Millions of Americans with student loans face a new wave of uncertainty as legal challenges threaten to extend a pause on payments and delay loan forgiveness for as long as a year. With court battles stalling critical debt relief programs, the fate of at least 8 million borrowers remains uncertain.
Legal challenges on the SAVE plan
The Biden administration’s Saving on a Valuable Education (SAVE) plan was designed to provide much-needed relief to federal student loan borrowers. The program, introduced in 2023, replaced the existing REPAYE plan and aimed to reduce monthly payments while curbing interest accumulation for borrowers on income-driven repayment plans (IDR). It also promised eventual loan forgiveness for those making consistent payments for 20-25 years.
However, legal challenges brought by Republican-led states, including Missouri, have resulted in a nationwide injunction against the program. The Eighth Circuit Court of Appeals blocked the plan in August 2024, halting the implementation of significant benefits like reduced payments and debt forgiveness. As a result, 8 million borrowers currently enrolled in the SAVE plan have been placed into forbearance, which suspends payments and interest accrual but delays progress toward loan forgiveness.
Timeline of forbearance
With the legal case now set to be heard in October 2024, borrowers could face prolonged uncertainty. Should the appeals court decision be further contested, the case could escalate to the Supreme Court, potentially extending the legal battle until mid-2025. This means borrowers could remain in forbearance for nearly a year, with no payments due and no interest accumulating. However, this pause does not count toward forgiveness under IDR plans or Public Service Loan Forgiveness (PSLF).
For many, the forbearance offers temporary financial relief, but the uncertainty surrounding loan forgiveness programs has caused significant distress. Some borrowers have expressed frustration over stalled progress, especially those who were nearing the completion of their loan forgiveness period under PSLF.
Other loan forgiveness programs at risk
The SAVE plan is not the only initiative in jeopardy. Other income-driven repayment plans, such as Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE), may also be at risk. The Eighth Circuit’s ruling has broader implications, potentially impacting all forgiveness programs under IDR plans. The Biden administration has argued that the injunction blocks loan forgiveness even for borrowers enrolled in these unrelated programs.
Moreover, another court ruling last week blocked the administration’s attempt to introduce a new debt relief initiative. This program, which was set to launch in the fall of 2024, could have offered relief to 30 million borrowers, many of whom have been paying their loans for over 20 years. Republican-led states once again moved to block the program, arguing that the Education Department was overstepping its authority.
Elections and the future of student loan forgiveness
The upcoming 2024 elections add yet another layer of complexity to the fate of student loan forgiveness. A change in the political landscape could dramatically alter the course of these programs. Should former President Donald Trump or another Republican candidate win the presidency, they would likely take steps to dismantle the debt relief efforts currently underway. Conversely, if Vice President Kamala Harris or another Democratic candidate prevails, they are expected to continue supporting loan forgiveness.
The makeup of Congress will also be crucial. A unified government could codify or dismantle the programs, depending on which party controls the White House, Senate, and House of Representatives. In contrast, a divided government could result in either compromise or gridlock, further delaying relief for millions of borrowers.
