Key Points
- The Eighth Circuit Court of Appeals ruled that the Biden administration exceeded its authority in implementing the SAVE student loan repayment plan.
- The decision halts loan forgiveness provisions under the plan, citing legal limits on executive authority over debt cancellation.
- The ruling could send the case to the Supreme Court, leaving millions of borrowers in limbo.
A federal appeals court affirmed the injunction that is blocking a key part of the Biden administration’s student loan relief efforts, ruling that the Saving on a Valuable Education (SAVE) Plan exceeds the authority granted to the U.S. Department of Education. The decision, issued by the Eighth Circuit Court of Appeals, blocks the plan’s loan forgiveness provisions, affecting millions of borrowers and sends the case back to the District Court for a full ruling.
The ruling follows a lawsuit brought by seven Republican-led states (Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio, and Oklahoma) which argued that the administration was unlawfully canceling debt through executive action.
The court agreed, stating that federal law does not authorize mass loan forgiveness through income-driven repayment programs and defers to Congress under the “major questions doctrine”. As such, the injunction on loan forgiveness is upheld currently, and the case is send back to the District court who will provide a full hearing and ruling on the issues.
This process will continue to take weeks or months, but the SAVE plan is effectively paused indefinitely at this point.
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Legal Limits On Student Loan Forgiveness
The court’s decision to uphold the injunction focuses on the Higher Education Act’s income-contingent repayment (ICR) provisions, which allow for loan payments based on a borrower’s income. The Biden administration argued that these provisions allowed for partial loan forgiveness after a set number of years.
However, the court said that forgiveness was never explicitly authorized by Congress, making the SAVE Plan’s provisions legally dubious. The ruling cited last year’s Biden v. Nebraska Supreme Court case, which struck down the administration’s broader loan forgiveness initiative, reinforcing that executive action cannot unilaterally cancel student debt.
The court highlighted that the Secretary of Education does not have the authority to grant student loan forgiveness through an ICR plan. Specifically, it said ICR plans were designed for loan repayment, not forgiveness.
Unlike Income-Based Repayment (IBR), the ICR statute does not include explicit language authorizing forgiveness. Rather, the 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 decision also highlighted financial harm to MOHELA (Missouri Higher Education Loan Authority), a loan servicer that would lose revenue if loans were forgiven. This finding helped establish Missouri’s standing to sue, a key issue in student loan legal challenges.
Impact On Borrowers
The ruling leaves millions of borrowers uncertain about their repayment options. Under the SAVE Plan, some borrowers earning lower incomes were set to receive debt cancellation after making a decade of payments (which also called into question the value of plans like Public Service Loan Forgiveness). That relief likely won’t happen now and borrowers will need to decide what to do moving forward.
While existing income-driven repayment (IDR) plans remain in place, borrowers who expected early loan forgiveness through SAVE will now need to adjust their financial plans. The ruling also expanded the previous SAVE Plan injunction to include any attempts at forgiveness through REPAYE.
Normally, the Biden Administration would have appealed to the Supreme Court. However, it’s very possible (even likely) the Trump Administration does not appeal and simply lets the 8th Circuit ruling stand. This would effectively end the value of the SAVE repayment plan and highlights what might happen in the lower District court as well.
Related: Student Loan Debt Statistics
What Borrowers Should Do Next
For those affected by the ruling, there are a few steps to consider:
- Change to an alternative IDR plan. The SAVE Plan’s forgiveness feature may be blocked, but the court was clear that IBR does allow loan forgiveness after 20 or 25 years as set by Congress.
- Monitor legal developments. If the case goes to the Supreme Court, a final decision could take months. If the Trump administration does not appeal, this ruling will stand while we wait for the lower court to issue a final ruling.
- Stay updated on changes. The true updates will come from the Department of Education, who will likely issue guidance to borrowers in the SAVE forbearance in the coming weeks or months.
The bottom line is that borrowers under the SAVE plan forbearance should look at IBR as as option moving forward, but no action is needed in the short term. If you’re unsure of your payments, use a student loan calculator to get an estimate, and then use the remaining time in forbearance to plan accordingly.
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Editor: Colin Graves
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