Student Loan Repayment Plan Faces Court Challenges: What’s Next for Borrowers?

Juilia Ruskin
5 Min Read

Cody Gude, a 35-year-old from Tampa, was excited about July. His monthly student loan payment was set to drop from $200 to $100 because of the new Saving on a Valuable Education (SAVE) plan. This meant he could stop working part-time as an Instacart delivery driver and focus more on his job as a social media consultant. However, recent legal challenges have caused confusion and frustration for Cody and millions of other borrowers.

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What is the SAVE Plan?

The SAVE plan, introduced by President Joe Biden, is designed to make student loan repayment more affordable. Under this plan, borrowers pay just 5% of their discretionary income towards their student loans each month, down from the previous 10%. Many borrowers qualify for a $0 monthly payment.

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Cody’s loan servicer, Nelnet, had already adjusted his bill to reflect the lower amount. But now, two federal judges in Kansas and Missouri have temporarily stopped the SAVE plan, causing uncertainty. Cody and others are unsure if their payments will decrease or if they’ll receive a notice reversing the decision.

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Why is the SAVE Plan Controversial?

The SAVE plan is seen as very generous. Borrowers with undergraduate debt pay only 5% of their discretionary income. Those earning less than $15 an hour have no monthly bill, and some borrowers can receive loan forgiveness in as little as 10 years. Critics argue that the plan is too generous and costly.

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Court Decisions Impacting SAVE

Legal challenges to the SAVE plan come from Republican-led states like Florida, Arkansas, and Missouri. They argue that the Biden administration is overstepping its authority. In Kansas, Judge Daniel Crabtree halted the provision lowering monthly payments, citing the significant cost difference between the previous plan (REPAYE) and SAVE. In Missouri, Judge John Ross stopped the administration from forgiving more student debt until a decision is made.

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What’s Next for Borrowers?

The legal cases could take months to resolve, possibly extending past the upcoming election. The Supreme Court might not take up the cases until October, with a ruling expected much later. Meanwhile, borrowers should stay enrolled in the SAVE plan and monitor updates from their loan servicers and the Department of Education.

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What Should Borrowers Do Now?

For now, borrowers can continue benefiting from lower bills where applicable. If your loan servicer updated your monthly bill due to the preliminary injunctions, it should soon revert to its previous amount. It’s essential for borrowers to stay informed and monitor updates while the legal battle continues.

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Cody Gude and millions of other borrowers are facing a period of uncertainty. The promise of lower payments and potential forgiveness is on hold, but staying informed and patient is crucial. The legal outcome will determine the future of student loan repayments for many Americans.

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1. What is the SAVE plan?

The SAVE plan is a student loan repayment program introduced by President Joe Biden. It aims to make repayments more affordable by reducing the percentage of discretionary income borrowers must pay each month.

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2. How does the SAVE plan benefit borrowers?

The SAVE plan lowers monthly payments to 5% of discretionary income, with many borrowers qualifying for a $0 monthly payment. It also offers quicker loan forgiveness for borrowers with smaller balances.

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Republican-led states argue that the Biden administration is overstepping its authority with the SAVE plan. They believe it attempts to bypass the Supreme Court’s block of a broader student debt forgiveness plan.

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Borrowers should stay enrolled in the SAVE plan, monitor updates from their loan servicers and the Department of Education, and be aware that some provisions of the plan are paused while others remain in effect.

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5. Will the court’s decision affect forgiveness already received?

No, the court’s ruling is not retroactive. Borrowers do not need to worry about losing any forgiveness already received.

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An up-and-coming tax attorney passionate about educating readers on tax planning and mitigation strategies. Juilia articles offer practical advice and actionable tips to help individuals and businesses navigate the intricacies of tax law with confidence.
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