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

As two lawsuits block the federal student loan repayment plan Saving on a Valuable Education (SAVE), millions of borrowers face continued uncertainty about their monthly bills and future repayment options.

The lawsuits, filed by two groups of Republican-led states, allege that President Joe Biden does not have the authority to cancel student debt under the SAVE plan without congressional approval. The White House opened SAVE to borrowers a year ago.

In late June, borrowers enrolled in SAVE were automatically placed in an interest-free payment pause, known as forbearance. This will continue until the legal situation is resolved, which could take months. A court order also blocked forgiveness under any income-driven repayment plan, not just SAVE.

The Biden administration is appealing recent lower court decisions on the lawsuits. The Supreme Court declined to consider the cases in late August, but it could still weigh in on SAVE in the future.

If you’re enrolled in SAVE, here’s the key context to know about the lawsuits, plus your options during this time.

Interest-free forbearance, no PSLF or IDR forgiveness credit

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, as it continues to defend the SAVE plan in court. Upcoming payments won’t be due, even if you receive a bill.

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.

» MORE: How to get income-driven repayment loan forgiveness

In the meantime, "borrowers should make sure they are enrolled in the right kind of forbearance if they're in limbo because of these decisions," says Mike Pierce, the executive director of the Student Borrower Protection Center. "We've heard that MOHELA and other servicers may be improperly charging borrowers interest during this time, even though they have been instructed to waive interest charges for borrowers enrolled in SAVE."

What SAVE borrowers can do while the plan is blocked

SAVE borrowers have limited options right now. Timelines are in limbo, and government guidance is subject to change as courts release new decisions.

If you’re enrolled in SAVE, you may consider the following three options:

1. Switch to a different repayment plan

You can earn credit towards forgiveness during this time by switching to an IDR plan other than SAVE. The only other IDR plan open to most borrowers is Income-Based Repayment (IBR). The Income-Contingent Repayment (ICR) plan also remains an option if you have a consolidation loan that you used to pay off a parent PLUS loan.

» MORE: Choose the best student loan repayment plan

Expect a drawn-out process that could stretch into 2025. Borrowers who want to apply for an IDR plan or loan consolidation must submit a paper application to their servicer, because online applications are temporarily closed. And, servicers are not allowed to process the paper applications until further notice from the government.

There's no estimate for when the IDR application processing pause will end, the Education Department says. Paper applications are available on studentaid.gov.

Here’s what you can expect if you apply for an IDR plan right now:

• Your servicer may place you in a short-term “processing” forbearance for up to 60 days while it prepares to process your application. During this time, you won’t owe payments, but interest will accrue on your debt. You’ll continue to make progress toward PSLF or IDR forgiveness. 

• If your application is not processed within 60 days, your servicer will move you to “general” forbearance. You won’t owe payments and interest will not accrue. However, you also will not earn credit toward PSLF or IDR forgiveness while in this specific forbearance.

Use the Education Department's loan simulator to estimate what your payments might look like on different IDR plans.

2. “Buyback” forgiveness credit, if you’re eligible for PSLF

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

• You have an outstanding federal student loan balance. 

• You have approved qualifying employment for these months spent in the forbearance.

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

» MORE: What is the PSLF Buyback?

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

3. Do nothing and wait it out

The process of changing repayment plans is slow and uncertain, and the buyback is only available to qualifying PSLF borrowers.

Given the chaos surrounding the federal student loan system right now, you may consider sitting out until the government updates guidance. If you are already enrolled in the SAVE plan and you do nothing, here’s what you can expect:

• You won’t owe payments until further notice, and no interest will accrue on your debt. 

• You might not earn credit towards IDR or PSLF forgiveness for this time. 

• The future of SAVE remains uncertain. If the courts strike down the plan permanently, you might wind up on a different repayment plan. 

Even if you choose to do nothing, call your servicer to make sure you understand your situation and paths forward.

» MORE: How to call your student loan servicer

What happens to the SAVE plan now: key context and timeline

The future of SAVE remains unclear. The current blockage is temporary, pending further legal decisions. Federal judges and even the Supreme Court may decide the fate of the plan.

If the courts permanently strike down SAVE, millions of borrowers could lose a path to affordable student loan repayment. SAVE is more generous than other IDR plans, which the government first 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 September 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 lawsuits blocked these final SAVE benefits.

Nonetheless, the Education Department has already forgiven $5.5 billion in student debt for 414,000 SAVE borrowers.

» MORE: 10+ programs that forgive student loans

Here’s a general timeline of the SAVE lawsuits:

• March 28, 2024: A group of 11 Republican states led by Kansas sues to stop the SAVE plan.

• April 9, 2024: A separate group of seven Republican states led by Missouri files a similar lawsuit.

• June 24, 2024: Two federal judges temporarily block different portions of SAVE, days before reduced payments are scheduled to go into effect for millions of SAVE borrowers. The Education Department puts SAVE borrowers in an indefinite administrative forbearance.

• June 30, 2024: The 10th Circuit Court of Appeals lifts one of these rulings, allowing lower payments to proceed, but not the accelerated 10-year forgiveness.

• July 18, 2024: The 8th Circuit Court of Appeals entirely blocks SAVE until a final decision is made.

• Aug. 28, 2024: The Supreme Court denies the Biden administration’s request to temporarily reinstate SAVE. The high court also sends the two lawsuits back to the 8th and 10th Circuit Courts of Appeals for further review.