Student Loan Borrowers Face ‘Devastating’ Impacts After Court Halts Loan Forgiveness Plan, Says Official (2024)

The federal student loan system has been been thrust into upheaval yet again after a federal appeals court halted a key Biden administration student loan forgiveness and repayment program.

On Thursday, the 8th Circuit Court of Appeals suspended implementation of the Saving on a Valuable Education, or SAVE, plan. The Biden administration created SAVE as a new income-driven repayment option for borrowers. The program’s benefits include lower payments, a generous income exemption that allows borrowers with lower income to pay $0 per month, an interest subsidy that prevents runaway balance growth, and eventual student loan forgiveness after 10 to 25 years in repayment, depending on the type of loans.

Biden administration officials and advocates for borrowers warned that Thursday’s court order would unleash chaos for the more than eight million borrowers who have already enrolled in SAVE or have submitted an application. Meanwhile, Republican lawmakers cheered the outcome and decried the SAVE plan as an unfair and illegal bailout for student loan borrowers.

Key Details On Court Order Halting Student Loan Forgiveness And Reduced Payments

This week’s order from the 8th Circuit is just the latest development involving legal challenges to the SAVE plan. Two groups of Republican-led states filed dueling lawsuits last spring in Kansas and Missouri, arguing that SAVE is far more generous than what Congress had authorized when it passed legislation establishing income-driven repayment in 1993. The Biden administration countered that the Higher Education Act provides broad authority to the Secretary of Education to establish the parameters of IDR plans — authority that multiple administrations have exercised over the course of the last 30 years, without incident.

Federal district court judges in Kansas and Missouri issued partial preliminary injunctions last month, blocking parts of the SAVE plan but allowing other elements of the program to proceed. The Kansas court blocked reduced payments under SAVE for undergraduate student loans that were set to go into effect in July, although this order was subsequently stayed following an appeal to the 10th Circuit Court of Appeals. The Missouri court, meanwhile, blocked student loan forgiveness under SAVE, but allowed borrowers to continue with lower monthly payments.

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The state of Missouri appealed the partial injunction to the 8th Circuit Court of Appeals. On Thursday, that court issued a one-line, unsigned order temporarily blocking the entire SAVE program, pending the Court’s consideration of a longer-term preliminary injunction. This initial temporary order goes much further than either the Kansas or Missouri injunctions issued in June; instead of halting just parts of the SAVE Plan, it blocks the whole program, including all student loan forgiveness and lower payments.

Officials And Advocates Warn Of Chaos For Borrowers Pursuing Student Loan Forgiveness and IDR

Biden administration officials warned of dire impacts for borrowers following the court order.

“Today’s ruling from the 8th Circuit blocking President Biden’s SAVE plan could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect,” said U.S. Secretary of Education Miguel Cardona in a statement on Thursday. “It’s shameful that politically motivated lawsuits waged by Republican elected officials are once again standing in the way of lower payments for millions of borrowers. It wasn’t so long ago that a million borrowers defaulted on their student loans every single year, mainly because they couldn’t afford the payments. The SAVE plan is a bold and urgently needed effort to fix what’s broken in our student loan system.”

Advocates for borrowers echoed these concerns.

“Right-wing politicians are using the courts to wreak havoc on the student loan system and put the economic stability of tens of millions of borrowers and their families at risk,” said Persis Yu, Deputy Executive Director of the Student Borrower Protection Center on Thursday. “Make no mistake: these lawsuits are shameful political gamesmanship designed to hurt President Biden at all costs, and borrowers are merely collateral damage. Unfortunately, today, the special interests have prevailed, imperiling the financial security of millions and throwing the student loan system into an untenable chaos.”

“This decision threatens the entire federal student loan system and will cause complete chaos and confusion, impacting millions of student loan borrowers and families across the country,” said Eileen Connor, President and Executive Director of the Project on Predatory Student Lending, in a statement on Thursday. “The SAVE plan was created to allow low-income borrowers a fair path to repay their federal student loans and instead they will now have a greater risk of default and serious financial consequences.”

Republicans Cheer Court Order, Arguing That Biden’s Student Loan Forgiveness Efforts Are Illegal

Meanwhile, Republican lawmakers celebrated the 8th Circuit’s order, arguing that blocking the SAVE plan is necessary to stop an illegal and unfair student loan forgiveness plan. Lawmakers blamed the Biden administration for the latest problems facing borrowers — even though the new disruptions were the direct result of legal challenges brought by Republican-led states.

“HUGE win for every American who still believes in paying their own way,” said Missouri Attorney General Andrew Bailey in a statement on X on Thursday. Bailey’s office led the efforts to block SAVE at the 8th Circuit, arguing that his state would suffer financial harm as a result of borrowers enrolling in the plan and receiving student loan forgiveness.

“The chaos and destruction this administration is inflicting on the nation’s student loan system is unprecedented,” said Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) in a statement following the 8th Circuit’s order. “Turning a blind eye to fiscal responsibility and the intent of Congress to keep a campaign promise—a promise you had no authority to make—will hurt American education and U.S. economic competitiveness.”

“Today’s decision is another rebuke to President Biden’s illegal student loan schemes,” echoed Senator Bill Cassidy (R-LA). “He isn’t ‘forgiving’ debt. He is taking the debt from those who willingly took it out to go to college and transferring it onto taxpayers who decided not to go to college or already paid off their loans. This is an abuse of power before an election in an attempt to buy votes at the expense of American taxpayers.”

The Higher Education Act of 1993 provided broad authority to the Education Department to establish income-driven repayment plans. The statutory IDR provision sets upper limits for the repayment formula and length of the repayment term, but delegates authority to the Secretary of Education to draft rules establishing more specific guidelines and parameters. The department exercised this authority in 1994 to create Income-Contingent Repayment, in 2012 to create Pay As You Earn, in 2015 to create Revised Pay As You Earn, and again last year to establish SAVE. Another IDR plan — Income-Based Repayment — was separately authorized by Congress through legislation passed in 2007.

Borrowers On SAVE Plan To Be Placed In Forbearance As Battle Over Student Loan Forgiveness Continues

The Education Department indicated that as a result of the 8th Circuit’s order, borrowers currently enrolled in SAVE — which number more than eight million — will be placed into an interest-free administrative forbearance. This will suspend monthly payments as the litigation continues.

“Borrowers enrolled in the SAVE Plan will be placed in an interest-free forbearance while our Administration continues to vigorously defend the SAVE Plan in court,” said Cardona on Thursday. While borrowers will not accrue interest during the forbearance, the period will not count toward student loan forgiveness under IDR or Public Service Loan Forgiveness — which may be a significant problem for those on track for these programs.

It is unclear how long the forbearance will last. But the 8th Circuit’s order will remain in effect at least until the court rules on a request for a preliminary injunction. The court could then extend, reverse, or modify the existing order blocking the SAVE plan. Any subsequent order is likely to get appealed to the Supreme Court, however. So this legal battle may continue for quite some time.

Student Loan Borrowers Face ‘Devastating’ Impacts After Court Halts Loan Forgiveness Plan, Says Official (2024)

FAQs

Student Loan Borrowers Face ‘Devastating’ Impacts After Court Halts Loan Forgiveness Plan, Says Official? ›

“Today's ruling from the 8th Circuit blocking President Biden's SAVE plan could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect,” said U.S. Secretary of Education Miguel Cardona in a statement on Thursday.

Did the federal judge block Biden student loan forgiveness? ›

Federal appeals court blocks remainder of Biden's student debt relief plan. WASHINGTON (AP) — A federal appeals court blocked the implementation of the Biden administration's student debt relief plan, which would have lowered monthly payments for millions of borrowers.

What are the negative effects of student loan forgiveness? ›

Canceling student loan debt may result in higher inflation rates. Canceling student loan debt may also result in higher interest rates.

How will I know if my student loan has been forgiven? ›

You will receive notification of your loan discharge via email, mail and/or your online loan servicing account (depending how your communication preferences are set). It will also be reflected when you log in to the Federal Student Aid site using your FSA ID.

What happens to the debt from student loan forgiveness? ›

If you qualify for forgiveness, cancellation, or discharge of the full amount of your loan, you won't have to make any more payments on that loan. If you qualify for forgiveness, cancellation, or discharge of a part of your loan, you'll need to pay back the remaining balance.

Is student loan forgiveness blocked? ›

The court's decision ends a long legal saga in the Biden administration's quest for loan forgiveness. The plan was originally blocked last fall, when several states argued that it would hurt student loan companies. With the most recent decision from the Supreme Court, student loan forgiveness is not expected.

Who pays for federal student loan forgiveness? ›

Sure, it's government money, which doesn't seem completely real, but by canceling debt payments the government forgoes future revenue, which adds to annual deficits and the total national debt. Future taxpayers will essentially pay the bill.

Why are people so mad about student loan forgiveness? ›

The topic of student loan forgiveness sparks heated feelings about fairness, personal responsibility and economic soundness. The Biden administration's most recent student loan forgiveness proposal garnered a record number of public comments, with over 148,000 people sharing their opinion.

Why shouldn't we cancel student loan debt? ›

Mass cancellation would incentivize much greater inflation as neither colleges nor prospective students would believe future loans would have to be repaid, blowing the lid off of prices.

What are 3 effects of not paying back student loans? ›

You lose eligibility for additional federal student aid. The default is reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card. It may take years to reestablish a good credit record.

Why does my student loan say paid in full? ›

You may notice your former servicer has cleared your loan account. For example, your loan balance may come up as “paid in full” on your former servicer's website or on your credit report. This does not mean you've received loan forgiveness. This is part of the loan transfer process.

What happens to credit score when student loans are discharged? ›

As long as your loans were in good standing at the time they were discharged and your accounts are being reported properly to the credit reporting bureaus, you won't see a huge difference in your score. On the other hand, you could see your score drop if your account wasn't in good standing prior to the discharge.

What student loans are not eligible for forgiveness? ›

You're not eligible for federal student loan forgiveness programs if you have private loans, but there are other strategies for managing private loan debt. NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.

What do 44% of student loan borrowers worry about? ›

With federal student debt topping 1.6 trillion dollars, many are so stressed that they're holding off on key milestones, like buying a house or having children. These feelings can start as early as college, with 44% of students reporting they're so concerned about their debt they've considered dropping out.

What is the downside of student debt forgiveness? ›

Individuals who receive debt forgiveness would have more disposable income to afford basic necessities, purchase homes or even start their own businesses. However, debt forgiveness could encourage future students to take on more debt or encourage some universities to charge more for tuition, Jones said.

Did Biden cancel student loan debt? ›

FACT SHEET: President Biden Cancels Student Debt for more than 150,000 Student Loan Borrowers Ahead of Schedule. Today, President Biden announced the approval of $1.2 billion in student debt cancellation for almost 153,000 borrowers currently enrolled in the Saving on a Valuable Education (SAVE) repayment plan.

Did two federal courts just blocked student loan forgiveness and cheaper monthly payments under Biden's new repayment plan? ›

2 federal courts just blocked student-loan forgiveness and cheaper monthly payments under Biden's new repayment plan. Two federal judges in Kansas and Missouri blocked student-loan forgiveness and cheaper payments through the SAVE plan. A range of SAVE provisions set to go into effect July 1 are now halted.

What is the deadline for student loan forgiveness? ›

Consolidating your loans by the June 30, 2024, deadline could have allowed you to get debt relief for all of your loans sooner.

What is the new loan forgiveness program? ›

The SAVE Plan gives borrowers who originally borrowed $12,000 or less forgiveness after as few as 10 years. More elements of SAVE will go into effect in summer 2024 and will lower payments even more for borrowers with undergraduate loans.

Does my Nelnet loan qualify for forgiveness? ›

You may be eligible for forgiveness of the remaining balance of your Direct Loans after making 120 qualifying payments on those loans while employed full time by a qualifying public service employer(s). Learn more about Public Service Loan Forgiveness (PSLF) at StudentAid.gov/publicserviceopens in new tab .

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