Last week, nearly a dozen states filed a lawsuit against the Biden administration, seeking to block a key student loan forgiveness and repayment relief initiative.
The suit, filed by Republican state leaders, targets the SAVE plan. SAVE is a new income-driven repayment option that can provide affordable payments and eventual loan forgiveness. President Joe Biden has referred to SAVE as “the most generous Income-Driven Repayment plan in history.”
“In the wake of the Supreme Court’s decision on my Administration’s original student debt relief plan, we are continuing to pursue an alternative path to deliver student debt relief to as many borrowers as possible as quickly as possible,” said Biden in remarks in February. SAVE is one of several such initiatives designed to ease the burdens of student debt.
But the challengers argue that the SAVE plan is just another overreach by the Biden administration to enact mass student loan forgiveness contrary to Congressional intent. Attorneys for the Biden administration will likely strongly disagree, and will argue that there is clear legal authority for the SAVE plan. The administration has not yet filed a formal response.
The new lawsuit may directly impact student loan forgiveness and repayment for millions. Here’s what borrowers need to know.
Impacts Of Legal Challenge On Student Loan Forgiveness
Depending on how the court rules, borrowers already enrolled in SAVE (and those applying to switch plans) could be impacted.
It is possible that a judge will reject the challenge altogether. That’s because the Biden administration created the SAVE plan under a much different legal authority than the President’s first debt relief plan, which was struck down by the Supreme Court. There is clear authority in federal law for the Education Department to create regulations defining the parameters of IDR plans, which is what the Biden administration did here. The main legal question will be whether the SAVE plan’s features exceed what Congress originally intended.
But if a judge sides with the challengers, the impacts on student loan forgiveness are not entirely clear. Last month, the Biden administration approved more than 150,000 borrowers for student loan forgiveness under the “early” debt cancellation feature of SAVE, which can wipe out federal student loan debt in as little as 10 years for those who took out $12,000 or less in student loans. It is unclear if a court would have the power to reverse those loan forgiveness approvals and reinstate balances. It is equally unclear whether the Education Department would even be able to do that on such a mass scale, given that the department and its loan servicers are already struggling to properly administer current programs.
If that previous loan forgiveness is effectively grandfathered in, though, future “early” student loan forgiveness under SAVE could be blocked.
Potential Impacts To Student Loan Payments
If the court issues an adverse ruling, it could have impacts on repayment for the approximately 7.5 million borrowers who are already enrolled in SAVE.
A federal student loan repayment plan has never been blocked by a court before, so the outcome would be unprecedented. As a result, it’s impossible to know for sure what the impacts would be.
Borrowers already enrolled in SAVE could effectively be grandfathered in, with the program blocked for new applicants. But it’s also possible that the entire SAVE regulation gets struck down. This could bump borrowers back into an older IDR Plan that SAVE had replaced (the Revised Pay As You Earn, or REPAYE, plan). Because REPAYE was more expensive than the SAVE plan, this could result in millions of borrowers experiencing an increase in their monthly payments.
Other Student Loan Forgiveness Programs Not Targeted By Suit
The latest legal challenge is limited to the regulations governing the SAVE plan. Other student loan forgiveness programs and initiatives are not targeted by the suit.
That means that popular loan forgiveness programs like Public Service Loan Forgiveness, the Total and Permanent Disability Discharge program, and student loan forgiveness under Income-Based Repayment are not at risk from this suit. In fact, in their lawsuit the challengers cite to these programs as grounded in firm legal authority to contrast what they view as the lack of legal foundation for the SAVE plan. Of course, this doesn’t mean that the same actors will not target other loan forgiveness programs in the future.
Student Loan Forgiveness Under IDR Account Adjustment Not Part Of This Challenge
The lawsuit targeting SAVE also is not focused on the IDR Account Adjustment, a separate Biden administration initiative designed to “fix” student loan forgiveness under all income-driven repayment plans. The account adjustment can provide borrowers with retroactive credit toward 20-year and 25-year IDR loan forgiveness. Nearly a million borrowers have already gotten their federal student loans discharged under this initiative, which will start to wind down later this month.
A separate lawsuit challenging the IDR Account Adjustment was dismissed by a federal court in Michigan last summer on standing grounds. The challengers in that suit filed an appeal with the Sixth Circuit Court of Appeals, which held oral arguments last month. At least one judge on the appellate panel seemed skeptical of the challengers’ position.
Biden Administration Still Pushing Ahead With A New Student Loan Forgiveness Plan
In addition to SAVE, the IDR Account Adjustment, and fixes to PSLF and other debt relief programs, the Biden administration is also developing a new student loan forgiveness plan. This program will be geared toward several categories of borrowers, including those who have been in repayment for many years and those who are experiencing financial hardships that make it unlikely that they would be able to repay their student loans.
The Education Department completed the rulemaking process for the new loan forgiveness plan earlier this year, and the “final” regulations are expected to come out in May. The program could go live as soon as this summer or fall. But most observers expect more legal challenges.
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