Courts block aspects of Biden’s hallmark student loan repayment plan

In two court rulings Monday night, federal judges in Kansas and Missouri halted key aspects of President Joe Biden's hallmark student loan repayment program.

The SAVE plan, a student loan repayment plan that ties how much someone pays each month to what their income is, has been in place for almost a year and is the jewel of Biden's surviving student loan efforts -- one that he has touted heavily in his reelection campaign.

The rulings will stop the Biden administration from any further implementation of the program for now, including a plan to slash payments next month and to continue granting debt relief to certain enrollees. Aside from those aspects, though, the rulings will still allow people to keep using the program as is until the cases are fully litigated.

The biggest impact will be a pause on phase two of SAVE, which would've kicked in on July 1 and reduced monthly payments from 10% of a borrower's discretionary income down to 5% for those with undergraduate loans, significantly lowering bills for many.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group that represents the major loan servicers, said he expected the rulings would instead keep the status quo in place and borrowers would be charged the same amount come August, instead of seeing a decrease from their June bill.

But the lawsuit has thrown the program into a state of confusion, leaving implementation of the rulings to be sorted out by the Department of Education. Officials from the Office of Federal Student Aid were in ongoing conversations with loan servicers on Tuesday, Buchanan said, and there were many details up in the air.

Mike Pierce, executive director of the Student Borrower Protection Center, suggested that the Department of Education could take a different route completely and direct servicers to pause all payments for enrollees of the SAVE program while the litigation gets ironed out, potentially leading to a monthslong moratorium for millions.

The rulings also call on the administration to halt any further cancellation of debt under SAVE, another major tenet of the program.

Under SAVE, people who took out smaller initial loan payments had a shorter path to forgiveness compared to other income-driven repayment plans that are available to borrowers.

With other plans, borrowers pay a portion of their income toward their loans for 20 to 25 years and then the Department of Education cancels their remaining debt. With SAVE, borrowers who took out $12,000 or less can have their debt canceled after just 10 years of payments.

For every $1,000 more, borrowers pay for one more year -- so someone who took out $14,000 would have their debt canceled after 12 years of payments.

The goal is to target debt relief to people who took out relatively small loans for community college or uncompleted degrees and have struggled to pay them back, Department of Education officials have said.

So far, the Biden administration has used this component to cancel $5.5 billion in debt for almost 414,000 borrowers -- all people who enrolled in SAVE over the past year and had been paying down their small initial balances for over 10 years.

The White House on Tuesday highlighted its larger debt relief efforts, including fixes to other income-driven repayment and public service loan forgiveness programs that have been marred by administrative failures, to emphasize that relief will be ongoing despite this legal setback,

Debt relief through SAVE accounted for just 3% of the $167 billion in debt that’s been canceled for 4.75 million Americans, the White House said.

Still, just as unprecedented debt relief has been a tenet of President Joe Biden’s first term, so too has borrower confusion caused by policies that are implemented but then halted by court decisions questioning legality.

“We’re supposed to be telling borrowers what they are eligible for and what benefits they could get. When those benefits are legally questionable, it's very difficult to do the job to counsel borrowers about options,” Buchanan said.

The collection of research on financial aid also shows that programs are more effective when they’re able to be consistently offered to and accessed by borrowers, said Nicholas Hillman, a professor in the School of Education at the University of Wisconsin-Madison.

“There's a degree of predictability, a degree of security that borrowers really need to be able to stay current on their payments,” Hillman said.

“And so I feel like that's going to be something that we find out when we see how this plays out but it definitely would have a toll on borrowers to not have certainty right now,” he said.

SAVE is similar to other income-driven repayment plans which have been used for decades, but is more generous — an aspect that made it a target of Republican critics who argued that the government was giving borrowers too much leeway on debts they knowingly took out.

SAVE also allows people who make a minimum wage to pay as little as $0 a month and subsidizes interest so that if a borrower pays what they owe each month, remaining unpaid interest will be wiped out.

The lawsuits were brought by Republican states who argued that the Biden administration lacked authority from Congress to enact the SAVE plan. Many of the states were also part of the lawsuit that overturned Biden's initial debt relief plan to cancel between $10,000 and $20,000 in debt for over 40 million borrowers.

The Biden administration said the Department of Justice would appeal the rulings.

"We strongly disagree with the Kansas and Missouri District Court rulings, which block components of the SAVE Plan that help student loan borrowers have affordable monthly payments and stay out of default. The Department of Justice will continue to vigorously defend the SAVE Plan," Education Secretary Miguel Cardona said in a statement late Monday night.

White House press secretary Karine Jean-Pierre criticized Republicans for blocking access to a policy that could provide their constituents with lower student debt payments.

"It's unfortunate that Republican elected officials and their allies have fought tooth and nail to prevent their constituents from accessing lower payments and a faster path to debt forgiveness -- and that courts are now rejecting authority that the Department has applied repeatedly for decades to improve income-driven repayment plans," she said.

To Pierce, whose group represents student debt borrowers and has advocated for widespread debt relief, the actions taken by the Biden administration over the next few days will be critical in retaining voter trust on this issue.

"I think that the politics of this are better than the economics are for people. You know, nobody that cares about student loan borrowers would have chosen this. But it feels like a huge unforced error for Republicans to be the face of jacking up millions of people's monthly payments, taking more of their rights to debt relief," Pierce said.