Biden’s New Student Loan Relief Plan Paused – What Borrowers Should Know

Cody Gude, a 35-year-old Tampa resident, was eagerly anticipating July. His monthly student loan payment was set to drop from $200 to $100, thanks to the new Saving on a Valuable Education (SAVE) plan.

The reduced payment meant he could stop delivering groceries on Instacart in his spare time and focus solely on his job as a social media consultant. However, recent legal challenges have thrown a wrench in those plans, leaving Gude and millions of other borrowers in a state of confusion and frustration.

The SAVE Plan: An Overview

The SAVE plan, introduced by President Joe Biden last summer, aimed to be the most affordable student loan plan ever. Approximately 8 million borrowers have signed up for this new income-driven repayment plan.

Under previous Income-Driven Repayment (IDR) plans, borrowers paid a percentage of their discretionary income each month and received forgiveness after 20 to 25 years. The SAVE plan replaced the Revised Pay As You Earn (REPAYE) plan, offering more generous terms.

Key Features of the SAVE Plan

Under the SAVE plan, borrowers pay just 5% of their discretionary income towards their debt each month instead of the previous 10%, with many qualifying for a $0 monthly payment. This significant reduction meant that borrowers with undergraduate student debt would experience a substantial decrease in their monthly payments, with those earning less than $15 an hour facing no monthly bill at all.

Moreover, borrowers with smaller balances could receive loan forgiveness in as little as 10 years. Higher education expert Mark Kantrowitz describes the plan as “very generous to borrowers, almost like a grant after the fact.”

Legal Challenges

Despite its benefits, the SAVE plan has faced significant legal challenges. Republican-led states such as Florida, Arkansas, and Missouri have argued that the Biden administration is overstepping its authority with SAVE, attempting to circumvent the Supreme Court’s previous block of a sweeping student debt forgiveness plan.

Two federal judges in Kansas and Missouri have temporarily halted the Biden administration’s new repayment plan, leaving borrowers like Gude uncertain about their financial future.

Court Decisions

Judge Daniel Crabtree in Kansas declined to roll back features of the SAVE plan already in effect, citing a lack of demonstrated irreparable harm. However, he agreed to halt the provision that would lower borrowers’ monthly payments starting in July, highlighting the significant cost difference between REPAYE ($15.4 billion) and SAVE ($475 billion over the next decade).

In Missouri, Judge John Ross stopped the Biden administration from forgiving any more student debt under SAVE until he made a decision, agreeing that the plan could reduce fees paid to the Missouri Higher Education Loan Authority (Mohela).

Impact on Borrowers

The legal battles have left borrowers in a state of limbo. Gude’s student loan servicer, Nelnet, had already adjusted his monthly bill to reflect the lower amount under the SAVE plan. Now, he and others are left wondering if their payments will indeed decrease or if they will receive a notice reversing the decision.

Biden's New Student Loan Relief Plan Paused – What Borrowers Should Know

The uncertainty is causing significant stress for borrowers who had planned their budgets based on the anticipated lower payments.

Future Outlook

The timeline for resolving these legal cases remains uncertain. Scott Buchanan, executive director of the Student Loan Servicing Alliance, predicts that the cases could drag on for months, possibly extending past the upcoming election.

He believes the cases will likely reach the Supreme Court, which wouldn’t take them up until its October term, with a ruling expected much later. This prolonged uncertainty means that borrowers may need to prepare for potential changes to their repayment plans shortly.

What Borrowers Should Do

For now, borrowers can stay enrolled in the SAVE plan and continue benefiting from lower bills where applicable. While some provisions of the plan are paused, others, like the higher income shielding from payment calculations, remain in effect.

If your servicer updated your monthly bill based on the preliminary injunctions, your payment should soon revert to its previous amount. Mark Kantrowitz reassures borrowers that the court’s ruling is not retroactive, so there is no need to worry about losing any forgiveness already received.

In this period of uncertainty, borrowers must stay informed and monitor updates from their loan servicers and the Department of Education. While the legal battle unfolds, the promise of lower payments and potential forgiveness hangs in the balance, leaving millions of Americans waiting and hoping for a favorable resolution.



What is the SAVE plan?

The SAVE plan is an income-driven student loan repayment plan introduced by President Biden.

How much can borrowers save?

Borrowers pay 5% of discretionary income, down from 10% under REPAYE.

Why is the SAVE plan paused?

Two federal judges temporarily halted the plan due to legal challenges.

What should borrowers do now?

Stay enrolled in SAVE and monitor updates from loan servicers.

Will previous forgiveness be revoked?

No, the court’s ruling is not retroactive, so past forgiveness remains intact.

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