SAVE Lawsuits: Student Loan Repayment Plan Blocked, Payments Paused For Millions

The Supreme Court is staying away from the income-driven student loan repayment plan Saving on a Valuable Education (SAVE) for now. Eight million people enrolled in the plan — accounting for 1 in 5 federal student loan borrowers — face continued uncertainty.

On Aug. 28, The Supreme Court denied the Biden administration’s request to temporarily reinstate SAVE. (The legal battle surrounding two separate Republican-led lawsuits has blocked SAVE all summer.)

The high court also sent the two lawsuits back to the 8th and 10th Circuit Courts of Appeals for a further review.

SAVE borrowers were placed in an interest-free payment pause, known as forbearance, in late June. The forbearance will continue until the legal situation is resolved, which could take months. A lower court ruling also blocks forgiveness under any income-driven repayment plan, not just SAVE.

The Supreme Court could still weigh in on SAVE in the future. If the lower courts rule in the coming weeks, the White House will have the opportunity to appeal to the Supreme Court again for the fall session.

In the meantime, "borrowers should make sure they are enrolled in the right kind of forbearance if they're in limbo because of these decisions," says Mike Pierce, the executive director of the Student Borrower Protection Center. "We've heard that MOHELA and other servicers may be improperly charging borrowers interest during this time, even though they have been instructed to waive interest charges for borrowers enrolled in SAVE."

» MORE: How to call your student loan servicer

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,” Education Secretary Miguel Cardona said in a mid-July statement.

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.

There are a couple of official workarounds, according to the Education Department.

Workaround 1: Switch to a different IDR plan

You can earn credit towards forgiveness during this time by switching to an IDR plan other than SAVE. The only other IDR plan open to all borrowers is Income-Based Repayment (IBR). The Income-Contingent Repayment (ICR) remains an option only if you have a consolidation loan containing a parent PLUS loan.

(Pay As You Earn (PAYE) is now closed to new enrollment. The plan was scheduled to permanently close new enrollment starting July 1, but the Education Department briefly reopened the plan between July 18 and Aug. 9 in response to the SAVE lawsuits.)

Payments made on IBR (or ICR, if you qualify) will count towards IDR and PSLF forgiveness, even during the SAVE forbearance. However, your monthly payments could increase if you switch plans, so consider the decision carefully. The IBR plan also requires a partial financial hardship to apply, which may block higher-income borrowers from enrolling.

Use the Education Department's loan simulator to estimate what your payments might look like on different IDR plans.

This isn't an instant solution, since servicers have temporarily stopped processing IDR applications, and we don't know when processing will resume. Expect major delays switching to a different repayment plan.

Workaround 2: PSLF borrowers can "buy back" credit

Some PSLF borrowers can "buy back" months of PSLF credit for time spent in this lawsuit-related forbearance. You may qualify for the PSLF buyback if:

• you have an outstanding federal student loan balance,

• you have approved qualifying employment for these months spent in the forbearance, and

• buying back these months will complete your total of 120 qualifying PSLF payments needed for forgiveness.

To get credit, you must submit a buyback request and make an extra payment of at least what you would have owed under an IDR plan during the month(s) you want to buy back.

This process debuted last fall; more information is available on studentaid.gov.

How to change repayment plans while SAVE is blocked

For now, borrowers who want to apply for an income-driven repayment plan or loan consolidation must submit a PDF application. Online applications are closed until the legal situation is sorted out. You can apply for IBR, ICR (if you qualify) and SAVE.

Instructions for the PDF application process are available on studentaid.gov.

» MORE: How to choose the best student loan repayment plan

Prepare to wait. While student loan servicers are actively accepting PDF applications, they won't process them until the Education Department can ensure processing is done correctly. Borrowers should expect a "lengthy delay" in application processing, especially if they are applying for SAVE — there's no estimate for how long this could take, the Education Department says.

Here are the next steps you can expect if you apply for an IDR plan right now:

• Your servicer may place you in a short-term forbearance for up to 60 days while it prepares to process your application. During this time, you won’t owe payments. Interest will accrue on your debt. You’ll continue to make progress towards PSLF or IDR forgiveness. 

• If your application is not processed within 60 days, your servicer will move you to a “general” forbearance. You won’t owe payments and interest will not accrue. However, you also will not earn credit towards PSLF or IDR forgiveness while in this specific forbearance.

Once applications are finally processed, borrowers who enroll in SAVE may stay in the general forbearance if litigation is ongoing. That means your bills and interest will still be on hold, but you won’t earn any PSLF or IDR forgiveness credit for the months you spend in this forbearance.

Key context: how we got here

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, a July 18 decision by the 8th Circuit Court of Appeals entirely blocked SAVE until a final decision is made.

Removing SAVE could leave borrowers with “intense confusion” and “significant and irreparable harm,” U.S. Solicitor General Elizabeth Prelogar said in a July court filing.