A federal appeals court has sided with the Biden administration and temporarily halted a lower court ruling that had blocked reduced student loan payments that were scheduled to go into effect this month.
The brief decision by the 10th Circuit Court of Appeals gives the Biden administration a significant, but not necessarily permanent, victory in two ongoing legal battles over the Saving on a Valuable Education plan, or SAVE. The Education Department now has a green light to implement lower student loan payments under SAVE for millions of borrowers.
“Yesterday, the U.S. Court of Appeals for the Tenth Circuit sided with student loan borrowers across the country who stand to benefit from the SAVE Plan – the most affordable repayment plan in history,” said Education Secretary Miguel Cardona in a statement on Monday. “Borrowers will hear directly from their loan servicers and the Department as we implement the new, lower monthly payments for borrowers enrolled in SAVE.”
But the legal battle over one of President Joe Biden’s signature student debt relief initiatives is far from over. And student loan forgiveness under the SAVE plan remains blocked for now as the administration appeals a separate injunction issued by a different court.
Here’s the latest.
Reduced Student Loan Payments Can Proceed Under SAVE, But Student Loan Forgiveness Remains Blocked
A group of Republican states, spearheaded by Kansas and Missouri, initiated legal challenges last spring to strike down Biden’s SAVE plan. SAVE is a new income-driven repayment plan option that lowers payments, halts runaway interest, and gives borrowers several routes to eventual student loan forgiveness. The administration had been implementing the SAVE program in stages. The final phase, which would slash monthly payments by up to 50 percent for borrowers with undergraduate student loans, was set to go into effect this week.
But last Monday, a federal judge in Kansas granted a preliminary injunction, blocking the improvements under SAVE scheduled to go into effect in July — including the planned reduction in student loan payments. Separately, a second judge in Missouri halted all student loan forgiveness under SAVE. That ruling remains in effect for the time being.
The Biden administration signaled it would appeal the two decisions. And on Monday, the 10th Circuit Court of Appeals agreed with the administration’s arguments that implementing the injunction would cause significant disruptions for student loan borrowers. As a result, the appeals court stayed — or temporarily halted — the lower court’s order blocking the reduced payments under SAVE. For now, borrowers can remain in SAVE, can continue to enroll, and can enjoy the reduced payment benefits associated with the program that were set to take effect this month.
“Borrowers enrolled in the SAVE Plan can still access its considerable benefits, including undergraduate loan payments cut in half, as well as protection against interest accruing if borrowers are making their monthly payments,” said Cardona. “And, 4.5 million borrowers will continue to have $0 monthly payments.”
Reduced Student Loan Payments And End Of Forbearance Expected By August
Millions of student loan borrowers had been placed in an administrative forbearance to postpone payments following the two lower court decisions. The Education Department indicated that loan servicers had no way of complying with the orders by July, as many borrowers’ payments under SAVE were already being recalculated to reflect the anticipated reductions. To comply with the court order, the servicers would have had to reverse their calculations and redo billing schedules again.
With that injunction now lifted, the department indicates that servicers will proceed in implementing reduced student loan payments under SAVE, as originally planned. Borrowers who have already had their payments reduced could start making those payments this month. Other borrowers who are currently in the forbearance should have their payments recalculated by August, at which point they can resume repayment.
Student Loan Forgiveness Still Halted For Now As Appeal Continues
Meanwhile, the Biden administration intends on appealing the Missouri court ruling that blocked student loan forgiveness under SAVE. More than 400,000 borrowers have already received loan forgiveness under the program, but the Education Department cannot process any further loan forgiveness while the injunction remains in place.
The 8th Circuit Court of Appeals will hear the administration’s arguments on staying the Missouri court’s ruling. Notably, however, the 8th Circuit is the same court that wound up blocking President Biden’s early sweeping debt relief plan that would have provided $10,000 in student loan forgiveness for many borrowers.
Key Points As Battle Over Student Loan Forgiveness And Lower Payments Continues
The whiplash of court rulings in the last week related to student loan forgiveness and repayment under SAVE is causing significant confusion for borrowers. Here are the bottom line takeaways for now:
- SAVE remains available. Borrowers currently enrolled can stay in the plan, and borrowers seeking to enroll can still sign up.
- Borrowers who were supposed to get their student loan payments reduced in July under SAVE will now be able to see that happen, following the 10th Circuit’s decision this week.
- The overall situation involving SAVE remains very much in flux, however. The recent court orders are all temporary injunctions or stays, issued in the early stages of litigation. These orders could be further modified, expanded, or eliminated as appeals continue. And the ultimate fate of SAVE is very uncertain, as the courts have not yet addressed the core merits of the legal challenges. It is possible, particularly given recent Supreme Court rulings, that SAVE could get struck down.
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