Biden's new student loan relief plan is on pause. What to know

Cody Gude was counting down the seconds until July, when his monthly student loan payment would drop from $200 to $100.

The lower payment meant he no longer had to deliver groceries Instacart in his spare time, in addition to his work as a social media consultant.

“I could breathe,” the 35-year-old Tampa resident said.

But then he saw headlines Monday that key parts of the Saving on a Valuable Education plan, or SAVE, were on pause. Two federal judges in Kansas and Missouri have temporarily halted the Biden administration’s new repayment plan until they rule on the cases.

The US Department of Justice is expects to appeal the preliminary orders, but for now, millions of student loan borrowers are disappointed and angry because they won’t see the relief they expected in just a few days.

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There is also a lot of confusion.

Gude’s student loan servicer, Nelnet, has already updated its monthly bill to reflect the lower amount. (Under SAVE, many borrowers pay just 5% of their discretionary income toward their debts each month, instead of the previous 10% requirement, and millions of borrowers have a monthly payment of $0.)

“So am I actually going to get that payment, or are they going to send me a letter saying, ‘Ha! We’re just kidding,'” Gude said. “Everyone is in the dark.”

Here’s what we know so far.

President Joe Biden last summer introduced the SAVE plan, describing it as “the most affordable student loan plan ever.” So far, about 8 million borrowers have signed up for the new income-driven repayment plan, according to the White House.

Under IDR plans, borrowers pay a portion of their discretionary income each month and receive forgiveness after a set period of time, usually 20 or 25 years. SAVE replaced the U.S. Department of Education’s former REPAYE option, the revised Pay As You Earn plan.

The SAVE plan has the most generous terms yet, which has led to the current controversy.

Instead of paying 10% of their discretionary income every month towards their student debt under REPAYE, borrowers only have to pay 5%. new student loan relief plan

Those making less than $15 an hour will have a monthly bill of $0, and borrowers with smaller balances will be entitled to loan forgiveness in as little as 10 years.

“The SAVE plan is very generous to borrowers, almost like an after-the-fact subsidy,” says higher education expert Mark Kantrowitz.

Due to the timeline of regulatory changes, the SAVE plan would not go into full effect until July 1, although some features were already available to borrowers.

In mid-April, 360,000 borrowers received $4.8 billion in debt relief under the plan, the Department of Education reported.

The federal judges were responding to lawsuits against the SAVE plan filed earlier this year by Republican-led states including Florida, Arkansas and Missouri.

The States argued that the Biden administration overstepped its authority with SAVE, essentially trying to find a roundabout way to cancel student debt after the Supreme Court blocked his sweeping plan last year.

Kansas federal judge Daniel Crabtree turned down to undo features of the SAVE plan that were already in effect “because plaintiffs have failed to demonstrate that those provisions caused irreparable harm” since they filed the lawsuit “long after defendants defeated those aspects of the SAVE plan had already implemented the plan.” new student loan relief plan

However, Crabtree agreed to block the Department of Education from implementing the SAVE provision, which dramatically reduces borrowers’ monthly payments starting in July. Crabtree pointed out that the REPAYE plan, which SAVE replaced, “cost an estimated $15.4 billion.” The SAVE plan is expected to cost $475 billion over the next decade.

“This difference – $475 billion versus $15.4 billion – expands the agencies’ authority in a way that changes it,” Crabtree wrote. “The court thus concludes that the SAVE plan ‘represents a massive and transformative expansion of regulatory authority without clear congressional authorization.’”

Meanwhile, in Missouri, Judge John Ross prevented the Biden administration from forgiving any more student debt under the SAVE program until he ruled on the case. Ross agreed with states that the relief plan would likely reduce the costs the government pays to the Missouri Higher Education Assistance Agency, or Mohela, to service federal student loans.

So the key question is: how long can this lawsuit last?

‘Months have passed, I suspect [the] election,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.

Buchanan assumes that the cases will eventually end up at the Supreme Court, “then they would only start with them in October and only issue a ruling much later.”

Borrowers can remain enrolled in the SAVE plan for the time being, and many will still benefit from lower bills. (The justices did not halt the provision, which shielded more of borrowers’ income from their payment calculations.)

Even if your servicer has updated your monthly bill to what it would have been before the preliminary orders, your required payment should quickly return to June levels, experts say.

“The court’s ruling is not retroactive,” Kantrowitz added. “So borrowers don’t have to worry about the court getting back the forgiveness they’ve already received.”