative forbearance for the month. Borrowers should pay attention to any communications from their loan servicer about their July payment. 

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