UPDATE: This article has been updated June 30th to reflect the U.S. 10th Circuit Court of Appeal’s action to stay the injunction placed on the SAVE program pending appeal. This effectively allows the Department of Education to continue to implement the provisions of the SAVE final rule that were enjoined by the previous ruling in State of Alaska, et al. v. United States Department of Education, et al.These provisions include the lower 5% of disposable gross income student loan payment, and the forgiveness of borrowers with less than $12,000 in student loan debt. It is unclear at this stage whether or not the injunction placed on the Department of Education by the Missouri decision will prevent the Department of Education from implementing the forgiveness provision.
On Monday June 24th, 2024, two different federal district courts in Kansas and Missouri handed down two different injunctions to the Department of Education’s proposed final rule to implement the additional forgiveness and payment reducing features of the Savings on Valuable Education program or SAVE.
The two recent federal court decisions delivered mixed news for student loan borrowers regarding the SAVE Plan, a new income-driven repayment plan designed to lower monthly payments and potentially lead to loan forgiveness. Neither of the 2 decisions appear to have blocked the original payment reducing provision of the SAVE program that lowered payments by allowing the 225% income deduction as opposed to the 150% deduction that existed in previous programs. Those provisions have been widely implemented over the last 10 months, resulting in significant savings for student loan borrowers. However both decisions together have enjoined the 2nd and 3rd provisions of the final rule:
- a student loan payment calculated at 5% of a borrowers disposable gross income as opposed to 10%
- the forgiveness for borrowers in SAVE who have $12,000 or less in original student loan balances and have held those balances in repayment for 10 years or more
In the State of Alaska, et al. v. United States Department of Education, et al., the U.S. District Court for the District of Kansas partially blocked the implementation of the SAVE Plan nationwide. The court found that the plan’s loan forgiveness provisions lacked clear congressional authorization and constituted a significant expansion of regulatory authority. This decision prevents the implementation of key aspects of the SAVE Plan, including lower monthly payments and faster forgiveness for borrowers with smaller loan balances.
However, in State of Missouri, et al. v. Joseph R. Biden, Jr., et al., the U.S. District Court for the Eastern District of Missouri took a different approach. While it also found that the loan forgiveness provisions of the SAVE Plan exceeded the Secretary of Education’s authority, the court limited its injunction to only those provisions. This means that other aspects of the SAVE Plan, such as adjusted income calculations and interest accrual rules, can still proceed as planned.
For student loan borrowers, these decisions create uncertainty. While the Missouri ruling allows some beneficial aspects of the SAVE Plan to move forward, the Kansas ruling’s nationwide injunction could significantly delay or even derail the plan’s implementation. Borrowers who were hoping for lower payments and faster forgiveness under the SAVE Plan may now face continued uncertainty and potentially higher repayment burdens. The final outcome of the SAVE Plan will likely depend on further court decisions and potential legislative action. Borrowers should stay informed about these developments and consider seeking guidance from financial advisors such as Hope Credit or legal experts to understand how these decisions may impact their individual situations.
What does this mean for Hope Credit clients?
In the 2 days since the injunctions have come down from the federal courts, dozens of Hope Credit clients have continued to have their SAVE payments recalculated to the lower 5% of disposable gross income payment that was specifically enjoined in the Kansas District Court case. It is unclear whether the Department of Education has a certain period of time to object to the injunctions, but apparently student loan borrowers are still able to benefit from the 5% of disposable gross income provision of the Final Rule. As a word of caution, it may not be advisable to rely on the new lower payment for budget planning in the event the Department of Education is compelled to reverse the reduction. However, borrowers who are currently in the SAVE program can take comfort in the fact that the first provision of the SAVE program that has been going on for more than 10 months is not the subject of either injunction. Furthermore, for those clients who are not in the SAVE program, all of the other repayment programs that were enacted by Congress and signed into law are safe from the possibility of being enjoined as a result of of a legal challenge at this point in time. If you have any questions regarding the repayment program you are currently using to repay your federal student loans, please call, email, or text your caseworker for further clarification.