Update 7/6/24: The 10th Circuit Court of Appeals has temporarily lifted the preliminary injunction on the new SAVE plan calculations.
This means that the payment reduction will happen for many borrowers moving forward. However, the early forgiveness provision described below is still paused.
This afternoon, two federal judges issued preliminary injunctions in lawsuits aimed at ending the SAVE repayment plan. While these injunctions are not final decisions, they provide a strong indication of where the courts are leaning regarding the SAVE plan’s future.
Key Rulings
Missouri Injunction: A judge in Missouri blocked the Biden Administration from issuing any further forgiveness under the SAVE plan. This halt affects any future early forgiveness that might have been granted under the plan, creating uncertainty for borrowers who were counting on this relief.
Kansas Injunction: In a separate case, a judge in Kansas blocked the administration from implementing new payment calculations scheduled to take effect on July 1. This ruling directly impacts borrowers with undergraduate debt who would have seen their payments significantly reduced.
Provisions That Survive
Despite these rulings, several key features of the SAVE plan remain intact:
- Ongoing Enrollment and Participation – Neither ruling prevents borrowers currently on the SAVE plan from continuing, nor does it stop new borrowers from signing up for the plan.
- Revised Discretionary Income Definition – The new definition of discretionary income under the SAVE plan remains in effect. Traditionally, discretionary income on most IDR plans is defined as income exceeding 150% of the federal poverty level. The SAVE plan increases this threshold to 225%, allowing borrowers to keep a larger portion of their income before contributing to student loan repayments.
- SAVE Subsidy – Crucially, the SAVE subsidy remains unchanged. This subsidy covers any interest that accrues above the borrower’s usual payment. For borrowers qualifying for $0 monthly payments, the SAVE subsidy ensures that their loan balances do not increase during repayment by covering all monthly interest.
What Happens Next
A preliminary injunction is a temporary measure while a case is pending. The court has yet to make a final ruling, and the outcome could still favor the Biden administration. Conversely, the courts might side completely with the Republican attorneys general seeking to block the SAVE plan entirely, which means even the provisions that survived today’s rulings could eventually be struck down.
It’s important to note that whatever decisions the district court judges make are almost certain to be appealed. This process could extend for many months, if not years, before a definitive ruling on the SAVE plan is reached.
Repayment Planning for Borrowers
Once again, borrowers find themselves caught in the midst of political uncertainty. Despite the current legal challenges, the SAVE plan remains the most favorable IDR option available. Therefore, I still encourage borrowers to sign up for the SAVE plan.
If the courts ultimately strike down the SAVE plan, borrowers enrolled in it would likely revert to the REPAYE plan, its predecessor. This potential rollback underscores the importance of staying informed about ongoing legal developments.
Best Guess at the Final Outcome
We are still in the early stages of this legal process. Given the complexity of the SAVE regulations, which span some 472 pages, it’s possible that the lawsuits will result in a partial cancellation of the plan while other provisions survive. Judges may seek a middle ground in their final rulings.
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What is your legal opinion on the 20/25 year IDR forgiveness being completely eradicated? Is that a potential permanent possibility, or will that be harder to do since it’s been in effect for 30 years? (And I believe it’s been noted that Congress stated ‘up to 25 years’ as related to IDR….its the interpretation.) When people signed up years ago, it was under that understanding….the IDR adjustment is basically attached to that premise, as well. Does Promissory Estoppel come into play at all? Thanks for insight as always.
Before, I share my opinion, I think it is only fair to clarify a couple of things. First, my expertise is in student loans and debt management. While these cases are about student loans, the legal questions are constituational law matters, and as you point out, potentially contracting issues as well. Second, even the attorneys litigating the cases and the presiding judges don’t know how this will all shake out. Saying anything for certain just isn’t possible.
That all said, I don’t think 25 year IDR forgiveness is going anywhere. SAVE may be in some jeopardy, but the IBR plan exists via statute, which means that Congress would have to pass a new law to get rid of it… which would require 60 votes in the Senate.
As for the promissory estoppel argument, it is an interesting one and it might have merit, but it strikes me as a long shot. That said, if we look at a contract argument more generally, I think the contents of the Master Promissory note are especially compelling, which could potentially mean REPAYE survives even if SAVE does not.
My concern is what if you don’t qualify for IBR? (We do not.) Can they take away 20/25 year idr forgiveness from Repaye if reinstated? As I have said before, right now my husband is going to reach 25 years in Nov with no idr plan to forgive him unless one is reinstated, etc.
Its really hard to say. For starters, we need some clarity on the current injuction on SAVE. Does it apply only to early forgiveness, or does it apply to the 25 year variety as well? The language seems broad enough to possibly include all varieties, but the analysis only makes sense in the case of the early variety (in my opinion).
If SAVE does get struck down, I think the most likely outcome is that REPAYE is reinstated.
I know you are looking for some form of certainty, but I can’t provide that in this instance. That said, it sounds like you guys are doing all of the things you should be doing, and the current adminstration has a track record of making things right, even though the process is often a mess.
I benefit greatly from the SAVE plan’s “married filed separately” clause. This was different from REPAYE, which I was on prior to SAVE becoming available. Under REPAYE, my payments were looking to be around $600 because it took both of our incomes into account, but with SAVE, they are a much more manageable $180 because my spouse and I can file separately. My spouse has no student loans, whereas I have almost 80k (split in 25k undergrad/55k grad loans). Even though we miss out on some tax benefits we would have gained filing jointly, the SAVE plan more than makes up for the loss. My main concern is what happens after the case works its way through the legal process. It’s hard to see how much this could affect me, but I dread seeing my payments potentially increase as much as they did or more prior to the SAVE plan becoming available. I know there are no answers now, just frustrated that there is so much out of my control. I have just a couple more years until I am eligible for PSLF forgiveness and I just want to make my affordable payments and be done with it all!
I defintitely share your frustration on this one.
The preliminary injunctions are a good indication of where the judges are leaning, so the portions of SAVE that are not impacted, including the marriage rules, appear somewhat safe. That said, we won’t know for sure until the legal process is fully resolved. By that time, you may already be done with PSLF.
I have another one for you. I’ve heard discussion in regards to the judge who stopped the forgiveness. He believes all IDR’s but ibr are illegal. IBR is the only IDR that was congressionally approved. The others were all started the same as SAVE. So if SAVE is tossed or illegal…they would be as well. Is this what you’re reading? Can they really stop a plan that’s been in effect for 30 years? My husband signed up 25 years ago with the contract stating 20/25 year forgiveness. This will make the IDR Adjustment moot as well then for any non PSLF wouldn’t it?
I really don’t want to speculate about how the judge might ultimately rule. The best guess is probably that the final ruling is consistent with the preliminary injunction, but it could come out better or worse for borrowers.
The contract point is one that I often bring up with borrowers who are panicking about the potential elimination of a repayment plan. If you look at the latest version of the master promissory note, all plans with the exception of SAVE are mentioned. This makes it much harder for the government to eliminate these plans and provides a level of security for borrowers. I’m not saying it is impossible (government contracting is a notoriously complicated area of law), but I am saying that the possiblity that only IBR remains after this litgation is remote.
My husband was automatically put on SAVE (he was on Repaye) and should be at 25 years (all grad) in Nov/Dec after the IDR adjustment. My concern is if this gets tied up in a court battle and he is stuck on SAVE he won’t be able to get his forgiven as no forgiveness is allowed on it. The ICR would be much more costly, but if it means he gets that forgiveness versus waiting, should he go on ICR now before it sunsets? His payment would increase by $1550 as he has a significant payment increase since last IDR recert before COVID. Do you have any advice?
This is a fantastic question, Amy.
My first thought is that I don’t think he will get “stuck” on SAVE. I haven’t seen anything in the decisions that leads me to believe borrowers won’t be able to exit the SAVE plan. That said, there is a provision in the SAVE rules that limits access to the ICR and PAYE plans starting July 1.
I’d hate to see you guys spend all that extra money if it isn’t absolutely necessary.
I don’t think the decision is particularly clear about the SAVE forgiveness injunction. The analysis leads me to believe that the court intends to limit early forgiveness under SAVE, which applies only to borrowers with smaller balances. However, a literal reading of some of the language might mean that all forgiveness under SAVE, even the 25-year variety, is halted. We will have to wait and see what the Department of Education does and if there is any further clarification from the court.
Because the one-time adjustment hasn’t happened yet, and because we don’t know exactly when it will happen, it seems premature to jump into a very expensive plan right away. Additionally, in the event your husband does get the 25 years’ worth of IDR payments necessary for forgiveness, and SAVE forgiveness is completely blocked, he could potentially switch to the IBR plan. That plan would be less expensive than ICR, and it offers the same 25-year forgiveness timeline.
I’m sorry I’m not able to offer more specifics, but there are a lot of unknowns, and the next big thing to watch is how the Department of Education responds and advises borrowers in the coming days. I think it is reasonable for us to expect some clarity on how the injunction impacts the July 1 deadline for switching to PAYE and ICR.
Thank you for your insight. I didn’t think my husband qualifies for IBR…he makes 6 figures. Am I misunderstanding that? (He started slow in his career(law) and is very successful now…that’s why he’s still paying!) I would hate for us to reach 25 years and unable to get the forgiveness because there’s no IDR available come fall. I’m concerned this will get drug out in the courts.
That makes sense. It also makes your your situation exceptionally complicated. I don’t see an easy or obvious answer, but I will share my thoughts.
For now, I’d ecourage you to visit the studentaid.gov page daily. Right now they have a banner at the top acknowledging the ruling from yesterday, and it says they will have more information soon. Hopefully, when they have more information, it will include something about the July 1 deadline for ICR and PAYE enrollment.
There is one other thought that comes to mind. In several different cicumstances, we’ve seen borrowers get refunds when they make extra payments past the point of forgiveness that they have earned. There is a conceivable scenario in which you keep making SAVE payments beyond the 25 years required, and then get a refund once the case is resolved.
Even if SAVE were eliminated entirely, your husband would likely revert back to REPAYE, which also has IDR forgiveness after 25 years.
Obviously, nothing is set in stone at this point, but hopefully it helps to consider some of the possible outcomes.