The 8th U.S. Circuit Court of Appeals recently blocked the Saving on a Valuable Education (SAVE) income-driven student loan repayment plan. This means that borrowers enrolled in SAVE won’t have to make payments until the legal situation is resolved, which could take several months.

This ruling, issued on July 18, is the latest development in a series of legal battles over SAVE, stemming from two lawsuits brought by Republican-led states. The decision impacts around 8 million borrowers, or 1 in 5 student loan borrowers, who are currently enrolled in the SAVE plan.

U.S. Education Secretary Miguel Cardona expressed concern over the ruling, stating that it could have severe consequences for millions of borrowers struggling with high monthly payments. Cardona criticized the lawsuits as politically motivated efforts that are hindering efforts to lower payments for millions.

Temporary Forbearance for SAVE Borrowers

As a result of the court’s decision, all 8 million borrowers enrolled in SAVE are now in administrative forbearance, meaning they won’t owe payments until further notice. Of these borrowers, approximately 4.6 million already have $0 monthly payments based on their income. For the remaining 3.4 million who do owe payments, those payments are temporarily suspended.

Cardona assured borrowers that they would be placed in an interest-free forbearance while the administration defends the SAVE plan in court. He also advised borrowers to keep their contact information updated in their studentaid.gov and loan servicer accounts to stay informed about any changes.

No Forgiveness Credit During Forbearance

During this indefinite forbearance period, borrowers won’t earn credit toward income-driven repayment (IDR) forgiveness or Public Service Loan Forgiveness (PSLF). This marks a change from previous forbearances, where borrowers did receive credit.

However, there are options to continue earning credit:

1. Switch to Another IDR Plan: Borrowers can switch to other IDR plans like Income-Based Repayment (IBR), Income-Contingent Repayment (ICR), or Pay As You Earn (PAYE). Payments made under these plans will still count toward IDR and PSLF forgiveness. However, borrowers should expect delays, as servicers have temporarily stopped processing IDR applications.
2. PSLF Borrowers Can “Buy Back” Credit: Some PSLF borrowers can “buy back” months of credit by making extra payments during the forbearance period. This option is available for borrowers who meet certain criteria, such as having an outstanding loan balance and qualifying employment during the forbearance period.

Current Application Process

Borrowers who want to apply for an IDR plan or loan consolidation must use a PDF application, as online applications are currently closed. The Education Department has warned of significant delays in processing these applications due to the ongoing legal issues.

What Comes Next?

SAVE is considered more generous than other IDR plans, offering lower monthly payments and an interest subsidy to prevent balances from growing. The plan also promises quicker debt forgiveness for borrowers with smaller loan balances. Despite these benefits, SAVE has faced legal challenges since its introduction.

The legal battle began in March when 11 Republican-led states, spearheaded by Kansas, sued to block SAVE, arguing that President Biden lacked the authority to implement the plan without congressional approval. In April, another group of Republican states led by Missouri filed a similar lawsuit.

While parts of the plan were temporarily blocked in June, the most recent decision from the 8th Circuit completely halts SAVE until a final ruling is made. If the courts remain divided, the case may ultimately reach the U.S. Supreme Court.

The outcome of these legal battles will determine the future of SAVE and could have a significant impact on millions of student loan borrowers. Stay updated on this situation by regularly checking official sources like studentaid.gov for the latest information.