Key Points
- Federal judges in Kansas and Missouri have issued injunctions blocking key portions of the SAVE plan, affecting millions of student loan borrowers.
- These rulings leave over 8 million borrowers uncertain about their repayment terms and eligibility for student loan forgiveness.
- The legal actions stem from lawsuits led by state attorneys general, challenging the SAVE plan’s implementation before a key July 1 deadline.
Two Obama-appointed Federal judges in Kansas and Missouri have issued injunctions blocking key elements of the Saving on a Valuable Education (SAVE) repayment plan, a new income-driven student loan repayment program. The rulings come at a critical time, as just as over 8 million borrowers were set to benefit from reduced payments and loan forgiveness under the plan.
The SAVE plan, introduced in August 2023 by President Biden, aims to provide relief to student loan borrowers by lowering monthly payments and offering loan forgiveness after certain periods.
July 1 was a key date for the new lower repayment plan amount to take effect. This injunction leaves borrowers uncertain about the future.
Injunctions In Kansas And Missouri
In Kansas, a federal judge has issued a preliminary injunction that temporarily halts the U.S. Department of Education’s efforts to cut student loan payments in half for over 8 million borrowers, effective July 1.
Meanwhile, a separate ruling in Missouri blocks the Department from cancelling debts entirely for any borrowers under the SAVE plan.
These legal actions have added a significant disruption in the student loan system, which has been struggling to regain stability following a three-and-a-half-year pause on payments, interest, and collections that expired in September.
The Department of Education had already announced that borrowers on the SAVE plan would be in administrative forbearance during July in order to avoid the chaos that happened when payments resumed last fall.
The lawsuits leading to these injunctions were spearheaded by coalitions of state attorneys general. On March 28, 2024, a group of 11 states, led by Kansas Attorney General Kris Kobach, filed a suit to stop the SAVE plan. A similar lawsuit followed on April 9, 2024, led by the Missouri Attorney General, involving seven states. These states represent about a quarter of the borrowers enrolled in the SAVE plan, with over 2.5 million residents participating, but the suits seek to invalidate the plan nationwide.
How Does The SAVE Plan Help Borrowers?
The SAVE plan was designed to ease the burden of student loan debt by adjusting monthly payments based on borrowers’ incomes to as little as 5% of discretionary income. This results in significantly reduced payments, or even $0 payments, for low-income borrowers.
As of now, more than 8 million borrowers are enrolled in the plan, with 4.6 million benefiting from a $0 monthly payment. Additionally, the plan offers debt cancellation after 20 or 25 years, or after 10 years for those who borrowed up to $12,000.
The SAVE plan is one of multiple income driven repayment plans available to borrowers. The first of these plans was introduced in 1994, with the SAVE plan being made available to borrowers in August 2023.
Future Outlook
With the recent court rulings, the future of the SAVE plan and its benefits to borrowers hang in the balance.
It's likely the Biden Administration will appeal these rulings in the coming days, but in the meantime, millions of borrowers await clarity on their student loans.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.