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The Biden administration has paused student loan payments for about 3 million borrowers after federal judges blocked key components of the Saving on a Valuable Education (SAVE) plan.

What is the SAVE plan?: The SAVE (Saving on a Valuable Education) Plan is a new student loan repayment option introduced by the Biden Administration. It aims to provide more affordable payments for borrowers by calculating monthly payments based on income and family size, potentially lowering them to $0 for some low-income individuals. The plan also includes provisions to prevent interest from accumulating if payments are made on time, ultimately helping borrowers manage their debt more effectively.

What led to the pause: In June, federal judges in Kansas and Missouri issued preliminary injunctions after Republican-led states filed lawsuits attempting to block key provisions of the SAVE plan. The judges agreed that some of these provisions, which were intended to shorten the timeline for debt forgiveness and reduce monthly payments starting on July 1, 2024, should be blocked. Following the injunctions, the Biden administration appealed to the 8th Circuit Court, which has now ruled to block their appeal, thereby upholding the original rulings.

Immediate Impact: Due to the failed appeal, the judge’s previous injunction stands, leading to the Department of Education placing around 3 million borrowers into administrative forbearance. This means their payments are paused, and interest will not accrue during this period. The Education Department has also removed online applications for income-driven repayment plans to prevent misinformation.

Department of Education Responds: In a statement, Education Secretary Miguel Cardona said, “Yesterday’s ruling from the 8th Circuit blocking President Biden’s SAVE plan could have devastating consequences for millions of student loan borrowers crushed by unaffordable monthly payments if it remains in effect. It’s shameful that politically motivated lawsuits waged by Republican elected officials are once again standing in the way of lower payments for millions of borrowers.”

Another view: States trying to stop the SAVE plan argue that it exceeds the executive branch’s authority, potentially violates the separation of powers, and imposes unfair costs on taxpayers by transferring student loan burdens to the public. They also point out that such significant policy changes should be enacted through legislation, not an executive order.

What’s happening now: The Justice Department has appealed the court rulings, and the Biden administration has vowed to defend the SAVE plan.  

Digging Deeper: Roughly 8 million people are enrolled in the SAVE plan. About 4.5 million of these qualify for $0 monthly payments due to low income.