Cody Gude, a 35-year-old Tampa resident, was eagerly anticipating July. His monthly student loan payment was set to drop from $200 to $100, thanks to the new Saving on a Valuable Education (SAVE) plan.
The reduced payment meant he could stop delivering groceries on Instacart in his spare time and focus solely on his job as a social media consultant. However, recent legal challenges have thrown a wrench in those plans, leaving Gude and millions of other borrowers in a state of confusion and frustration.
Gude’s student loan servicer, Nelnet, had already adjusted his monthly bill to reflect the lower amount. Under the SAVE plan, borrowers pay just 5% of their discretionary income towards their debt each month instead of the previous 10%, with many qualifying for a $0 monthly payment.
But with two federal judges in Kansas and Missouri temporarily halting the Biden administration’s new repayment plan, Gude and others are left wondering if their payments will indeed decrease or if they will receive a notice reversing the decision.
Legal Challenges
The SAVE plan, introduced by President Joe Biden last summer, aimed to be the most affordable student loan plan ever. Approximately 8 million borrowers have signed up for this new income-driven repayment plan.
Under previous Income-Driven Repayment (IDR) plans, borrowers paid a percentage of their discretionary income each month and received forgiveness after 20 to 25 years. The SAVE plan replaced the Revised Pay As You Earn (REPAYE) plan, offering more generous terms.
However, the plan’s generosity has sparked controversy. Borrowers with undergraduate student debt now only need to 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 can receive loan forgiveness in as little as 10 years. Higher education expert Mark Kantrowitz describes the plan as “very generous to borrowers, almost like a grant after the fact.”
Court Decisions
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, attempting to circumvent the Supreme Court’s previous block of a sweeping student debt forgiveness plan.
Judge Daniel Crabtree in Kansas declined to roll back features of the SAVE plan already in effect, citing a lack of demonstrated irreparable harm. However, he agreed to halt the provision that would lower borrowers’ monthly payments starting in July, highlighting the significant 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 SAVE until he makes a decision, agreeing that the plan could reduce fees paid to the Missouri Higher Education Loan Authority (Mohela).
Future Outlook
The timeline for resolving these legal cases remains uncertain. Scott Buchanan, executive director of the Student Loan Servicing Alliance, predicts that the cases could drag on for months, possibly extending past the upcoming election. He believes the cases will likely reach the Supreme Court, which wouldn’t take them up until its October term, with a ruling expected much later.
What Borrowers Should Do
For now, borrowers can stay enrolled in the SAVE plan and continue benefiting from lower bills where applicable. While some provisions of the plan are paused, others, like the higher income shielding from payment calculations, remain in effect.
If your servicer updated your monthly bill based on the preliminary injunctions, your payment should soon revert to its previous amount. Mark Kantrowitz reassures borrowers that the court’s ruling is not retroactive, so there is no need to worry about losing any forgiveness already received.
In this period of uncertainty, it’s crucial for borrowers to stay informed and monitor updates from their loan servicers and the Department of Education. While the legal battle unfolds, the promise of lower payments and potential forgiveness hangs in the balance, leaving millions of Americans waiting and hoping for a favorable resolution.
FAQs
What is the SAVE plan?
The SAVE plan is an income-driven student loan repayment plan introduced by President Biden.
How much can borrowers save?
Borrowers pay 5% of discretionary income, down from 10% under REPAYE.
Why is the SAVE plan paused?
Two federal judges temporarily halted the plan due to legal challenges.
What should borrowers do now?
Stay enrolled in SAVE and monitor updates from loan servicers.
Will previous forgiveness be revoked?
No, the court’s ruling is not retroactive, so past forgiveness remains intact.
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