What happened?

On June 24, 2024, courts in both Kansas and Missouri ruled in favor of the state Attorneys General offices that had sued to prevent certain provisions of the SAVE plan from being implemented.  The AG’s offices separately argued that the payment percentage in the SAVE plan of 5%-10% of discretionary income and the forgiveness for smaller balances had not been authorized by Congress.  The courts have sided with both Republican AGs and halted certain provisions of the SAVE plan that were set to go into effect July 1, 2024.

What does this mean?

The decisions leave millions of borrowers, ED and federal student loan servicers in limbo.  The US Department of Education had instructed loan servicers to begin recalculating borrowers’ payments under the SAVE plan. To accomplish this, the servicers had placed borrowers on IDR plans into administrative forbearance for the month of July and had instructed borrowers they would be notified of their new payment terms for August.  That timeline for payment recalculations is now on hold.

As for borrowers who borrowed less than $12,000 for school and have been in repayment for 10 years, they would have been eligible for loan forgiveness under the SAVE plan.  The SAVE plan regulations also provided for expedited forgiveness for borrowers that took out more than $12,000 in loans, extending the forgiveness by one year for each additional $1,000 a student borrowed up to 20 or 25 years (depending on whether the borrower had graduate loans).  This provision has also been put on hold. Borrowers that might have expected loan forgiveness as early as August might now be facing the prospect of making payments for another 10 years before having their loans forgiven. 

Many provisions of the regulations are not affected by these legal challenges.  The increase in protected income, interest subsidies, and the interest capitalization components of the regulations remain intact and will continue to provide value to borrowers.  Sunsetting the PAYE plan and the change in treatment of family size for married borrowers filing their taxes separately are unaffected by these injunctions.

What’s Next?

The decision in Kansas and Missouri will almost certainly be appealed by the Biden Administration.  Secretary of the Department of Education Miguel Cardona expressed his disappointment while also noting the value of the provisions left unchanged.  For now, this leaves student borrowers in a world of uncertainty and one that makes planning for repaying loans a difficult prospect as the terms under which they can repay the loans they borrowed are in flux.