3 million student loan borrowers to be placed in payment pause

In response to court rulings earlier this week that blocked key components of a student loan policy, the Biden administration is planning to place about 3 million student loan borrowers into a monthslong payment pause.

The pause would be very similar to the pandemic-era student loan moratorium -- borrowers would not need to make payments and interest would not accrue.

The SAVE Plan, dubbed the most affordable plan for borrowers and President Joe Biden's hallmark surviving student debt reform effort, has been the target of two Republican-led lawsuits that argue the Biden administration has gone beyond its authority in aspects of the plan. The move to pause millions of borrowers' bills comes after courts in Kansas and Missouri ruled in the GOP states' favor on Monday night, deciding the Biden administration could not go forward with further implementation of the SAVE Plan, which was rolled out last August and is used by 8 million people.

In particular, the rulings halted the Department of Education from cutting borrowers' payments beginning July 1, when they were set to decrease from 10% of a borrowers' discretionary income down to 5% for those with undergraduate loans, and from canceling any more loans for people who'd taken out small initial loan balances but had been paying them down for over a decade. So far, 414,000 people have qualifed for such debt relief.

In a Thursday night appeal of the Kansas decision, the Department of Justice said the government would need to place borrowers into a pause in order to comply with the judge's ruling on the monthly payment aspect, and instead asked for an emergency motion to stop the ruling from going into effect.

"If the injunction takes effect, it will inflict irreparable harm on the federal government in the form of unrecoverable disruption costs and create extraordinary confusion and chaos for borrowers," wrote Brian Boynton, the Department of Justice's principal deputy assistant attorney general.

The process of reverting back to charging borrowers 10% of their income will take "at least several months," Boynton argued, because it took months of preparation to get ready for the new payment calculation. During that time, "the Department will have no choice but to place a large number of SAVE borrowers into forbearance, until its servicers’ systems can service loans with a correct calculation of payments due."

"The resulting chaos, confusion, and unrecoverable cost should be avoided," he wrote.

The Department of Justice also made the case that borrowers will be harmed by the temporary loan pause because, while they won't be required to pay their loans, the months in forbearance won't apply toward eventual debt relief under plans like the public service loan forgiveness program, PSLF, or other income-driven repayment plans that forgive borrowers' debts after 20-25 years of payment. During the pandemic payment pause, each month was counted toward those programs.

Borrowers enrolled in SAVE were already placed into forbearance, also known as a payment pause, for the month of July in an attempt to smoothly transition to the lower payment calculation, prior to the court rulings. Should the judges not grant the federal government it's request, that forbearance is slated to continue into the coming months.

The payment pause would apply to slightly less than half of the 8 million people enrolled in SAVE. About 4.5 million people who qualify for $0 payments because of low incomes would not be included in the pause.

Though the Monday court rulings dealt a blow to the plan, the Department of Education maintained that it still carried strong benefits for borrowers. In addition to offering the lowest monthly payment for a majority of borrowers, the plan also shields borrowers from unpaid interest accrual, one of the largest additional fees that borrowers face on their loans, because unpaid interest is forgiven so long as qualified borrowers make their monthly payments on the loan itself – even if their required payment is $0.

Of course, the setback is now part of a pattern for Biden's attempts at major changes to the student loan system.

College debt is a major 2024 campaign issue for young voters, and many were left disappointed when Biden couldn't follow through on his pledge to cancel $10,000 to $20,000 in debt last year after the U.S. Supreme Court overturned his sweeping debt relief policy.

Biden's continued efforts to cancel debt in a more piecemeal fashion have now reached nearly 4.75 million borrowers, which he continues to highlight on the campaign trail in an attempt to gain support from a key voting group. Just 3% of the debt relief issued by the Biden administration has been through the SAVE Plan, while the vast majority has been through fixes to programs like PSLF and income-driven repayment plans, which were plagued by administrative failures, or going after colleges that have defrauded students.

And the administration is continuing to work on a Plan B to Biden's initial, widespread debt relief proposal, taking a narrower approach that could cancel debt for about 30 million people in total, including the people who've already had debts canceled.

The administration hopes this more bureaucratic approach will not be overturned by the court yet again -- though it is almost certain to face lawsuits once it reaches its final stages this summer.

The number of borrowers who may receive student loan debt forgiveness under the new policy proposal is vast: it could range from automatic cancellation for people who are on the edge of defaulting on their loans in the near future to application-based relief that could be used on more individualized cases, like people who are struggling to pay down their debts because of costs like health care or housing. Other factors include looking at the amount borrowers are paying toward their student loans compared to how much money borrowers have, including income and assets, as well as loans they have outside of higher education and whether they've been able to pay those down.

The department also wants to look at whether borrowers received a Pell Grant, designed for low-income college students, and whether they use any other government support programs.