SAVE Lawsuits: Student Loan Repayment Plan Blocked, Payments Paused For Millions

The 8th U.S. Circuit Court of Appeals has blocked the income-driven student loan repayment plan Saving on a Valuable Education (SAVE). As a result, SAVE borrowers won’t owe payments until the legal situation is resolved, which could take months.

The July 18 ruling was the latest update for borrowers who have endured back-and-forth legal decisions about SAVE since June, resulting from two lawsuits filed by groups of Republican-led states. About 8 million borrowers are enrolled in SAVE, accounting for 1 in 5 student loan borrowers.

“Today’s ruling from the 8th Circuit blocking President Biden’s SAVE plan could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect,” U.S. Education Secretary Miguel Cardona said in a statement. “It’s shameful that politically motivated lawsuits waged by Republican elected officials are once again standing in the way of lower payments for millions of borrowers."

The latest legal decision blocks the plan in its entirety, whereas decisions in recent weeks only blocked portions of the plan. However, the decision is also temporary — in place until the court rules on the plaintiffs' request for a preliminary injunction.

If you’re enrolled in SAVE, here’s what you need to know.

Interest-free forbearance for SAVE borrowers

Of the 8 million federal student loan borrowers enrolled in SAVE, about 4.6 million owe $0 payments based on their income.

If you’re among the 3.4 million SAVE borrowers who do owe monthly payments, you’re off the hook for now. The Education Department is putting all SAVE borrowers into an administrative forbearance indefinitely. Upcoming payments won’t be due, even if you received a bill for August.

“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. The department will be providing regular updates to borrowers affected by these rulings in the coming days,” Cardona said.

Check that your contact information is up to date in both your studentaid.gov and student loan servicer accounts. This will help you stay informed of key SAVE updates that may impact your repayment. The Education Department is also posting updates on ED.gov/SAVE.

No PSLF or IDR forgiveness credit

During the indefinite forbearance, borrowers will not earn credit toward income-driven repayment (IDR) loan forgiveness or Public Service Loan Forgiveness (PSLF), according to the latest Education Department guidance. This is a departure from previous administrative forbearances, during which borrowers did receive this credit.

There are a couple of official workarounds, according to the Education Department.

Workaround 1: Switch to a different IDR plan

You can earn credit towards forgiveness during this time by switching to an IDR plan other than SAVE. Your options are Income-Based Repayment (IBR), Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE). (Note: PAYE was slated to close to new enrollment on July 1, but the court order that temporarily blocked SAVE also stopped the closure of PAYE.)

Payments made on IBR, ICR or PAYE will count towards IDR and PSLF forgiveness, even during the SAVE forbearance.

Use the Education Department's loan simulator to estimate what your payments might look like on different IDR plans. Your monthly payments could increase if you switch plans, so consider the decision carefully.

This isn't an instant solution, since servicers have temporarily stopped processing IDR applications, and we don't know when processing will resume. Expect major delays switching to a different repayment plan.

Workaround 2: PSLF borrowers can "buy back" credit

Some PSLF borrowers can "buy back" months of PSLF credit for time spent in this lawsuit-related forbearance. You may qualify for the buyback if:

• you have an outstanding federal student loan balance,

• you have approved qualifying employment for these months spent in the forbearance, and

• buying back these months will complete your total of 120 qualifying PSLF payments needed for forgiveness.

To get credit, you must submit a buyback request and make an extra payment of at least what you would have owed under an IDR plan during the month(s) you want to buy back.

This process debuted last fall; more information is available on studentaid.gov.

Online applications closed

For now, borrowers who want to apply for an IDR plan (including SAVE) or loan consolidation must submit a PDF application. Online applications are closed until the legal situation is sorted out.

Instructions for the PDF application process are available on studentaid.gov.

Prepare to wait. While servicers are actively accepting PDF applications, they won't process them until the Education Department can ensure processing is done correctly. Borrowers should expect a "lengthy delay" in application processing, especially if they are applying for SAVE, the Education Department says.

Once applications are finally processed, borrowers who enroll in SAVE may be placed in an interest-free forbearance if litigation is ongoing at that time.

How we got here and what could come next

SAVE is more generous than other income-driven repayment (IDR) plans, which the government introduced in the 1990s. For example, SAVE offers lower monthly payments and an interest subsidy that prevents ballooning balances. It also forgives debt in as little as 10 years for those with principal balances up to $12,000, compared to forgiveness in 20 or 25 years on other IDR plans.

Portions of SAVE debuted to borrowers in August 2023. The final benefits of the plan — like capping payments on undergraduate loans at 5% of discretionary income, rather than 10% — were slated to roll out July 1. The Education Department has already forgiven $5.5 billion in student debt for 414,000 SAVE borrowers.

In March, a group of 11 Republican states led by Kansas sued to stop the SAVE plan, alleging that Biden did not have the authority to cancel student debt without congressional approval. In April, a separate group of seven Republican states led by Missouri filed a similar lawsuit.

As a result, two federal judges temporarily blocked different portions of SAVE in late June, days before reduced payments were scheduled to go into effect for millions of borrowers.

One of these rulings was lifted a week later by the 10th U.S. Circuit Court of Appeals, allowing lower payments to proceed, but not the accelerated 10-year forgiveness. However, the latest decision by the 8th Circuit on Thursday entirely blocks SAVE until a final decision can be made.

In a post on X, Missouri Attorney General Andrew Bailey called the July 18 decision a “HUGE win for every American who still believes in paying their own way.”

However, removing SAVE could leave borrowers with “intense confusion” and “significant and irreparable harm,” Prelogar said in the Wednesday court filing.

“To revert to the pre-SAVE plan approach, the department and its servicers would have to reprogram their systems, retrain their staff and recalculate monthly payments,” Prelogar said. “It would have to devote considerable staff time and other resources to the reprogramming effort, which would detract from other critical priorities.”