Cody Gude, a 35-year-old from Tampa, was looking forward to July because his student loan payment was about to drop from $200 to $100, thanks to a new plan called the Saving on a Valuable Education (SAVE) plan. This lower payment meant he could stop his side job of delivering groceries and focus on his main work as a social media consultant. However, recent legal issues have put those plans on hold, leaving Cody and many others feeling uncertain and frustrated.
Uncertainty Around Student Loan Payments
Cody’s loan company, Nelnet, had already adjusted his monthly payment to reflect the new lower amount. The SAVE plan allows borrowers to pay just 5% of their discretionary income each month, compared to the previous 10%, and some borrowers even qualify for a $0 monthly payment. However, two federal judges in Kansas and Missouri have temporarily stopped the Biden administration’s new repayment plan. This means Cody and others are left wondering if their payments will really decrease or if they will get a notice reversing this decision.
Legal Challenges Facing the SAVE Plan
The SAVE plan, introduced by President Biden last summer, was designed to be the most affordable student loan plan ever. About 8 million borrowers have signed up for this new income-driven repayment plan. Under previous plans, borrowers paid a percentage of their discretionary income and received loan forgiveness after 20 to 25 years. The SAVE plan replaced the Revised Pay As You Earn (REPAYE) plan, offering more generous terms.
However, the SAVE plan has faced criticism for being too generous. Borrowers with undergraduate debt now only pay 5% of their discretionary income, down from 10%. Those earning less than $15 an hour have a $0 monthly bill, and borrowers with smaller balances could receive loan forgiveness in as little as 10 years. Some experts, like higher education expert Mark Kantrowitz, say the plan is “very generous to borrowers, almost like a grant after the fact.”
Court Decisions Impacting the SAVE Plan
The legal challenges to the SAVE plan come from Republican-led states like Florida, Arkansas, and Missouri. These states argue that the Biden administration is overstepping its authority with SAVE, especially after the Supreme Court blocked a previous student debt forgiveness plan.
In Kansas, Judge Daniel Crabtree did not roll back the SAVE plan’s features already in effect, but he did agree to stop the provision that would lower payments starting in July. He pointed out the huge cost difference between REPAYE ($15.4 billion) and SAVE ($475 billion over the next decade).
In Missouri, Judge John Ross stopped the Biden administration from forgiving any more student debt under the SAVE plan until he makes a decision. He agreed that the plan could reduce fees paid to the Missouri Higher Education Loan Authority (Mohela).
| Topic | Details |
|---|---|
| What is the SAVE Plan? | The SAVE plan (Saving on a Valuable Education) is a new repayment option introduced by President Biden, designed to lower monthly student loan payments for borrowers. |
| Impact of Legal Challenges | Federal judges have temporarily halted parts of the SAVE plan, leading to uncertainty about whether borrowers will see their payments decrease as planned. |
| Effect on Monthly Payments | Borrowers who had their payments reduced under the SAVE plan might see those reductions reversed due to ongoing legal battles. |
| Action for Borrowers | Borrowers enrolled in the SAVE plan should stay informed through their loan servicer and the Department of Education, and continue to monitor any changes to their payments. |
| Possibility of Plan Reversal | The SAVE plan could potentially be overturned or altered if the legal challenges progress, possibly reaching the Supreme Court for a final decision. |
| Loan Forgiveness Security | Any loan forgiveness already received under the SAVE plan is secure; the court’s rulings are not retroactive, so forgiven amounts won’t need to be repaid. |
| Resolution Timeline | The legal challenges could take months to resolve, with a final decision potentially not coming until the Supreme Court takes up the cases, possibly in its October term. |
| Comparison to REPAYE Plan | The SAVE plan replaces the REPAYE plan, offering a lower payment rate (5% of discretionary income) and more generous terms for loan forgiveness, especially for smaller balances. |
| Staying Updated | Borrowers should regularly check communications from their loan servicer and the Department of Education for the latest updates on the SAVE plan and its legal status. |
| Should Borrowers Worry? | While the situation is uncertain, borrowers should not panic. It’s important to stay informed and follow any guidance from loan servicers regarding the SAVE plan. |
What Borrowers Should Expect
The timeline for resolving these legal cases is unclear. Scott Buchanan, the executive director of the Student Loan Servicing Alliance, thinks the cases could go on for months, possibly even past the upcoming election. He believes the cases might reach the Supreme Court, which wouldn’t take them up until October, with a decision coming much later.
Advice for Borrowers
For now, borrowers should stay enrolled in the SAVE plan and continue benefiting from lower bills where applicable. Some parts of the plan are paused, but others, like the higher income shielding from payment calculations, are still in effect. If your loan servicer updated your bill based on the preliminary court decisions, your payment should soon return to its previous amount. Mark Kantrowitz reassures borrowers that the court’s ruling is not retroactive, so there’s no need to worry about losing any forgiveness already received.
FAQs
What is the SAVE plan, and how does it affect my student loan payments?
The Saving on a Valuable Education (SAVE) plan is a new student loan repayment option introduced by President Biden. It allows borrowers to pay only 5% of their discretionary income towards their loans each month, compared to the previous 10%. For some, this means a significant reduction in monthly payments, and those earning less than $15 an hour may qualify for a $0 payment.
How do the legal challenges impact the SAVE plan?
Two federal judges have temporarily halted parts of the SAVE plan, creating uncertainty for borrowers. While some features of the plan, like reduced payments, are paused, other benefits remain in effect. The final outcome of these legal challenges could affect whether or not borrowers see a decrease in their monthly payments.
Will my student loan payments still decrease under the SAVE plan?
It depends. If your loan servicer had already adjusted your payments according to the SAVE plan, those changes might be reversed due to the ongoing legal battles. However, some parts of the plan, like the income shielding from payment calculations, are still in effect.
What should I do if I’m enrolled in the SAVE plan?
If you’re already enrolled in the SAVE plan, it’s important to stay informed about any updates from your loan servicer and the Department of Education. While some parts of the plan are paused, you should continue to monitor your payments and remain enrolled to benefit from the parts of the plan that are still active.
Could the SAVE plan be overturned completely?
It’s possible that the legal challenges could lead to changes or even a complete reversal of the SAVE plan. These cases could eventually reach the Supreme Court, which would make a final decision. However, this process could take months, leaving borrowers in a state of uncertainty for some time.
In these uncertain times, it’s important for borrowers to stay informed and keep an eye on updates from their loan servicers and the Department of Education. While the legal battle continues, the hope of lower payments and possible forgiveness remains, leaving millions of Americans waiting and hoping for a favorable outcome.
