More than eight million student loan borrowers appear increasingly likely to get kicked out of an affordable income-driven repayment plan in the coming months, jeopardizing their ability to have manageable payments and a pathway to eventual student loan forgiveness.
The SAVE plan, a Biden-era income-driven repayment option, was created to provide borrowers with affordable payments (more affordable than other repayment options) and student loan forgiveness after 20 or 25 years, or in some cases, in as little as 10 years. The program was intended to benefit borrowers in other ways, as well, including by ending runaway interest accrual. The SAVE plan is also a qualifying repayment option for borrowers on track for Public Service Loan Forgiveness, or PSLF, for those working in government or for nonprofit organizations.
But the SAVE plan has been stuck in a legal battle for much of the last year. And between recent court rulings and likely action by Congress, it’s becoming increasingly clear that SAVE is unlikely to survive. That means millions of student loan borrowers could be in for a world of financial pain and disruption later this year.
SAVE Plan Court Battles Block Student Loan Forgiveness And Lower Payments For Millions
Last spring, a coalition of Republican-led states filed a legal challenge against the Biden administration to block the SAVE plan. The states argued that the SAVE plan was an illegal overreach, far exceeding what Congress had authorized when it first enacted legislation creating income-driven repayment plans in 1993. The states argued that SAVE was effectively a back-door mass student loan forgiveness program. The Biden administration countered that Congress gave the Department of Education wide latitude to make regulations governing income-driven repayment plans, and the SAVE plan falls squarely within the parameters established by Congress.
But the legal challenges have not gone well for the program. Last summer, the 8th Circuit Court of Appeals issued an injunction blocking the SAVE plan. This forced more than eight million borrowers into a forbearance. While no payments are due during the forbearance and loan balances shouldn’t be accruing interest, the months aren’t counting toward student loan forgiveness under IDR plans or for PSLF.
Recent Court Ruling Casts Doubt On Student Loan Forgiveness Under The SAVE Plan And Other Income-Driven Options
Last month, the 8th Circuit issued a new ruling that reaffirmed and even expanded the existing injunction, preventing borrowers from accessing the SAVE plan. The court made clear that, in the view of the presiding judges, the SAVE plan is indeed an illegal overreach and is likely to get struck down.
The court went even further, however, and called into doubt student loan forgiveness under two other income-driven repayment plans – Income-Contingent Repayment, or ICR, and Pay As You Earn, known as PAYE. Halting student loan forgiveness under these programs would overturn more than three decades of regulations, loan contract language, and public guidance provide to borrowers, all providing assurances that borrowers who fulfill their repayment obligations under these plans would receive student loan forgiveness at the end of their 20- or 25-year term.
Meanwhile, Congress is also considering legislation that would fully repeal the SAVE plan. Under the Trump administration, the Department of Education could also initiate a rulemaking process to eliminate SAVE, essentially relying on the same process the Biden administration used to create it.
One way or another, it appears that the SAVE plan is not going to survive. An unnamed official at the Department of Education’s Office of Federal Student Aid told CNN last week, “We’ve been told ‘SAVE’ is not coming back in any way, shape, or form.” This may be the first public confirmation from within the Department of Education that officials believe the SAVE plan is doomed.
Payments May Increase For Millions Of Student Loan Borrowers Under Other Income-Driven Plans
If SAVE gets struck down or repealed, millions of student loan borrowers will likely have to select a different income-driven repayment plan. But the landscape is getting more complicated.
Borrowers could switch to the ICR or PAYE plan, if they qualify. But the future of these programs is uncertain. Student loan forgiveness at the end of the repayment term remains blocked for ICR and PAYE following the 8th Circuit’s recent court order, and it’s unclear if loan forgiveness will ever return for these programs. The 8th Circuit’s ruling does not appear to explicitly block enrollment or continued repayment under these plans, but subsequent decisions could change that.
For many borrowers, that means that Income-Based Repayment, or IBR, may be the only viable alternative income-driven repayment option. IBR was created by Congress through a law that is separate from the statute that established the other income-driven plans, including SAVE. That law is not facing a legal challenge, and the 8th Circuit made it a point to state that Congress clearly intended for IBR to offer student loan forgiveness at the end of the repayment term. But IBR may be much more expensive for borrowers as compared to the SAVE plan, and some borrowers may still their monthly payments increase by 300% or more. Other borrowers may not qualify for IBR if their income is now too high relative to their loan balance.
As a practical matter, the Department of Education has blocked the income-driven repayment application and halted all processing for pending income-driven repayment requests following the 8th Circuit’s ruling. This is effectively preventing borrowers from enrolling in any income-driven plan, including IBR, even though IBR is expressly excluded from the 8th Circuit’s injunction.
What’s Next For Student Loan Borrowers Enrolled In The SAVE Plan
For now, borrowers who were enrolled in the SAVE plan remain in a forbearance. No payments are due, and interest shouldn’t be accruing, but these borrowers aren’t making any progress toward student loan forgiveness under IDR or PSLF. According to the Department of Education’s current published guidance, the forbearance could last for much of the rest of the year.
“You will be in this forbearance until servicers are able to accurately calculate monthly payments, which ED expects servicers to be able to do no earlier than September 2025,” says the guidance. “This timeline will give borrowers the opportunity to make another choice for repayment, based on which of the updated options is best for them. Servicers expect to complete the necessary technical updates to be ready to begin moving borrowers back into repayment no earlier than September 2025. Because this transition will take time, servicers expect first payments to be due no earlier than December 2025.”
Of course, the above timeline could change depending on further court rulings, legislation by Congress, or actions by the Trump administration. But regardless, borrowers pursuing lower payments and student loan forgiveness through the SAVE plan are likely in for some significant changes and disruptions as the year progresses.
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