SAVE Student Loan Repayment Plan Blocked
On August 9, 2024, the U.S. Court of Appeals for the 8th Circuit officially blocked the SAVE student loan repayment plan in its entirety. The result is that millions of borrowers who enrolled in the SAVE Plan to benefit from lower monthly payments and a potentially faster path to loan forgiveness will instead be held in suspense.
The SAVE Plan was structured to be implemented in phases, with some benefits taking effect immediately and others scheduled to go into effect in July 2024. Two key benefits that were scheduled to take effect in July 2024 were:
Lower monthly loan payments — For undergraduate loans, monthly payments would be capped at 5% of discretionary income and graduate loans would be capped at 10% of discretionary income.
A faster path to loan forgiveness — For borrowers with original loan balances of $12,000 or less, remaining loan balances would be forgiven after 10 years of payments. For original loan balances over $12,000, the maximum repayment period would increase by one year for every additional $1,000 borrowed.
Legal challenges
After the SAVE Plan was passed in 2023, it faced multiple legal challenges. In early 2024, several states joined one of two lawsuits challenging the plan on the grounds that the Department of Education was overstepping its authority.
In June 2024, two separate federal courts temporarily blocked key parts of SAVE.
On August 9, a federal appeals court blocked SAVE in its entirety.
What's next for borrowers?
The ongoing legal uncertainty surrounding SAVE has created confusion and frustration for millions of borrowers. What happens next remains to be seen. As the legal process plays out, here is some guidance from the Department of Education for borrowers who are enrolled in SAVE:
During forbearance, borrowers are not required to make payments and interest does not accrue.
Time spent in forbearance does not count for Public Service Loan Forgiveness (PSLF) or income-driven repayment (IDR) plan forgiveness.
Borrowers will be in administrative forbearance until the legal situation changes or until loan servicers are able to send bills for the appropriate monthly amount.
Borrowers (and employers on their behalf) can continue to make payments during forbearance. Payments will be applied to future bills due after the forbearance ends.
Borrowers who do not want to be in administrative forbearance can contact their loan servicer to change repayment plans (though there may still be forbearance associated with changing to certain repayment plans).
Borrowers should hear from the Department of Education or their loan servicers in the near future about next steps.
Borrowers can visit the federal student aid website to read status updates on SAVE.
On the bright side: the $5.5 billion of federal student loan debt already forgiven stay that way. Borrowers do not have to go back and start payments on any loans that have already been forgiven.
To learn more, contact MNM Vested, LLC.
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