Will The SAVE Plan Survive Legal Challenges?

A tangled web of lawsuits seek to block implementation of the SAVE repayment plan, especially the loan forgiveness provisions. Multiple appellate courts have issued preliminary injunctions that temporarily block the SAVE plan. These court rulings have also temporarily blocked forgiveness under any income-driven repayment plan and Public Service Loan Forgiveness (but whether they should is another story). 

The point of contention with the lawsuits is whether the government (via the Department of Education) has the authority to forgive student loans in the SAVE repayment plan.

However, the courts, plaintiffs, and defendants appear to have failed to consider that the authority to forgive the remaining debt after a number of years in repayment in an income-contingent repayment plan is explicitly authorized by statute, and not merely implied by it. 

Let's dive into the statutory authority and regulatory history of the SAVE repayment plan, along with the lawsuits against it. Then we can assess whether the SAVE plan will survive legal challenges (hint: the lawsuits blocking SAVE are likely to fail).

Regulatory History Of The SAVE Repayment Plan

The SAVE repayment plan is an income-driven repayment plan. It is based on the broad regulatory authority Congress provided to the U.S. Department of Education under the Income-Contingent Repayment plan (ICR). 

This regulatory authority allows the U.S. Department of Education to control:

• Repayment Term
• Definition of Discretionary Income
• Percentage of Discretionary Income
• Interest Capitalization
• Other Aspects of Income-Driven Repayment Plans

This regulatory authority has been used twice before, once to create the PAYE repayment plan and once to create the REPAYE plan. The SAVE repayment plan replaced the REPAYE repayment plan.

Timeline Of SAVE

The actual process of creating SAVE was multiple years in the making. 

The master calendar provisions in the Higher Education Act of 1965 require regulations to be published in the Federal Register by November 1 for the regulations to go into effect on the following July 1. [20 USC 1089(c)(1)] The master calendar provisions allow the U.S. Department of Education to designate specific regulatory provisions for early implementation. [20 USC 1089(c)(2)]

The final rule for the SAVE plan designated certain provisions of the SAVE plan for early implementation, including the 225% of the poverty line threshold and changing the name from the REPAYE plan to the SAVE plan. 

Other provisions, such as the change in the percentage of discretionary income, were not included and so kept the July 1, 2024 effective date. 

Even though the final rule was published a few days after the June 30, 2023 decision by the U.S. Supreme Court to block the President’s plan for broad student loan forgiveness, development of the SAVE plan was already in progress long before that decision.

The SAVE plan was not intended to provide an alternative approach to broad student loan forgiveness. Rather, a NPRM for broad targeted loan forgiveness was published in the Federal Register on April 17, 2024. Publication of the final rule for this NPRM is imminent.

May 26, 2021

The U.S. Department of Education announced an intent to convene negotiated rulemaking committees and to hold public hearings to consider regulations concerning various matters including loan repayment plans.

October - December 2021

The U.S. Department of Education convened an Affordability and Student Loans negotiated rulemaking committee in October, November and December 2021 to discuss income-driven repayment plans and other matters. 

January 11, 2023

The Notice of Proposed Rulemaking (NPRM) for the SAVE income-driven repayment plan was published in the Federal Register on January 11, 2023 with a 30-day public comment period. A total of 13,621 public comments were received. 

July 10, 2023

The final rule for the SAVE plan was published in the Federal Register on July 10, 2023, with an effective date of July 1, 2024. 

October 23, 2023

A notice in the Federal Register around the early implementation around documentation of income.

January 16, 2024

A notice about the accelerated forgiveness for borrowers who started off with less debt, with an implementation date of January 21, 2024.

July 1, 2024

The target date that all aspects of the SAVE plan were to take effect. However, this was blocked by injunction.

Key Characteristics Of The SAVE Plan

• Discretionary income defined as income over 225% of the poverty line, instead of the 150% of the poverty line threshold in the REPAYE plan.
• Monthly payments based on 5% of discretionary income for undergraduate loans and 10% for graduate loans, instead of the 10% figure in the REPAYE plan.
• Monthly payments of zero for income at or under 225% of the poverty line, instead of the 150% threshold in the REPAYE plan.
• Forgiveness of remaining debt after 20 years (240 payments) for undergraduate loans and 25 years (300 payments) for graduate loans, similar to the provisions in the REPAYE plan.
• Accelerated forgiveness after 10 years (120 payments) for borrowers who start off with $12,000 or less debt, with an additional year required for each additional $1,000 of debt.

414,000 borrowers have received $5.5 billion in student loan forgiveness under the SAVE plan, including 153,000 borrowers who received accelerated forgiveness in February 2024. 

Related: Biden Has Forgiven The Most Student Loans To-Date

A Tale Of Two Lawsuits

Two groups of Republican states filed lawsuits to block implementation of the SAVE repayment plan. Significant parts of the SAVE repayment plan had already been in effect for several months at the time the lawsuits were filed.

One of these lawsuits succeeded in getting a preliminary injunction, pending appeal. As a result, the U.S. Department of Education placed the 7.9 million borrowers in the SAVE repayment plan in an interest-free forbearance on July 19, 2024. 

The months in the forbearance will not count toward loan forgiveness under the SAVE repayment plan or Public Service Loan Forgiveness (PSLF). 

The U.S. Department of Education also suspended the online application to enroll in an income-driven repayment plan, including the SAVE repayment plan, as well as the consolidation loan application, which allows borrowers to choose a repayment plan.

Instead, borrowers may submit a PDF application to enroll in an income-driven repayment plan or consolidate their loans. However, no new borrowers are being enrolled in income-driven repayment plans until the lawsuits are resolved. 

First Lawsuit: Alaska, South Carolina, And Texas

The first lawsuit was filed by 11 Republican states (KS, AL, AK, ID, IA, LA, MT, NE, SC, TX, UT) in the U.S. District Court for the District of Kansas on March 28, 2024, seeking to block implementation of the SAVE repayment plan. 

• On June 7, 2024, the Kansas court found that 8 of the 11 states lacked legal standing to file the lawsuit, but that Alaska, South Carolina, and Texas “just barely” demonstrated legal standing, allowing the lawsuit to proceed. 
• The Kansas court issued a ruling on June 24, 2024, blocking the parts of the final rule that had not yet gone into effect due to the July 1, 2024 effective date. 
• On June 30, 2024, the U.S. Court of Appeals for the 10^th Circuit issued a stay of the Kansas court ruling pending appeal.

Second Lawsuit: Missouri And 6 Other States

The second lawsuit was filed by 7 Republican states (MO, AR, FL, GA, ND, OH, OK) in the U.S. District Court for the Eastern District of Missouri on April 9, 2024, opposing the SAVE repayment plan. 

• The Missouri court issued a ruling on June 24, 2024, blocking the forgiveness part of the rule. The court’s ruling states, “Thus, the Court finds that it is appropriate to limit a preliminary injunction to only those provisions of the SAVE plan that permit loan forgiveness.”
• After the 10^th Circuit appeals court decision, the plaintiffs appealed the Missouri ruling to the U.S. Court of Appeals for the 8^th Circuit, seeking to block the entire rule. On July 18, 2024, the U.S. Court of Appeals for the 8^th Circuit issued a stay blocking implementation of the SAVE repayment plan. 
• The 8^th Circuit subsequently replaced the stay with a preliminary injunction on August 9, 2024. This injunction may block forgiveness in any income-driven repayment plan, not just the SAVE plan, as it refers to “any borrower whose loans are governed in whole or in part by the terms of the Improving Income Driven Repayment for the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan (FFEL) Program, 88 Fed. Reg. 43820.” This refers the final rule for the SAVE repayment plan, which also made changes affecting the other income-driven repayment plans and also Public Service Loan Forgiveness.  
• The U.S. Department of Justice filed an emergency application to the U.S. Supreme Court on August 13, 2024, asking the court to vacate the 8^th Circuit’s injunction after the 8^th Circuit refused on August 19, 2024 to clarify whether its ruling applied only to the SAVE repayment plan and not all income-driven repayment plans. 
• The U.S. Department of Education filed a reply on August 20, 2024. 
• The U.S. Supreme Court denied the request to vacate the injunction on August 28, 2024.

Generally, when issuing a preliminary injunction, the appeals courts have to consider whether the appellant has a strong likelihood of prevailing on the merits, whether they will suffer irreparable harm without a preliminary injunction, whether a preliminary injunction will cause substantial harm to other parties, and the public interest.

In effect, a preliminary injunction preserves the status quo while litigation is ongoing. 

Concerns Over Income-Driven Repayment Loan Forgiveness

A key disagreement relates to the authority of the U.S. Department of Education to forgive student loans after a number of years of payments in an income-driven repayment plan. 

The states argue that statutory authority for the Income-Contingent Repayment (ICR) plan, upon which the SAVE repayment plan is based, merely allow the creation of repayment plans over a specified period of time and do not explicitly authorize forgiveness of the remaining debt at the end of the repayment term. 

The statutory language at 20 USC 1087e(d)(1)(D) is as follows:

The statutory language at 20 USC 1087e(7) further states “In calculating the extended period of time for which an income contingent repayment plan under this subsection may be in effect for a borrower” (emphasis added) and lists the time periods that are included in this extended period of time, such as time in an economic hardship deferment, standard repayment plan, and income-driven repayment plans. 

In effect, they argue that ICR provides for reduced payments for a limited period of time, but does not address what happens after that limited period of time.

The states also argue that cancellation of the debt is precluded by the statutory language at 20 USC 1087e(d)(1), “a variety of plans for repayment of such loan, including principal and interest on the loan” (emphasis added).

On the other hand, the U.S. Department of Education argues that it was never the intention of Congress to create a form of indentured servitude, where the federal student loans would persist for the entire work-life of the borrower or even longer. In 1993, Madeline Kunin, who was Deputy Secretary of Education at the time, testified before Congress that some loans would be forgiven at the end of the payment period:

This demonstrates that the administration proposed cancelling the remaining debt after 25 years and that this was the intent of Congress in adopting the administration’s statutory language. 

The U.S. Department of Education also notes that full repayment is not required by the statutory language at 1087e(d)(1), since the word “full” does not appear in the statutory language. 

Also, Congress has not passed legislation overruling the U.S. Department of Education’s 1994 and subsequent regulations that provided for cancellation of the remaining debt in an income-contingent repayment plan after 25 years. 

Explicit Authority To Forgive Loans Under IDR Plans

However, it is not necessary to rely on the conflicting interpretations of this statutory text, because Congress provided clarity elsewhere in the Higher Education Act of 1965. 

The statutory language authorizing the Income-Based Repayment plan (IBR), and, subsequently, Pay-As-You-Earn repayment plan (PAYE), explicitly authorizes the cancellation of remaining debt at the end of the repayment term, and this authority includes payments made under income-contingent repayment plans. One does not need to rely on the implied authority of 20 USC 1087e(d)(1)(D) because the authority under 20 USC 1098e(b)(7) is explicit. 

The statutory language at 20 USC 1098e(b)(7) is as follows:

Note that paragraph (iv) explicitly counts payments made under an income-contingent repayment plan as qualifying for forgiveness. 

Also note that the period of time until forgiveness occurs is specified as “not to exceed 25 years,” but this wording allows for earlier forgiveness.

Final Thought

The courts, the plaintiff and the defendants do not appear to have considered that the statutory language at 20 USC 1098e(b)(7) provides legal authority for cancelation of debt after a number of years in an income-contingent repayment plan, not just IBR and PAYE.