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  • Writer's pictureDr. Disha
    • Jul 28
    • 3 min read

What’s going on with the SAVE Plan?

If you have student loans, you're likely aware that the SAVE plan is under legal pressure.


The Education Department recently announced that all SAVE borrowers will be placed into administrative forbearance indefinitely as the administration defends the plan in court.

This forbearance is interest-free, but unfortunately, the time in forbearance will not count towards the Public Service Loan Forgiveness (PSLF) payment count.


Why all the drama? Let’s take a deeper look.


Origins of the SAVE (Saving on a Valuable Education) Plan

The Biden administration initially tried to help borrowers at risk of delinquencies and default after the pandemic payment pause by forgiving $20,000 in debt for Pell Grant recipients and $10,000 for non-Pell Grant recipients earning less than $125,000 as single filers or $250,000 for households.


The administration argued that the pandemic was a national emergency justifying loan cancellation under the Heroes Act of 2003, which allows the Secretary of Education to waive or modify student debt obligations.


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However, the Supreme Court ruled this unconstitutional.


In response, the Biden administration introduced the SAVE plan through executive action, citing the Higher Education Act. This new Income-Driven Repayment (IDR) plan offered significant concessions to borrowers, including:


  • Lowering payments to a weighted average of 5-10% of Modified Adjusted Gross Income (MAGI) for graduate loans, and 5% of MAGI for undergraduate loans.

  • Preventing student loan balances from ballooning by forgiving 100% of the accrued monthly interest.

  • Forgiving the loan balances of those who borrowed $12,000 or less in as few as 10 years.


Since its rollout in 2023, about 8 million borrowers have enrolled in the SAVE plan, with 4.6 million of them qualifying for $0 payments.


Current Legal Challenges

In March 2024, eleven Republican-led states, led by Kansas, sued to block the SAVE plan. In April 2024, another group of Republican-led states, led by Missouri, followed suit.


These lawsuits argued that the executive branch lacks the authority to cancel student debt without congressional approval, citing significant financial losses for states. Federal judges temporarily blocked parts of the SAVE plan in June 2024.


While one of these rulings was lifted by the 10th US Circuit Court of Appeals, the 8th Circuit Court blocked the entire SAVE plan until a final decision is made. The cases are likely to end up in the Supreme Court

Current Status of the SAVE Plan

The Education Department has put all SAVE borrowers into administrative forbearance until the legal issues are resolved. No new enrollments are allowed at this time. Unfortunately, these months in forbearance will not count towards PSLF or IDR forgiveness, though loans will have 0% interest during this period.


What Happens Next?

The issue will likely go to the Supreme Court. Given the current right-leaning composition of the court, the SAVE plan may not survive. The future of the SAVE plan largely depends on the outcome of the 2024 election.


Former President Trump has consistently opposed student loan forgiveness and proposed cuts to the Department of Education, elimination of subsidized debt, and the Public Service Loan Forgiveness program in his 2020 budget.


Therefore, he is unlikely to support the SAVE program. If Trump is elected, the current administration may try to make the program better or more permanent before leaving office in January 2025. If the Democrats are re-elected, they will likely continue their efforts to provide student loan relief.



Borrowers close to IDR or PSLF forgiveness on the SAVE plan might consider switching to the IBR plan to complete their payments. As of right now on 7/23/2024, the online application for IDR has been pulled down, though you may still be able to do it via the paper application.


But, for most people, especially those who still have a ways to go, it’s probably more advisable to sit tight and enjoy the reprieve from monthly student loan payments while the government figures out the fate of the SAVE plan.


Most importantly, don’t forget to make plans to go out and vote in November!


Stay frugal, y’all!


Disha



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Jul 29
Rated 5 out of 5 stars.

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