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Overview of Legal Challenges to the SAVE Plan
A series of lawsuits are attempting to block the SAVE repayment plan, particularly its loan forgiveness provisions. Several appellate courts have issued preliminary injunctions that temporarily halt the implementation of the SAVE plan. These rulings have also suspended forgiveness under any income-driven repayment plans and Public Service Loan Forgiveness, raising questions about whether these legal actions are justified.
The core issue revolves around whether the government, via the Department of Education, holds the authority to forgive student loans under the SAVE repayment plan. However, there seems to be a gap in understanding among the courts and involved parties regarding the explicit statutory authority permitting this forgiveness after several years in repayment within an income-contingent repayment plan.
Let’s examine the statutory authority and regulatory framework of the SAVE repayment plan, as well as the related lawsuits, to assess the likelihood of the SAVE plan surviving legal scrutiny.
Regulatory History of the SAVE Repayment Plan
The SAVE repayment plan is categorized as an income-driven repayment plan, rooted in the broad regulatory authority granted to the U.S. Department of Education under the Income-Contingent Repayment (ICR) framework. This authority allows the department to set terms for repayment, definition of discretionary income, interest capitalization, and other critical aspects of income-driven repayment plans. The SAVE plan effectively replaced the REPAYE plan.
Timeline of the SAVE Plan
The creation of the SAVE plan was a lengthy process, governed by regulations that require publication in the Federal Register by November 1 for new rules to become effective the following July 1. Key dates in the establishment of the SAVE plan include:
- May 26, 2021: Announcement of the intent to gather public input on loan repayment regulations.
- October – December 2021: Negotiated rulemaking sessions held to discuss income-driven repayment plans.
- January 11, 2023: Notice of Proposed Rulemaking (NPRM) published, with public comments received.
- July 10, 2023: Publication of the final rule, set to take effect on July 1, 2024.
Despite the timing of the final rule’s release after the Supreme Court’s decision to block broad student loan forgiveness, the development of the SAVE plan commenced long before that ruling.
Key Characteristics of the SAVE Plan
- Discretionary Income: Defined as income over 225% of the poverty line (previously 150% under REPAYE).
- Monthly Payments: Set at 5% of discretionary income for undergraduate loans and 10% for graduate loans.
- Zero Payments: For borrowers with income at or below 225% of the poverty line.
- Forgiveness Timeline: Remaining debt is forgiven after 20 years for undergraduate loans and 25 years for graduate loans.
- Accelerated Forgiveness: For borrowers starting with $12,000 or less in debt, forgiveness can occur after 10 years, adding one additional year for each extra $1,000 borrowed.
Thus far, around 414,000 borrowers have benefitted from $5.5 billion in loan forgiveness under the SAVE plan.
A Tale of Two Lawsuits
Two groups of Republican states have initiated lawsuits to obstruct the implementation of the SAVE repayment plan, both of which led to preliminary injunctions. Consequently, the U.S. Department of Education placed approximately 7.9 million borrowers under a temporary interest-free forbearance.
First Lawsuit: Filed by 11 Republican states in Kansas, it progressed to the courts with only three states demonstrating sufficient legal standing. A preliminary injunction arose from the Kansas court against parts of the SAVE plan yet to take effect.
Second Lawsuit: Initiated by Missouri and six other states, this lawsuit similarly blocked the forgiveness provisions of the SAVE plan, prompting appeals and further legal entanglements.
Concerns Over Loan Forgiveness Authority
The plaintiffs argue that the statutory framework governing the Income-Contingent Repayment plans does not confer the authority for forgiveness after the repayment term. However, the U.S. Department of Education contends that Congress intended for borrowers to have debt forgiven after a period of repayment, asserting that indefinite loan obligations would effectively create financial servitude.
Explicit Authority for Forgiveness Under Income-Driven Repayment Plans
Importantly, the Higher Education Act of 1965 provides clear statutory language permitting loan cancellation after a specified repayment period, a provision that includes payments made under income-driven repayment plans. This explicit authority contradicts the plaintiffs’ interpretation that the language only supports temporary payment relief.
Final Thought
The court rulings, both from the plaintiffs and the defendants, may not fully account for the established statutory language within the Higher Education Act, which supports the legality of loan forgiveness under income-driven repayment plans like SAVE. As these legal battles unfold, it seems likely that the SAVE plan will ultimately withstand these challenges.