The 8th U.S. Circuit Court of Appeals has blocked the income-driven student loan repayment plan Saving on a Valuable Education (SAVE). As a result, SAVE borrowers won’t owe payments until the legal situation is resolved, which could take months.
The July 18 ruling was the latest update for borrowers who have endured back-and-forth legal decisions about SAVE since June, resulting from two lawsuits filed by groups of Republican-led states. About 8 million borrowers are enrolled in SAVE, accounting for 1 in 5 student loan borrowers.
“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,” U.S. Education Secretary Miguel Cardona said in a statement. “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.”
The latest legal decision blocks the plan in its entirety, whereas decisions in recent weeks only blocked portions of the plan. However, the decision is also temporary — in place until the court rules on the plaintiffs’ request for a preliminary injunction.
If you’re enrolled in SAVE, here’s what you need to know.
Interest-free forbearance for SAVE borrowers
Of the 8 million federal student loan borrowers enrolled in SAVE, about 4.6 million owe $0 payments based on their income.
If you’re among the 3.4 million SAVE borrowers who do owe monthly payments, you’re off the hook for now. The Education Department is putting all SAVE borrowers into an administrative forbearance indefinitely. Upcoming payments won’t be due, even if you received a bill for August.
“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. The department will be providing regular updates to borrowers affected by these rulings in the coming days,” Cardona said.
Check that your contact information is up to date in both your studentaid.gov and student loan servicer accounts. This will help you stay informed of key SAVE updates that may impact your repayment. The Education Department is also posting updates on ED.gov/SAVE.
No PSLF or IDR forgiveness credit
During the indefinite forbearance, borrowers will not earn credit toward income-driven repayment (IDR) loan forgiveness or Public Service Loan Forgiveness (PSLF), according to the latest Education Department guidance. This is a departure from previous administrative forbearances, during which borrowers did receive this credit.
The Education Department has not yet responded to NerdWallet’s questions about workarounds for borrowers who want to continue earning PSLF or IDR forgiveness credit, such as switching repayment plans or making payments during the forbearance.
The department also has not yet clarified if borrowers can still apply for IDR plans, including SAVE. As of July 24, the online IDR application on studentaid.gov/idr was inaccessible. And in a court document filed the day before the plan was struck down, U.S. Solicitor General Elizabeth B. Prelogar said the Education Department would suspend online IDR and loan consolidation applications for six weeks if SAVE was blocked.
How we got here and what could come next
SAVE is more generous than other income-driven repayment (IDR) plans, which the government introduced in the 1990s. For example, SAVE offers lower monthly payments and an interest subsidy that prevents ballooning balances. It also forgives debt in as little as 10 years for those with principal balances up to $12,000, compared to forgiveness in 20 or 25 years on other IDR plans.
Portions of SAVE debuted to borrowers in August 2023. The final benefits of the plan — like capping payments on undergraduate loans at 5% of discretionary income, rather than 10% — were slated to roll out July 1. The Education Department has already forgiven $5.5 billion in student debt for 414,000 SAVE borrowers.
In March, a group of 11 Republican states led by Kansas sued to stop the SAVE plan, alleging that Biden did not have the authority to cancel student debt without congressional approval. In April, a separate group of seven Republican states led by Missouri filed a similar lawsuit.
As a result, two federal judges temporarily blocked different portions of SAVE in late June, days before reduced payments were scheduled to go into effect for millions of borrowers.
One of these rulings was lifted a week later by the 10th U.S. Circuit Court of Appeals, allowing lower payments to proceed, but not the accelerated 10-year forgiveness. However, the latest decision by the 8th Circuit on Thursday entirely blocks SAVE until a final decision can be made.
In a post on X, Missouri Attorney General Andrew Bailey called the July 18 decision a “HUGE win for every American who still believes in paying their own way.”
However, removing SAVE could leave borrowers with “intense confusion” and “significant and irreparable harm,” Prelogar said in the Wednesday court filing.
“To revert to the pre-SAVE plan approach, the department and its servicers would have to reprogram their systems, retrain their staff and recalculate monthly payments,” Prelogar said. “It would have to devote considerable staff time and other resources to the reprogramming effort, which would detract from other critical priorities.”
If the 8th Circuit finds the plan illegal and the 10th Circuit does not, these differing opinions could land SAVE in the U.S. Supreme Court, according to the Student Borrower Protection Center. A Republican coalition has already asked the high court to intervene.
