WASHINGTON, DC – JUNE 30: US President Joe Biden is accompanied by Secretary of Education Miguel Cardona … [+]
Updated, July 18, 2024: This story has been updated to incorporate comment from the U.S. Department of Education.
A federal appeals court on Thursday temporarily blocked a key Biden administration plan to forgive and repay student loans, an order that might have significant consequences for thousands and thousands of borrowers.
President Joe Biden’s Saving on a Valuable Education plan is a brand new income-based repayment program designed to supply inexpensive payments and multiple pathways to debt relief. The Department of Education unveiled the SAVE plan last 12 months and started phasing in this system. But several Republican-led state groups filed two separate lawsuits this spring, arguing that the Biden administration had exceeded the authority given to it by Congress.
The appeals court’s ruling on Thursday is just the most recent in a rollercoaster of court rulings related to SAVE’s legal challenges. The flood of rulings threatens to throw large parts of the federal student loan repayment system into chaos.
Lower courts had blocked a few of SAVE’s student loan forgiveness and repayment features
Last month, two federal courts in Kansas and Missouri issued conflicting preliminary injunctions in response to separate lawsuits filed by two groups of Republican-led states against the SAVE plan. Biden administration officials argued that the rulings would throw federal student loan repayment into chaos.
The Kansas court had issued a short lived restraining order blocking lower payments under SAVE, which were set to take effect in July. Under SAVE, payments for college students who took out undergraduate loans can be reduced by as much as 50%. However, the Kansas judge allowed other elements of SAVE to take effect, including forgiveness of student loans after 10 to 25 years of repayment, depending on the borrower’s major and the quantity borrowed.
In response to a different lawsuit filed by the state of Missouri, a federal judge in Missouri blocked student loan forgiveness under SAVE. However, the court allowed the Department of Education to implement the remaining of the SAVE plan, including the lower payments set to take effect this month.
The Biden administration said it’ll quickly appeal each orders. Earlier this month, the tenth Circuit Court of Appeals granted the federal government’s request to remain or pause the Kansas injunction, allowing the Department of Education to proceed with lower payments under SAVE. Three states – Alaska, Texas and South Carolina – have appealed that ruling to the U.S. Supreme Court.
Missouri, meanwhile, appealed the partial injunction that only blocked student loan forgiveness under SAVE to the eighth Circuit Court of Appeals.
Court of Appeal appears to dam all debt relief and lower payments under SAVE
On Thursday, the eighth Circuit issued a preliminary injunction that appeared to dam the SAVE plan entirely.
“Appellants’ emergency motion for an administrative stay prohibiting respondents from implementing or acting under the final rule until this Court has decided appellants’ motion for a temporary injunction pending appeal,” the one-line, unsigned motion states. command.
The order appears to go much further than the Missouri court’s original injunction, which blocked only student loan forgiveness under SAVE. The eighth Circuit’s order may very well be read as blocking your entire program, including lower payments, generous subsidies to forestall runaway interest accumulation, and automatic income recertification.
Notably, the eighth Circuit is similar court that blocked Biden’s first student debt cancellation plan. That plan would have allowed thousands and thousands of borrowers to have $10,000 or more in student loans forgiven. The Biden administration appealed that ruling to the Supreme Court, which ultimately rejected the initiative.
Advocates warn of chaos in the scholar loan system if the SAVE plan is blocked
The order puts the long run of the SAVE plan in immediate query and can impact the eight million borrowers who’ve enrolled in this system. The court’s order may also likely affect borrowers with pending SAVE applications and others who had planned to enroll.
“The unsigned, one-line order is extreme and will cause mass chaos,” warned Mike Pierce, executive director of the Student Borrower Protection Center, in a temporary Statement on X on Thursday. The SBPC and the American Federation of Teachers had previously warned that even a narrower court order blocking only certain elements of the SAVE plan would cause great confusion and large disruption for borrowers.
“These court orders prevent millions of people from receiving lower monthly payments and will deny hundreds of thousands of borrowers access to student debt relief in the coming weeks,” the 2 groups warned in a June letter to Education Secretary Miguel Cardona. “The student loan system has proven that it cannot adapt quickly to changing circumstances without causing great harm to people with student debt.” The groups argued that Cardona should suspend student loan repayment while the method continues.
In separate written arguments before the Supreme Court yesterday in response to Republican-led states’ appeal of the tenth Circuit Court’s order, the Biden administration said: warned that blocking or withdrawing any a part of the SAVE plan could cause “great harm” to borrowers.
“To return to the pre-SAVE Plan approach, the Department and its service providers would have to reprogram their systems, retrain their staff, and recalculate monthly payments,” Biden administration officials wrote, potentially causing weeks or months of delays and problems for thousands and thousands of borrowers.
Next steps for student loan forgiveness and repayment under SAVE
The immediate impact of the eighth Circuit’s ruling remains to be uncertain because the Department of Education must assess how one can implement it, particularly for borrowers with pending SAVE applications and the eight million borrowers already enrolled. But the department may haven’t any selection but to suspend student loan repayments for thousands and thousands of borrowers because neither the department nor its service providers have the capability to cope with such a rapidly changing legal environment.
“We are evaluating the impact of this ruling and will engage directly with borrowers if any impacts arise,” an Education Department spokesperson said by email Thursday. “Our administration will continue to vigorously defend the SAVE Plan – it has helped over 8 million borrowers get lower monthly payments, including 4.5 million borrowers who had to make a zero-dollar payment each month. And we will not stop fighting efforts by Republican officials to increase the cost of student loan payments for millions of their own constituents.”
Importantly, the order is technically temporary until the court rules on Missouri’s broader request for a preliminary injunction. But given the court’s broad decision, the eighth Circuit may possibly grant the preliminary injunction. If that happens, student loan forgiveness and lower payments under SAVE could remain blocked for the foreseeable future.
And since two different federal courts have issued very different rulings on the identical issue, it’s extremely likely that the Supreme Court will step in. If that happens, the best court within the land could ultimately determine the fate of student loan forgiveness and other debt relief once more.
