Yesterday, July 18^th, 2024, the 8^th Circuit Court of Appeals suspended the implementation of the Saving on a Valuable Education (SAVE) plan.  On Thursday, the court issued a one-line, unsigned order temporarily blocking the entire SAVE program pending the Court’s consideration of a longer-term preliminary injunction.

This initial temporary order goes much further than either the Kansas or Missouri injunctions issued in June; instead of halting just parts of the SAVE Plan, it blocks the whole program, including all student loan forgiveness and reduced payments.  The 8th Circuit’s order could even be read to block all the final rules, including lower payments, generous subsidies to prevent runaway interest accrual, payment credits before consolidations, and automated income recertification.

Notably, the 8th Circuit is the same court that blocked Biden’s first student debt cancellation plan. That plan would have provided $10,000 or more in student loan forgiveness for millions of borrowers. The Biden administration appealed that ruling to the Supreme Court, which ultimately struck down the initiative. 

For now, further implementation of the SAVE plan is on hold.  

So far, the Department of Education has not made a formal release, but a statement from the Secretary of Education, Miguel Cardona, says,

“Borrowers enrolled in the SAVE Plan will be placed in an interest-free forbearance while our Administration continues to vigorously defend the SAVE Plan in court.”  Cardona stated that while borrowers will not accrue interest during the forbearance, the period will not count toward student loans — a significant problem for those on track for these programs.

The 8th Circuit’s order will remain in effect until the court rules on the request for a preliminary injunction during the pendency of the case. Then, the appeals court could extend, reverse, or modify the lower court’s order blocking the SAVE plan.  Any resolution is likely to get appealed to the U.S. Supreme Court– this legal battle may continue for quite some time.  

The forbearance is likely to remain in place until the legal process plays it course, which could be months or more.  

Also relevant are two recent US Supreme Court opinions overruling a long-standing approach to reviewing federal agency rulemaking based on the former “Chevron” doctrine set out in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837 (1984).  Chevron required judicial deference to reasonable agency interpretations of a statute.

Recently, the U.S. Supreme Court ruled instead that courts have a duty to interpret statutes to ensure that agencies act within their statutory mandate.  Courts now have increased authority to strike down federal agency rules that rest on an interpretation of a statute.

What Does This Mean for CSLP and Borrowers?

This is chaos for ED and borrowers alike.  Servicers cannot quickly adapt to changes in the servicing environment.  The best advice is to hold tight for now as the ruling is only temporary until the court rules on Missouri’s broader request for a preliminary injunction after which there are several outcomes ranging from full implementation of the regulations to partial limitations, to completely tossing out the entire final rules.  

Advisors should caution borrowers about uncertainties and consider the following: