Key components of President Biden's student loan repayment plan can remain in place while lawsuits challenging the plan wind their way through the legal system, a federal appeals court ruled Sunday, giving the government the ability to cut certain borrowers' payments by up to half, a measure that had previously been planned but blocked.
The order from the U.S. Court of Appeals for the 10th Circuit in Denver is the latest twist in a saga that began last week after two federal judges temporarily suspended parts of the plan known as SAVE, a program that covers about eight million people and ties the amount of monthly payments to their income and the size of their household.
Two judges, one in Kansas and one in Missouri, issued separate preliminary injunctions last Monday related to lawsuits filed in the spring by two groups of Republican-led states seeking to overturn the SAVE program.
The Kansas state order suspended parts of the program that were not already in effect, including a steep reduction in monthly payments for people with student debt – from 10 to 5 percent of their disposable income – that was set to take effect on July 1. The Missouri judge blocked new debt relief through the SAVE program, although legal experts initially said it was unclear how broadly that decision should be interpreted.
To comply with the Kansas District Court's injunction, the Education Department said Friday that it would suspend monthly bills for borrowers in the SAVE program who are required to make payments because those amounts have been re-set. (More than four million low-income borrowers are eligible for zero-dollar monthly payments.) More than 124,000 borrowers have already received bill notices calculated based on their new lower payments, the Education Department said in a court filing.
But now that an appeals court With the injunction temporarily lifted in Kansas, the Biden administration can move forward with implementing the rest of the SAVE program, including reducing payments for undergraduate borrowers, while it appeals the injunction.
“Yesterday, the U.S. Court of Appeals for the 10th Circuit ruled in favor of student loan borrowers across the country who benefit from the SAVE Plan,” Education Secretary Miguel Cardona said in a statement. “Borrowers who participate in the SAVE Plan can continue to enjoy the significant benefits, including student loan repayments cut in half as well as protection from accruing interest if borrowers make their monthly payments.”
If a borrower with student debt has already received a bill from their loan servicer with the new, lower amount, they should plan to make that payment this month. However, if a borrower had been in forbearance due to servicer recalculation processes prior to these court rulings, their first monthly payment will be due in August and bills will reflect the reduced payment amount.
A “very small” group of borrowers could be eligible for a forbearance under the Kansas injunction: Their payments will be suspended in July, and they'll have their first, newly reduced bill due in August. (Loan servicers will contact you with details.)
Missouri's injunction preventing the cancellation of certain loans under the SAVE program is still in effect. The Department of Education said in a court document that it believes the injunction is “legally untenable and should be overturned on appeal,” but has not yet filed for reversal.
As a result, the Department of Education said it was unable to implement the SAVE scheme, which offers students with smaller loan amounts a shorter path to paying off their debt. This is because the remaining debt cannot be paid off at the end of this shortened term.
Under SAVE's income-based repayment plan, borrowers make payments based on their income and the size of their household for 20 years (25 years for college-educated borrowers). In a court filing, the Education Department said it expects it will be able to continue canceling the remaining debt.