The Department of Education will pause student loan payments for 8 million borrowers after a federal appeals court temporarily blocked a repayment plan that the Biden administration launched last year.
The fate of the plan, known as SAVE (Saving on a Valuable Education), is in flux as courts across the country consider two legal challenges brought by several Republican-led states.
“Borrowers enrolled in the SAVE Plan will be placed in an interest-free forbearance while our administration continues to vigorously defend the SAVE Plan in court,” Education Secretary Miguel Cardona said in a statement.
Payments are not required during a forbearance, but a borrower is not making any progress toward paying down their debt.
“The department will be providing regular updates to borrowers affected by these rulings in the coming days,” Cardona said.
Reducing student loan debt has been a priority for the Biden administration and the SAVE plan is one of the most significant policy changes it has made.
Like other existing student loan repayment plans, SAVE ties a borrower’s monthly payments to their income and family size. But SAVE is the most generous plan for low-income borrowers, offering lower payments and a faster path to student loan forgiveness. More than half of the 8 million people currently enrolled in SAVE have $0 monthly payments.
The SAVE plan opened last year, after the Supreme Court struck down Biden’s sweeping, one-time student loan forgiveness program before it took effect.
Legal challenges to SAVE
Two groups of GOP-led states filed lawsuits earlier this year, arguing that the Biden administration does not have the legal authority to implement SAVE. The government’s lawyers say they are relying on power provided by Congress to the executive branch by a law called the Higher Education Act.
On Thursday, the 8th US Circuit Court of Appeals halted SAVE in a one-sentence, unsigned order. The court said the new freeze would remain in effect until it decides whether to issue a longer-term block.
Meanwhile, in a separate case, Alaska, South Carolina and Texas have asked the Supreme Court to review the SAVE plan.
Much of the SAVE plan was implemented last year. But further reductions to borrowers’ payments were scheduled to take effect in July. The Biden administration said that some, but not all, of those reductions were made to date. Now, all borrowers will be put in a forbearance.
Lawyers for the Biden administration told the high court on Wednesday that it should let the program move forward while the legal matters play out. They argue that “borrowers would stand to suffer significant and irreparable harm” and many would “experience intense confusion” about the status of their loans if the court blocked the administration from lowering their monthly payments as planned.
Plan allows for student loan forgiveness
In the legal challenge led by Kansas, the complaint argued that the SAVE plan “transforms many or most loans into outright grants from the federal government — without any appropriation from Congress.”
Borrowers enrolled in SAVE may be eligible for student debt relief in a shorter amount of time than under other income-driven plans. Those who borrowed $12,000 or less will see their debt forgiven after paying for just 10 years under SAVE. Every additional $1,000 borrowed above that amount would add one year of monthly payments to the required time a borrower must pay. Under other repayment plans, borrowers must make at least 20 years of payments before receiving debt forgiveness.
The estimated cost of the SAVE plan varies, ranging from the Biden administration’s estimate of $138 billion over 10 years to $475 billion over the same period, according to an estimate from researchers at the Penn Wharton Budget Model. In comparison, Biden’s one-time, signature student loan forgiveness program was expected to cost about $400 billion before it was struck down by the Supreme Court.
CNN’s Devan Cole contributed to this report.