Legal Challenges Facing SAVE - LIVE UPDATES
Welcome to this live-ish update blog! With the fate of the SAVE Plan uncertain, borrowers can expect a bumpy ride over the next several weeks to months. Here, you can find all the information along with what this means for you as developments unfold with the SAVE Plan.
9/11/24: Items to keep in mind as court case drags on
As we get into the meat of the case in the 8th Circuit Court, I expect the frequency of updates to lighten. The case will see written and oral arguments approximately every 2 weeks, followed by a lull until the court makes its final ruling, likely around end of November. In the meantime, here’s some key elements to keep in mind:
IDR Requests likely won’t start getting processed until late November/early December. For borrowers looking to get on a plan, I’m typically leaning towards IBR for now with the expectation that the form won’t get processed for a while.
For those on forbearance currently, there will be a chance to buy back IDR payments after the dust settles. Borrowers will want to retain proof of income in the form of previous tax return or paystubs, since that will be what is used to calculate what the payment should have been for this time. Especially for borrowers pursuing PSLF, it may be wise to set aside some of this money now to pay that amount when the time comes.
The one-time payment count adjustment still hasn’t completed, even though the Dept of Education expected to be done with this by Sept 1. And since (as of today at least) the Dept of Education’s webpage hasn’t been updated, it’s hard to say when this will get completed. That means that borrowers whose consolidations complete before this is officially done should receive the benefits of the adjustment.
Public Service Loan Forgiveness (PSLF) remains in tact - this is not up for legal dispute. Applications for this program remain available online and via PDF.
Standard forgiveness through IBR is also safe - this was explicitly written into law by congress, which means it will be incredibly hard for anyone to overturn. This is why I’m recommending this repayment plan the most right now.
9/6/24: Timeline Set by 8th Circuit Court
The 8th Circuit Court agreed to the requested timeline. For my general takeaways, see the entry below. Here’s what the timeline looks like:
9/18: Written argument due from State of Missouri, et. al.
10/2: Written argument/response due from Biden administration and Dept of Education
10/15: Written argument/rebuttal due from State of Missouri, et. al.
10/24: Oral arguments from each side
Given this timeline, this sets things up for the following (keep in mind that this schedule could change):
Last week of November: 8th Circuit Court hands down a final ruling; losing party will likely petition the Supreme Court to review
1/24/25: Supreme Court conference day where they will consider whether or not to officially review the case
Last week of April 2025: Assuming Supreme Court takes up the case, oral arguments will likely take place this week
End of June 2025: Supreme Court hands down final ruling on the case
I still expect that we won’t see any major developments with the SAVE Plan until end of November/early December when the circuit court makes their ruling.
Additionally, borrowers who were on the SAVE Plan could continue being stuck in limbo for another 9 months.
9/4/24: Tentative timeline for the 8th Circuit (Missouri) case
Yesterday, a request was submitted to the court from the Biden and Department of Education (ED) team for an expedited timeline in this case.
Here’s the shortened version:
The 8th Circuit Court would make a final decision sometime around Thanksgiving (week of 11/25).
Assuming this goes to the Supreme Court, they would hear oral arguments the last week of April, and probably come to a decision around the end of June.
The 8th Circuit Court still has to approve this timeline, but it is notable that this timeline was unopposed by the states.
It’s acknowledged that the losing side will want the Supreme Court to intervene before the end of this upcoming term (June 2025).
My takeaways:
This likely means that the interest-free forbearance and the hold on processing of IDR Request forms will continue at least until late November.
Even if the SAVE Plan is upheld by the 8th Circuit Court, it won’t be out of the water until the Supreme Court makes a final decision [on the rule that put the plan into effect]. I am currently leaning towards the use of the Income-Based Repayment (IBR) plan, when possible, once IDR Request forms start getting processed again.
A new president will start their term before the Supreme Court makes a decision. Actions taken by the new president could affect the SAVE plan and other aspects of student loans even before the Supreme Court makes a final ruling.
8/29/24: Supreme Court refuses to step in
This week, the Supreme Court refused to step in on the injunction placed by the Missouri court (8th circuit). Basically, the Supreme Court said they expect the 8th circuit court to make a decision soon enough.
While we can’t know with 100% certainty the reasoning behind that decision, some possible explanations come to mind:
The Missouri court is going to hand down their decision imminently. If so, why spend all this energy to step in if the court is going to make their decision soon?
The Supreme Court finds more merit with the Missouri court’s decision to issue the broad injunction. If this is the case, the likelihood increases that the SAVE Plan gets struck down along with a higher probability that forgiveness on other IDR plans gets struck down as well.
This is an oversimplification, and there are many other possibilities as to why the Supreme Court refused to step in.
It’s important to keep in mind that even though the Supreme Court refused to step in on this injunction, we are almost certainly going to see them in this case again. Once the 8th Circuit court hands down a final ruling, at least one of (or both) of the sides in this case will be unhappy, and it’s going to get kicked up to the Supreme Court again.
8/27/24: Last week, a small win for the Dept of Education
In the 10th Circuit Course case (Kansas case) last week, judges lifted their injunctions in the case. It appears to be a small victory for the Biden administration and the Department of Education. Seemingly, if the 8th Circuit Course (Missouri case) lifts its broad injunction, or is forced to by the Supreme Court, the Department of Education would be able to move forward with:
Processing Income-Driven Repayment (IDR) Plan Request forms
Processing forgiveness through the standard timelines set by the various IDR plans
Re-instating (potentially) SAVE Plan payments and rules
At least, that is, until further decisions are handed down by the courts.
8/20/24: Things are getting messy
After the drama from last week’s filings, here’s a summary of where things stand:
First, there was a back-and-forth in the 8th Circuit Court (Missouri) on the scope of its injunction on the SAVE Plan’s “Final Rule” (see 8/15 entry, below). Still last week, the Department of Education sought intervention from the Supreme Court to overturn the 8th Circuit Court’s injunction. Then, yesterday, 8/19, the 8th Circuit Court denied the Dept of Ed’s request for clarification.
Now:
It appears the case in the 8th Circuit Court is headed for oral arguments, which could be a few months away still;
The case in the 10th Circuit Court (Kansas) appears to be on hold based on the broad injunction issued by the 8th Circuit Court;
The Supreme Court has been asked to step in on the injunction placed by the 8th Circuit Court, and both sides have presented their arguments backing their respective cases;
On a positive note, both sides agree that a speedy resolution to these cases are in everyone’s best interests.
After poring over the court documents in the above cases, it looks like the Supreme Court is being asked to weigh in only on the injunction. I take this to mean they will be asked to step in again once an actual decision is handed down in either the Missouri case, the Kansas case, or both.
Additionally, the Missouri case has effectively put on hold all parts of the SAVE Plan (scroll to the 7/29 entry for the more detailed description) until a final decision is made. It’s hard to determine when this will take place. The schedule laid out by the circuit court suggests we could be waiting 3 months. However, both sides want this resolved quickly, so my hope is we get a decision sooner. In the meantime, borrowers remain in limbo:
Borrowers who were on SAVE are in an interest-free forbearance that does not count towards forgiveness.
All IDR plan request forms are being put on hold without a timeline for when they’ll be processed.
Unfortunately, borrowers may be stuck in this limbo for a while. It appears that the Dept of Ed doesn’t want to (or can’t) take any action to move borrowers into other income-driven repayment plans while the injunction is in effect.
8/15/24: Dance between the two sides unfolding
Since the 8th Circuit Court’s injunction was issued last Friday, 8/9, a dance has unfolded behind the scenes. Early this week, the Department of Education sought clarification on its scopes.
A back and forth has ensued between the two sides: it appears that the Department of Education is also seeking to limit the scope of the injunction, while the opposition side (Missouri, along with other states) wants to keep the scope as broad as possible.
What I’m most paying attention to is the underlying battle between the two sides on forgiveness, and how the judges are viewing this matter. It has been established that forgiveness under PSLF and the standard forgiveness under IBR are safe. But an unexpected twist has emerged from this case by questioning how forgiveness will be treated on all other income-driven repayment plans (ICR, PAYE, and SAVE/REPAYE). What once seemed to be a question of just forgiveness on the SAVE plan has now broadened in scope.
It looks like we should get the Court to weigh in on this by tomorrow (Friday). I’m off tomorrow but will be back at it on Monday to digest any updates that have unfolded.
8/12/24: Court Issues Injunction on SAVE Plan, Extending the Existing Program Pause
On Friday, 8/9, the 8th Circuit Court of Appeals issued an injunction on the SAVE Plan. This action stems from the case being heard in Missouri and extends the hold that was already in place. The injunction will remain effective until the appeals court or the U.S. Supreme Court makes a final decision. Further commentary on this development can be found here.
The Department of Education responded by expressing disagreement with the decision and vowed to “vigorously defend the SAVE Plan in court.”
For now, there are no immediate changes for borrowers, as those previously enrolled in the SAVE Plan have been placed in interest-free forbearance.
Key Takeaways from This Ruling:
The judges expressed concerns that the Biden administration may have overstepped its authority. Given the likelihood of this case reaching the Supreme Court, and considering the Court’s recent tendency to limit executive power, the SAVE Plan faces a significant risk of being struck down.
Notably, the judges appeared to question the legality of forgiveness under the entire ICR Rules, which include the ICR, PAYE, SAVE, and [former] REPAYE plans. If these rules are invalidated, standard forgiveness on student loans would only be available through IBR.
To clarify, borrowers can still receive forgiveness through PSLF. Other forgiveness paths, such as those for death or total and permanent disability, also remain secure.
It’s uncertain how this situation will unfold, and it seems we will have to wait longer for a resolution. I cannot predict how long it will take for the circuit court of appeals to make a final ruling. Regardless of the outcome, this case is likely headed to the Supreme Court, as both sides have requested the Court's intervention. However, with the Supreme Court in recess until October, a decision may not come for several months. Stay tuned.
8/7/24: Understanding Forbearance During This Period
With ongoing uncertainties, borrowers enrolled in the SAVE plan have been granted a special forbearance period where interest will not accrue. However, it's crucial to note that this time will not count towards loan forgiveness, similar to other periods of administrative forbearance.
Only borrowers who were already enrolled in SAVE by July 18th are eligible for this interest-free forbearance. For all other borrowers, the current repayment plans remain unchanged, and this interest-free option is not available. They can only opt for general forbearance.
This applies even to borrowers who applied for the SAVE plan before July 18th but whose requests were not processed by that date.
7/29/24: What items would go away if SAVE is struck down?
With the fate of the SAVE Plan up in the air, here are some key items that would disappear if the Final Rule that enacted SAVE is struck down. I'll separate them into two distinct blocks: features specific to the SAVE plan and general student loan features.
SAVE Plan-Specific Features
Interest Non-Accrual: While on the SAVE plan, interest does not accrue over and above the calculated payment. When calculated payments are lower than the interest that accrues (negative amortization), the government covers the remaining amount.
Higher Deduction Against Income: To calculate your payment, the government starts with discretionary income, which is generally your adjusted gross income (AGI) minus a deduction based on the Federal Poverty Level (FPL). The deduction was 150% of the FPL, but SAVE increased this to 225%. For a borrower with a family size of 1, this extra deduction shaves off approximately $100 per month. For every extra person included in the family size, the deduction is about $30 per month.
5% Calculation on Income for Borrowers with Undergraduate Loans: This only affects borrowers with undergraduate loans. If you only have graduate loans (or double consolidated parent PLUS loans), your loan payment would be based on 10% of your income. If you only have undergraduate loans, your payment is 5% of your income. If you have a combination, your payment would be a weighted average of the two types.
General Student Loan Features
Taking Weighted Average of Payment Count on Loans and Applying it to Payment Count of the New Consolidation Loan: This would roll back to the old rule where your payment count is reset after loan consolidation.
Closing of the Double Consolidation Loophole: Set to be closed on July 1, 2025, striking down this feature would actually help many parent borrowers.
Sunset of the PAYE Plan for New Borrowers: Currently, any borrower not enrolled in PAYE as of July 1, 2024, is not eligible for the plan. If this is rolled back, borrowers would become eligible to enroll in the plan again.
Automatic Use of IRS Data to Recertify Your Income: Implemented to keep borrowers from having their payments skyrocket and potentially go into default. On an income-driven plan, a borrower must recertify their income at least once every 12 months. If a borrower forgets to recertify, the Department of Education allows the IRS to automatically provide income information to prevent non-compliance with recertification deadlines.
7/24/24: Online Applications to IDR Requests and Consolidations are Down
Currently, the studentaid.gov website will not allow borrowers to complete the online versions of the Income-Driven Repayment (IDR) Plan Request or Consolidation Application. Borrowers can still upload paper versions of these forms or mail them to their loan servicer. Here are further instructions.
Borrowers can still apply for PSLF online, as it wasn’t affected by the administrative stay.
Loan servicers have temporarily paused processing IDR applications. The Department of Education said to “expect a lengthy delay in processing applications,” giving no timetable for how long it will take.
7/22/24: What We Learned Over the Weekend: Borrowers on SAVE Will Be Put into Forbearance
In response to the administrative stay on the entire SAVE Plan, the Department of Education announced that all borrowers on SAVE will be placed into forbearance. Importantly, interest will not accrue during this period. However, time on this forbearance will not count towards forgiveness.
Borrowers wishing to reach forgiveness quicker will have to weigh applying for income-based repayment (IBR), which will result in a higher payment than SAVE, versus staying on forbearance to SAVE while this plays out in the courts.
7/18/24: SAVE Plan Blocked
The court implements an administrative stay on the SAVE plan. In a one-page document, a St. Louis judge put a temporary block on all parts of the rule that put the SAVE plan into effect.
This ruling comes from the Missouri case. While the judge in that case put a partial injunction (blocking forgiveness on SAVE), it was not a full injunction. The Missouri Attorney General filed an appeal to the 8th Circuit, which is now fully blocked.
A few things to keep in mind:
The specific language centers on stopping the Final Rule from being implemented.
The Final Rule contains the entirety of the SAVE Plan but also includes other provisions:
Sunsetting the Pay As You Earn (PAYE) plan for all new borrowers.
Closing the double consolidation loophole on July 1, 2025.
Keeping the weighted average number of payments when consolidating student loans.
This is temporary until the courts issue a final decision. We could have further guidance from the courts in the next few weeks.
Where Do We Go from Here?
The easy answer is that this probably ends up in the Supreme Court’s hands. However, there is a vast range of outcomes that could occur:
The SAVE Plan could be 100% struck down.
The SAVE Plan could be 100% upheld.
Parts of the SAVE Plan could be upheld and parts could be struck down.
The point here is that it isn’t an all-or-nothing proposition.
If the SAVE Plan (or the Final Rule) is struck down, we would likely return to the pre-pandemic environment of income-driven repayment plans:
Revised Pay As You Earn (REPAYE) - the plan that SAVE replaced.
Pay As You Earn (PAYE).
Income-Based Repayment (IBR).
Income-Contingent Repayment (ICR).
We would also see consolidations restart the entire payment clock (important for borrowers going for forgiveness), and we would lose the automatic annual income recertification that uses a borrower’s IRS data to recertify income, among other things.
6/30/24: 5% Calculation Feature on the SAVE Plan Back in Place
After a quick appeal by the Biden administration, an appeals court reversed the Kansas case decision. Now, the 5% calculation feature of the SAVE plan (on undergrad loans only) is back in place. However, forgiveness is still on hold for borrowers on the SAVE plan.
6/25/24: Parts of SAVE Plan Halted in 2 Separate Court Rulings
Yesterday, two different courts blocked pieces of the SAVE plan.
In one case, a Kansas judge stopped the 5%-of-income calculation on undergraduate student loans. This provision was set to go into effect on July 1 of this year. Payments for all borrowers on the SAVE plan will remain at 10% of income.
In the other case, a Missouri judge temporarily halted any forgiveness for borrowers on the SAVE plan. While overall forgiveness on the SAVE plan isn’t on the chopping block, the main part at stake here is the accelerated forgiveness for borrowers who initially took out less than $12,000 in Federal student loans.
What Does This Mean for Older Borrowers?
Generally, not much.
5% Calculation Issue: This only affects borrowers with undergraduate loans. If you took on Parent PLUS loans or grad school loans, your payment was going to be set to 10% of discretionary income anyway.
Temporary Forgiveness Halt: This is a temporary halt until the courts make a further decision. The main issue is the accelerated forgiveness timeline - for borrowers who took out less than $12,000 in initial Federal student loans, their timeline to forgiveness is 10 years instead of 20 or 25. Almost all Parent PLUS borrowers or grad school borrowers will have taken out much more than $12,000 in loans, so the accelerated timeline to forgiveness will not affect these borrowers.
Overall, older borrowers shouldn’t be affected much by these two rulings.