WASHINGTON, DC, June 30, 2023: U.S. Secretary of Education Miguel Cardona through the U.S. … [+]
The federal student loan system is once more in turmoil after a federal appeals court halted a key Biden administration program to forgive and repay student loans.
On Thursday, the eighth Circuit Court of Appeals suspended implementation of the Saving on a Valuable Education (SAVE) program. The Biden administration had created SAVE as a brand new income-driven repayment option for borrowers. The program’s advantages include lower payments, a generous income exemption that enables lower-income borrowers to pay zero dollars monthly, an interest subsidy that stops runaway balance growth, and eventual student loan forgiveness after 10 to 25 years of repayment, depending on the sort of loan.
Biden administration officials and borrower advocates warned that Thursday’s court order would unleash chaos for the greater than eight million borrowers who’ve already enrolled or applied for SAVE. Meanwhile, Republican lawmakers cheered the consequence and denounced the SAVE plan as an unfair and illegal bailout of student loan borrowers.
Important details in regards to the court order suspending student loan forgiveness and reducing payments
The eighth Circuit’s order this week is just the newest development in legal challenges to the SAVE plan. Two groups of Republican-led states filed competing lawsuits in Kansas and Missouri last spring, arguing that SAVE is much more generous than what Congress approved in 1993 when it passed a law establishing income-based repayment. The Biden administration countered that the Higher Education Act gives the education secretary broad authority to set the parameters of IDR plans — authority that multiple administrations have exercised without incident over the past 30 years.
Federal district judges in Kansas and Missouri issued partial injunctions last month blocking parts of the SAVE plan but allowing other elements of this system to proceed. The Kansas court blocked reduced payments under SAVE for student loans that were set to take effect in July, though that order was later stayed after an appeal to the tenth Circuit Court of Appeals. The Missouri court, meanwhile, blocked student loan forgiveness under SAVE but allowed borrowers to proceed with lower monthly payments.
The state of Missouri appealed the partial injunction to the eighth Circuit Court of Appeals. On Thursday, that court issued a one-line, unsigned order temporarily blocking your entire SAVE program until the court rules on a longer-term injunction. This temporary injunction goes much further than Kansas or Missouri’s June injunctions. Rather than simply stopping parts of the SAVE plan, it blocks your entire program, including all student loan forgiveness and lower rates.
Officials and advocates warn of chaos for borrowers searching for student loan forgiveness and IDR
Biden administration officials warned that the court order would have devastating consequences for borrowers.
“Today’s 8th Circuit ruling blocking President Biden’s SAVE plan could have devastating consequences for millions of students suffering from unaffordable monthly payments if it remains in effect,” U.S. Education Secretary Miguel Cardona said in a press release Thursday. “It is shameful that politically motivated lawsuits by Republican officials are once again standing in the way of lower payments for millions of borrowers. It was not long ago that a million borrowers each year defaulted on their student loans, largely because they could not afford the payments. The SAVE plan is a bold and much-needed attempt to address the flaws in our student loan system.”
Borrowers’ advocates also expressed these concerns.
“Right-wing politicians are using the courts to destroy the student loan system and threaten the economic stability of tens of millions of borrowers and their families,” Persis Yu, deputy executive director of the Student Borrower Protection Center, said Thursday. “Make no mistake: These lawsuits are shameful political games designed to harm President Biden at all costs, and the borrowers are merely collateral damage. Unfortunately, today the special interests prevailed, endangering the financial security of millions and throwing the student loan system into unsustainable chaos.”
“This decision threatens the entire federal student loan system and will cause utter chaos and confusion, impacting millions of student borrowers and families across the country,” Eileen Connor, president and CEO of the Project on Predatory Student Lending, said in a press release Thursday. “The SAVE plan was created to give low-income borrowers a fair path to repaying their federal student loans. Instead, they now face a higher risk of default and severe financial consequences.”
Republicans welcome court ruling, arguing Biden’s student loan forgiveness efforts are illegal
Meanwhile, Republican lawmakers welcomed the eighth Circuit Court’s order, arguing that blocking the SAVE plan was needed to stop an illegal and unfair student loan forgiveness scheme. The lawmakers blamed the Biden administration for borrowers’ recent problems – although the brand new disruptions were the direct results of legal challenges by Republican-led states.
“A HUGE victory for every American who still believes in making a living,” Missouri Attorney General Andrew Bailey said in a Statement on X on Thursday. Bailey’s office led the trouble to dam SAVE within the eighth District, arguing that his state would suffer financial harm if borrowers enrolled within the plan and had their student loans forgiven.
“The chaos and destruction this administration is inflicting on the nation’s student loan system is unprecedented,” Education and Workforce Committee Chair Virginia Foxx (R-NC) said in a press release following the eighth Circuit Court’s order. “Ignoring fiscal responsibility and Congress’s intent to keep a campaign promise – a promise you were not allowed to make – will harm America’s education system and U.S. economic competitiveness.”
“Today’s decision is another rebuke of President Biden’s illegal student loan programs,” reiterated Senator Bill Cassidy (R-LA). “He is not ‘forgiving’ debt. He is taking the debt from those who voluntarily took it on to go to college and transferring it to taxpayers who chose not to go to college or who have already paid off their loans. This is an abuse of power before an election to buy votes at the expense of American taxpayers.”
The Higher Education Act of 1993 gave the Department of Education broad authority to create income-driven repayment plans. The statutory IDR provision sets caps on the repayment formula and the length of the repayment period, but gives the Secretary of Education the authority to draft rules that establish more specific guidelines and parameters. The department used this authority in 1994 to implement the income-driven repayment system, in 2012 to implement the pay-as-you-earn system, in 2015 to implement the revised pay-as-you-earn system, and again last 12 months to implement SAVE. Another IDR plan—the income-driven repayment system—was individually authorized by Congress through a law passed in 2007.
SAVE Plan borrowers will probably be placed in forbearance because the battle for student loan forgiveness continues
The Education Department said that in consequence of the eighth Circuit Court’s order, borrowers currently enrolled in SAVE – greater than 8 million of them – will probably be placed in an interest-free administrative forbearance, which can suspend monthly payments while the litigation continues.
“Borrowers participating in the SAVE plan will be placed in an interest-free payment deferral while our government continues to vigorously defend the SAVE plan in court,” Cardona said Thursday. During the payment deferral, borrowers is not going to be charged interest, however the period will probably be not count toward student loan forgiveness under IDR or Public Service Loan Forgiveness, which might pose a big problem for those eligible for these programs.
It’s unclear how long the forbearance will last. But the eighth Circuit’s order will remain in effect not less than until the court rules on a motion for a preliminary injunction. The court could then extend, vacate or modify the prevailing order blocking the SAVE plan. Any subsequent order, nevertheless, will likely be appealed to the Supreme Court, so this litigation could go on for quite some time.
