A federal appeals court on Thursday halted President Joe Biden’s new student debt relief plan, which aimed to reduce monthly payments for millions of Americans.
The St. Louis-based 8th U.S. Circuit Court of Appeals granted a request by seven Republican-led states to suspend parts of the U.S. Department of Education’s Saving on a Valuable Education (SAVE) Plan that had not already been blocked by a lower court.
Previously, U.S. District Judge John Ross in St. Louis had prevented the Department of Education from granting further loan forgiveness under the SAVE Plan but did not entirely stop the plan’s implementation. The SAVE Plan offers more generous terms than previous income-based repayment plans, reducing monthly payments for eligible borrowers and forgiving debt after 10 years for those with original principal balances of $12,000 or less.
Last week, state attorneys general led by Missouri Attorney General Andrew Bailey requested the 8th Circuit to block the remaining parts of the SAVE Plan. The court issued a one-page order granting an administrative stay, effectively putting the plan on hold.
Bailey celebrated the ruling on social media, calling it a “huge win for every American who still believes in paying their own way.” He argued that the student loan plan would burden working Americans with an estimated $500 billion in debt from Ivy League institutions.
A spokesperson for the Education Department stated that the ruling’s impact was under review, assuring that they would communicate directly with affected borrowers and continue to defend the SAVE Plan aggressively.
President Biden announced the SAVE Plan in 2022 as part of a broader $430 billion program to cancel up to $20,000 in debt for up to 43 million Americans, fulfilling a campaign promise. However, the U.S. Supreme Court, with a conservative majority, blocked this broader program in June 2023.
The SAVE Plan was scheduled to take full effect on July 1, though some parts had already been implemented. According to the White House, over 20 million borrowers could benefit from the plan, with the Education Department reporting that 8 million borrowers are already enrolled, including 4.5 million whose monthly payments have been reduced to $0.
On Thursday, the Education Department announced it had already granted $5.5 billion in relief to 414,000 borrowers through the SAVE Plan. The administration estimated the plan would cost taxpayers approximately $156 billion over ten years, but Republican state attorneys general argued that the true cost would be around $475 billion.
Additionally, another federal judge in Kansas had also blocked parts of the SAVE Plan last month. However, the Denver-based 10th U.S. Circuit Court of Appeals put part of that decision on hold. A group of Republican-led states has since asked the U.S. Supreme Court to reinstate the injunction.
The SAVE Plan is designed to offer more favorable terms for borrowers than previous income-driven repayment plans. For instance, borrowers with original loan balances of $12,000 or less can have their remaining debt forgiven after making 10 years of qualifying payments. This is in contrast to other income-driven repayment plans, which typically require 20 to 25 years of payments before forgiveness.
The plan also includes provisions to cap monthly payments at a percentage of discretionary income, aimed at making repayments more manageable for borrowers with lower incomes. However, the opposition from Republican-led states centers on the plan’s financial impact and the belief that it unfairly transfers the burden of repayment to taxpayers.
The legal battles surrounding the SAVE Plan reflect broader ideological divides over the role of government in providing economic relief and the extent to which public funds should be used to alleviate personal debt. The Biden administration has framed the plan as a necessary step to help millions of Americans struggling with student debt, while opponents argue it represents an overreach of executive authority and an undue financial burden on taxpayers.
As the situation continues to unfold, borrowers and policymakers alike await further legal developments that will determine the future of the SAVE Plan and the broader landscape of student debt relief in the United States. The outcome of these legal challenges will have significant implications for millions of borrowers and the federal government’s approach to managing student loan debt.
