Two federal judges in Kansas and Missouri on Monday temporarily blocked parts of the Biden administration's new student loan forgiveness plan, a ruling that will affect millions of federal loan borrowers.
Borrowers enrolled in the income-contingent repayment plan known as SAVE are expected to continue making payments, but undergraduate student loan payments will no longer be halved starting July 1, a major disappointment for borrowers who were hoping for that relief.
The separate preliminary injunctions issued Monday are related to lawsuits filed this year by two Republican-led state groups seeking to repeal the SAVE program, a student loan relief measure for borrowers. Many of the challengers to the program are the same ones who sued against Biden's $400 million debt cancellation plan that the Supreme Court struck down last June.
“This is chaos for borrowers, and it's pretty shocking that state officials would ask the court to block the Biden administration from providing more affordable mortgage payments to their residents at a time when many Americans are struggling with rising prices,” said Abby Shafroth, co-advocacy director at the National Consumer Law Center. “It's a pretty cynical ploy to stop the current president from lowering prices for working- and middle-class Americans in an election year.”
Kansas led a group of 11 states that filed suit challenging the SAVE program in the U.S. District Court for the District of Kansas in late March. Missouri and six other states filed suit the following month in the U.S. District Court for the Eastern District of Missouri. Both lawsuits argue that the administration has again overstepped its authority and that the repayment plans are a ploy to wipe out debt.
The SAVE program, which has enrolled 8 million borrowers since it launched in August, isn't a new idea. It's based on a nearly 30-year-old plan that tied monthly payments to a borrower's income and the number of people in their household. But SAVE has more generous terms and a higher price tag than previous plans. More than 4 million borrowers can get their monthly payments down to $0.
Federal Judge Daniel D. Crabtree in Kansas said earlier this month that only three of the states fighting the lawsuit in Kansas — South Carolina, Texas and Alaska — have a legal basis to move forward with their challenges, but only “just barely.” He said the three states have shown that the SAVE program “probably” harms state public agencies that have student loans.
The preliminary injunction freezes parts of the SAVE program until the litigation is resolved. Judge Crabtree refused to undo parts of the program that were already in place. After all, the plaintiffs filed suit long after the program was in place, so “the Court sees no reason for the plaintiffs to allege irreparable harm from the program,” he wrote.
Similarly, Judge John A. Ross in St. Louis wrote that because tens of thousands of borrowers in Missouri had already applied for debt forgiveness through the SAVE plan, the court could not simply halt the process.
“These borrowers and the public have an interest in ensuring consistency in the loan repayment program, and any preliminary injunction would undermine their expectation of such consistency,” he wrote.
But Judge Ross sought to strike a balance by issuing a partial injunction, allowing borrowers to continue receiving SAVE benefits, such as lower monthly payments and limits on interest accrual, while temporarily blocking provisions in the plan that would have allowed borrowers to be forgiven in the coming months.
In his written order, he agreed with Republican state attorneys general that the Department of Education may have overstepped its authority by granting a fast track to loan forgiveness, a move that critics of SAVE say would impose huge costs on taxpayers. But he wrote that other generous elements of SAVE, such as the steep reduction in monthly payments, “appear to still be functioning properly” even though the loan forgiveness element has been suspended while the litigation continues.
The Education Department did not immediately comment.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, an industry group, said organizations that administer federal loans will work under the department's guidance to implement the court order.
“This legal news can create a lot of confusion about what it means for borrowers, and we will do our best to answer borrowers' questions as soon as we have timely guidance and resources from the authorities,” he said.
Getting millions of borrowers to resume payments last fall was a challenge after a 42-month hiatus due to the pandemic. Just as the student loan system was getting up and running again, the Biden administration continued a series of changes to overhaul the system, making modifications to various loan forgiveness programs. So far, the administration has wiped out $167 billion in debt for nearly 5 million borrowers.
Borrower advocacy groups said blocking parts of the SAVE plan, which would replace the plan known as REPAYE, would put even more strain on a system that is already overburdened enough.
“Having two different injunctions is confusing from a legal standpoint,” said Persis Yu, deputy executive director of the Student Loan Borrower Protection Center, an advocacy group. “How can you administer the program in this confusion?”
Some Republicans in Congress welcomed the tentative ruling. Sen. Bill Cassidy of Louisiana said in a statement that income-contingent repayment plans “do not 'forgive' the debt” but simply shift the burden onto taxpayers.
