The Supreme Court may soon rule on President Biden’s SAVE plan, a brand new income-based … [+]
Several Republican-led states and conservative-leaning legal groups have asked the Supreme Court to intervene in an ongoing legal dispute over a key student debt relief program under the Biden administration.
The Saving on a Valuable Education (SAVE) plan is a brand new income-driven repayment plan that the Department of Education released last fall. The program’s advantages include lower payments, a subsidy that ends runaway rates of interest, and several other opportunities for student loan forgiveness. But opponents are attempting to dam the SAVE plan by arguing that this system’s generous advantages go far beyond what Congress originally authorized when it passed laws establishing IDR plans.
This is a potentially high-stakes legal battle for borrowers, with questions on whether student loans shall be forgiven and whether repayments shall be reasonably priced. And if the Supreme Court rules in favor of the plaintiffs, some borrowers enrolled in SAVE could face a major increase of their monthly payments.
Student loan forgiveness and lower payments are subject to court orders
The Biden administration is facing two lawsuits in search of to dam the SAVE program. The lawsuits were filed by two GOP-led states in two different federal courts. Last month, those courts issued key rulings that threw the SAVE program into turmoil.
In the lawsuit filed in Missouri, a federal judge allowed most elements of the SAVE plan to take effect. However, the judge issued a preliminary injunction halting student loan forgiveness under this system, suggesting that this system’s generous debt-forgiveness features could have gone beyond what Congress authorized. A preliminary injunction temporarily blocks a federal program, policy, rule or law while litigation is underway, but is often granted provided that a court believes the lawsuit will ultimately succeed.
In one other lawsuit in Kansas, a unique federal judge allowed student loan forgiveness under SAVE, contrary to the Missouri ruling. However, that judge issued a preliminary injunction blocking reduced payments under SAVE, which were set to take effect on July 1. Under the formula change, borrowers who had mostly or entirely student loans could have received as much as a 50 percent reduction of their student loan payments under SAVE. However, in consequence of the Kansas order, the Department of Education placed thousands and thousands of borrowers into forbearance because there was not enough time to recalculate borrowers’ payments on such short notice to comply with the court order.
Biden administration appeals rulings on student loan forgiveness and lower payments
The Biden administration announced that it could quickly appeal each rulings.
In a rapid turn of events, the federal government’s appeal of the Kansas injunction was at the very least temporarily successful within the tenth Circuit Court of Appeals. The tenth Circuit issued a short lived stay of the lower court’s injunction. This allowed the Department of Education to proceed implementing the lower payments under SAVE that were scheduled to take effect but had been blocked by the Kansas ruling. With the tenth Circuit’s approval, the Department directed its loan servicers to resume billing on the reduced amount to reflect the advantages of the SAVE plan.
But three states – Alaska, Texas and South Carolina – appealed the tenth Circuit’s ruling to the Supreme Court, arguing that the Kansas court’s stay of the injunction was improper. The nation’s highest court must now determine whether to simply accept the tenth Circuit’s motion and, if that’s the case, whether to uphold or lift the stay.
Meanwhile, the Biden administration has also announced that it’s going to appeal the injunction in Missouri blocking student loan forgiveness under SAVE. But first, the administration desires to make clear how far the injunction extends and whether it blocks all student loan forgiveness or simply so-called “early” student loan forgiveness, a novel feature of SAVE that may wipe out a borrower’s federal student loan debt in as little as 10 years (versus 20 or 25 years for many other borrowers).
Supreme Court ruling on SAVE plan could impact student loan repayment
If the Supreme Court ultimately sides with the plaintiffs and lifts the stay on the tenth Circuit Court’s injunction in Kansas, thousands and thousands of borrowers who had their SAVE payments cut starting in July — and who budgeted accordingly — could see that cut reversed. That means students whose payments were cut in half would see their current payments double.
The Biden administration and borrower advocates argue that the Higher Education Act has given the Department of Education broad authority to craft the parameters for IDR plans for over 30 years. And the department has properly exercised that authority multiple times — in 1994 to create the Income Contingent Repayment plan, in 2012 to create the Pay As You Earn plan, in 2015 to create the Revised Pay As You Earn plan, and again in 2023 to create the SAVE plan. But opponents argue that SAVE goes too far, they usually hope the Supreme Court will agree.
“The Department has claimed that since 1993 it has had the power to cancel as much student loan debt as it wants under the guise of income-driven repayment (IDR) plans,” said an announcement from Sheng Li, litigation attorney on the New Civil Liberties Alliance, which submitted a Friend of the Court meager on Tuesday in support of opponents. “Congress never authorized the Department to devise a plan more generous than what Congress has passed. The Supreme Court should reinstate the injunction against this unlawful plan.”
The Supreme Court could also ultimately determine the fate of student loan forgiveness under SAVE
The query before the Supreme Court immediately is a reasonably narrow one: whether or to not lift the tenth Circuit’s stay of the Kansas injunction, which applies only to the lower student loan payments under the SAVE plan.
But Missouri’s second injunction blocking student loan forgiveness can be more likely to find yourself before the Supreme Court, after an expected appeal to the eighth Circuit Court of Appeals. And more generally, when two different federal appeals courts issue different rulings on a vital legal issue with national implications, the Supreme Court is more likely to become involved in a method or one other.
It’s unclear when the Supreme Court will release information on the emergency appeal of the tenth Circuit’s stay, but it surely could occur this month. The Biden administration is predicted to file a response today.
