The Assault on the SAVE Plan Has Brought Student Debt Relief to a Crossroads

Before federal student loan repayment paused in spring 2020, nearly 20 percent of borrowers—8 million Americans—were in default due to failure to make payments, while the overall total of outstanding student debt reached $1.5 trillion. To facilitate a new era of student loan repayment marked by a lower risk of defaulting, the U.S. Department of Education debuted the Saving on a Valuable Education (SAVE) Plan in August 2023, whose benefits were scheduled for phase-in over the following year. 

A little over a year later, SAVE finds itself under threat on several fronts. Legal action has placed the program under scrutiny from the courts, and borrowers who enrolled in SAVE have been placed in forbearance. Meanwhile, Congress may repeal SAVE before the judicial dust even settles.

Without the protections of SAVE, many more borrowers will struggle to keep their accounts current, risking a return to the pre-pandemic default rate. At this moment of uncertainty, borrowers and non-borrowers alike are wondering: What is at stake? Who would be affected, and when? Why is it happening, and what could come next? In what follows, we will address all of those questions and paint a picture of some of the foremost challenges facing student debt relief as we enter the new presidential administration.

What Is the SAVE Plan? Who Would Benefit from It, and When?

Federal student loan borrowers experiencing economic hardship can enroll in income-driven repayment (IDR) plans, designed to make monthly student debt repayment more manageable by linking payments to income and family size. While IDR plans have existed since the founding of the Federal Direct Loan Program in 1994, they have not always been sufficient to prevent the negative financial consequences of student debt. Before SAVE, even with IDR plans in place, more than a million borrowers defaulted every year. The U.S. Department of Education (ED) determined that the existing set of IDR plans was insufficient to prevent ruinous effects on borrowers’ financial lives.

To remedy ongoing concerns about student loan debt and the challenges present in the repayment systems, attempts have been made to create a more borrower-friendly IDR plan. In August 2023, the Biden–Harris administration introduced SAVE, the most affordable income-driven repayment plan in history and a replacement to the Revised Pay As You Earn (REPAYE) plan. As Table 1 shows below, SAVE is more generous than REPAYE for borrowers in terms of income protections¹, the treatment of unpaid interest after monthly obligations are met², the minimum monthly student loan payment as a share of discretionary income³, and years to forgiveness.⁴

 Table 1

The central aim of the SAVE Plan is to reduce rates of default among student borrowers. ED undertook significant analysis to craft a plan that would not require borrowers to choose between their lives and their loans. The following were some of the key design considerations:

• Increasing the income protection to 225 percent of the federal poverty line—the equivalent of a single adult working full-time for $15 per hour—reduces the risk of student loan payments depriving anyone of the ability to meet their basic essentials, such as rent and food.⁵
• ED estimated that 70 percent of borrowers on existing IDR plans had seen their balances rise after entering the plans, which led them to conclude that interest capitalization must be eliminated.
• By reducing the time to forgiveness for those with smaller principals, ED sought to reduce default among those who start with low balances: the change was expected to make 85 percent of community college borrowers debt-free within ten years.

Finally, while designing SAVE, the Department of Education did not shirk the policy aim that borrowers who can repay their loans should do so. Under SAVE, future borrowers would see lifetime payments reduced by 40 percent on average, but most benefits accrue to those with the greatest need: borrowers in the top three-tenths by earnings would only see their lifetime payments fall 5 percent. 

Under SAVE, future borrowers would see lifetime payments reduced by 40 percent on average, but most benefits accrue to those with the greatest need: borrowers in the top three-tenths by earnings would only see their lifetime payments fall 5 percent.

Under SAVE, a single borrower with no dependents would have a $0 monthly repayment until their adjusted gross income (AGI) exceeds $32,800. Borrowers earning above this threshold could still receive a significant reduction in their monthly payment when compared to what they would pay under REPAYE. After the SAVE plan was announced, the Biden–Harris administration engaged in an outreach campaign utilizing trusted messengers to increase information and enrollment in the SAVE Plan, leading to nearly 8 million borrowers enrolling in SAVE by mid-2024. Prior to summer 2024, the Department of Education had already forgiven $5.5 billion in student debt for 414,000 borrowers through the SAVE Plan.

The Department of Education planned to implement SAVE in two phases. In August 2023, ED permitted borrowers to enroll and access the benefits related to the threshold for discretionary income and the waiver of unpaid interest. Additional benefits, including the 5 percent of income limit for payment amount, would have become available starting in July 2024. In February 2024, the Department of Education took early action to discharge loans held for at least ten years of repayment by borrowers who borrowed $12,000 or less.

What Are the Lawsuits Challenging SAVE Today?

Before the second phase of provisions could be implemented, several states mounted legal challenges to SAVE, which have now coalesced into two lawsuits. In the lawsuits, the states argue that the repayment benefits in SAVE exceed statutory authority and that ED erred by enacting the SAVE plan. The lawsuits assert that the sheer number of people eligible for “early” discharge under the SAVE plan will not only result in a large government bill, but that the discharge of billions is also beyond the original intent and scope of the Higher Education Act (HEA).

Kansas vs. Biden, now Alaska v. Department of Education

The first lawsuit challenging the SAVE plan, Kansas v. Biden, was filed in the U.S. District Court for the District of Kansas in March 2024 by a coalition of eleven states.⁶ It was renamed Alaska v. Department of Education after a federal judge found that only three of the eleven states had standing. The states argued that they were harmed by the Department of Education because the SAVE Plan reduces their income tax revenue and harms their ability to recruit state employees. In June 2024, the Kansas District Court granted a preliminary injunction that blocked the implementation of all SAVE provisions set to be enacted in July 2024 while the litigation moved forward. This decision would have still allowed forgiveness under SAVE while barring further reduction of monthly payments. That injunction was stayed pending appeal by the Tenth Circuit, and the appeal was abated due to the broader injunction in Missouri v. Biden.

Missouri v. Biden

The second lawsuit, Missouri v. Biden, was filed in the U.S. District Court for the Eastern District of Missouri, in April 2024, by a seven-state coalition, arguing that the Department of Education lacked statutory authority to provide loan forgiveness through the SAVE plan.⁷

In June 2024, the Eastern District Court in Missouri granted a preliminary injunction blocking ED from discharging student loan debt under the SAVE plan. Then, in July 2024, after the Missouri court’s decision was appealed, the U.S. Court of Appeals for the Eighth Circuit granted an injunction pending appeal, expanding the existing injunction and fully blocking the SAVE Plan. As a result of these decisions, ED stopped the plan’s implementation, pending a decision on the merits of the appeal, and opted to place all borrowers enrolled in SAVE into an interest-free forbearance during which no monthly payments are due. 

Then, in August 2024, the Eighth Circuit affirmed the injunction pending appeal in Missouri v. Biden. The decision barred the administration from forgiving principal or interest, waiving borrowers’ accrued interest, or further implementing SAVE’s provisions on monthly payments. 

The Eighth Circuit’s injunction related to forgiveness appeared to apply not only to SAVE, but to all IDR plans with the exception of income-based repayment (IBR), putting ED’s ability to cancel the remaining principal of most IDR plans in jeopardy. The Department of Education filed an emergency motion seeking clarification on the scope of the decision, but the court denied the motion to clarify. Subsequently, ED sought a decision from the Supreme Court to vacate the orders; however, the Supreme Court denied the emergency application for a stay, leaving the current injunction in place while the Eighth Circuit renders its decision in the appeal of the District Court’s injunction. 

How Do the Lawsuits Affect Borrowers?

The legal challenges to the SAVE Plan have caused confusion and chaos for borrowers.⁸ It is unfortunate that the search for a bright line on how much loan forgiveness is too much comes at the expense of borrowers. 

As a result of the decision in the Missouri v. Biden case, the Department of Education temporarily halted, and then reopened, all online applications for IDR plans. Borrowers can apply for and enroll in the Income-Based Repayment (IBR), Pay as You Earn (PAYE), and Income Contingent Repayment (ICR) plans. However, they cannot apply for SAVE.⁹ For those currently enrolled in SAVE, it is expected that forbearance will last until at least this coming April. While oral arguments in Missouri v. Biden were held on October 24, they focused on the injunction rather than the merits of the case. There is no formal deadline for a ruling, leaving borrowers and the Department of Education in limbo.

As one possible verdict, the court could decide that the SAVE Plan must be eliminated. Or, it could find all the provisions of the SAVE Plan legal, and the plan would then return to implementation, though now under an administration that is less inclined to maintain it. A ruling in the middle of these two outcomes is also possible, such as one in which the SAVE Plan’s forgiveness provisions are struck down and the rest is left unchanged. In any result, appeals could extend borrowers’ wait for a final decision.

The drawn-out ordeal is not just perplexing for borrowers who want to know how much they need to pay in the next month: it also makes it highly difficult for borrowers to plan their financial futures.

The drawn-out ordeal is not just perplexing for borrowers who want to know how much they need to pay in the next month: it also makes it highly difficult for borrowers to plan their financial futures, which in turn has a domino effect on whether they can afford to buy a home, for example. Some borrowers already made those decisions based on projected loan payments under SAVE, and increases to their minimum loan payments—which they could not have reasonably predicted one year ago—would put them under immense stress. 

How Might the Trump Administration and Congress Respond?

In November 2024, another wrinkle was added: the election of Donald Trump, whose Department of Education is expected to reverse course on student loan policy. ED could get a jump-start on its student loan reform agenda by simply choosing not to defend the SAVE plan in court, a strategy that could include settling with the plaintiffs.

One of three things could happen next. The Eighth Circuit could render a verdict in Missouri v. Biden.¹⁰ If that does not happen before January 20, the new administration—once installed—could settle with the states, ending the lawsuits. Finally, Congress could pass a bill that would replace SAVE. All three possibilities would likely result in major policy change, affecting millions of borrowers.  

First, the Eighth Circuit could make a decision before a settlement or congressional action occurs. If the court finds in favor of the Department of Education, states would likely appeal. If the court finds in favor of the states, it appears unlikely that Republican lawmakers in the Trump administration would appeal to the Supreme Court. However, other states that support the SAVE Plan could intervene, but they would need to demonstrate standing. If that happened and the Supreme Court agreed to take the case, the Supreme Court could judge whether the plan is valid under the statute.

Another possibility, presuming the Eighth Circuit’s decision is not rendered before January 20, is that the Trump administration could settle with the states, ending the lawsuits. The terms of the settlement would likely include a commitment by the administration to eliminate or make significant changes to the SAVE Plan through rulemaking. 

Congress may also want to get in on the action. With majorities in both chambers, Republican lawmakers are expected to swiftly pursue a reconciliation package. The package may include the College Cost Reduction Act (CCRA), which would seek to balance out the costs of other provisions, such as tax cuts, by increasing borrowers’ student loan payments. 

The current text of the CCRA would eliminate all existing income-driven repayment plans—including SAVE—for new borrowers and replace them with a single plan that jettisons some of the SAVE Plan’s most important benefits (see Table 2, below). While the CCRA proposal maintains the SAVE Plan’s exclusion of interest capitalization, it protects less income, all borrowers on the plan would have to pay 10 percent of discretionary income in monthly payments (compared to as little as 5 percent under SAVE), and it eliminates time-based forgiveness. 

Table 2

The CCRA proposal would also cap total payments at the total amount the borrower would pay under the standard ten-year plan. This is a new feature that SAVE did not include, but a cap on payments is not functionally equivalent to time-based forgiveness: someone who still has not met the cap after twenty-five years would remain in repayment for as long as is needed, potentially up until their loan is discharged due to disability or death.

The version of the CCRA from the 118th Congress (2023–24) does not change repayment options for borrowers with existing loans. If the 119th Congress passed the CCRA as-is, borrowers who currently hold loans would wait for the courts’ saga to play out and the Trump administration to act. However, prior bill text is no guarantee that Congress will not eliminate SAVE for all borrowers. 

For all the chaos caused by the court cases, Republicans in Congress may find it in their interest to roll back SAVE before the courts have their say: their reconciliation bill would generate the most “savings,” on paper, if SAVE is presumed to still exist. In 2023, the Congressional Budget Office estimated that rescinding the rule that created the SAVE Plan would yield the federal government $260 billion over ten years through increased payments from borrowers.

Borrowers Already Suffer, and Could Soon Face Catastrophes

Given that low-income borrowers stood to benefit most from SAVE Plan provisions, replacing it with a less generous plan in order to increase government revenue would harm the people our federal loan system was created to support. Increasing their monthly payments and eliminating time-based forgiveness would push low-income borrowers towards the brink of financial collapse and potentially lock them into debt-for-life.

Returning to the status quo of a million new student loan defaults a year would be disastrous for families, communities, and the economy.

If not blocked, the SAVE Plan would have made vast strides to reduce the incidence of student loan default. Returning to the status quo of a million new student loan defaults a year would be disastrous for families, communities, and the economy. Without meaningful action to protect borrowers, the federal government may collect more revenue, but it will also fuel a bigger, greater student loan crisis.

Thanks to Persis Yu for providing feedback on a draft of this piece. 

1. Income protection refers to the income threshold, adjusted for family size, beyond which monthly student loan obligations rise above the minimum of $0.
2. Interest capitalization refers to the addition of unpaid interest onto the balance. In a given month, when capitalized interest exceeds the size of payment, the balance rises. The SAVE Plan’s elimination of interest capitalization is intended to prevent balances from rising.
3. Discretionary income is a borrower’s income in excess of their protected income. By lowering student loan payments as a share of discretionary income, borrower’s monthly obligations are reduced.
4. Under IDR, a borrower’s remaining balance after a certain number of years of minimum payments is cancelled.
5. The Department of Education looked for the income level at which the presence of “material hardship,” defined as food insecurity or being behind on utility bills, is statistically different from families in poverty, finding that value to be 225 percent of the federal poverty line. The decision to protect income up to this level was not arbitrarily chosen, but rather, it was directly tied to the goal that student loans not cause a person to sacrifice basic essentials for them or their dependents.
6. The states are Kansas, Alabama, Alaska, Idaho, Iowa, Louisiana, Montana, Nebraska, South Carolina, Texas, and Utah.
7. Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio, and Oklahoma.
8. The IDR terms as outlined in the statute provide that borrowers’ repayment term under the plan shall not exceed twenty-five years. ED has interpreted this provision as giving the secretary authority to discharge loans after that amount of time. The statutory authority and legislative history support ED’s position that borrowers are eligible for discharge following the end of the specified repayment period.
9. The availability of online IDR applications was particularly important in late September, as it coincided with the end of the student loan “on-ramp,” a one-year period following return to repayment after the COVID student loan payment pause, during which borrowers did not face penalties for late or missed payments, and their accounts were not reported to credit bureaus.
10. Oral arguments have not begun in Alaska v. Department of Education, so it is not anticipated that its ruling would come first.

Tags: student debt, student loans, low-income students, student loan forgiveness