Biden administration pauses student loan payments amid legal challenges

The Biden administration is pausing student loan payments for 8 million borrowers enrolled in its new repayment plan, known as SAVE, after a federal appellate court issued a ruling temporarily blocking the program.

“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,” Miguel Cardona, the secretary of education, said in a statement. “The Department will be providing regular updates to borrowers affected by these rulings in the coming days.”

For now, borrowers are unable to apply to the SAVE repayment plan, and applications for other income-driven repayment plans are also unavailable.

The 8th U.S. Circuit Court of Appeals in St. Louis granted a request by Missouri and other Republican-led states for an administrative stay, which prevents the Biden administration from “implementing or acting pursuant” to the rule that created the SAVE program last summer, according to the court filing.

The SAVE program, which ties monthly payments to a borrower’s income and household size, is more generous than previous iterations of income-driven repayment plans and has generated zero-dollar payments for 4.5 million low-income borrowers.

The one-page order, issued Thursday, is just the latest in a series that have sprung from separate lawsuits brought by two groups of Republican-led states challenging the legality of the SAVE repayment plan, throwing millions of borrowers – and their financial lives – into limbo.

The legal action began in March, when eleven states led by Kansas filed a lawsuit in U.S. District Court for the District of Kansas. The next month, Andrew Bailey, the Missouri attorney general, and six other states sued in U.S. District Court for the Eastern District of Missouri. Both suits argued that the administration had exceeded its authority, and that the repayment plan was a backhanded attempt to wipe debts clean.

The latest ruling granted a request from the group led by Bailey, who said in a post on the social media site X that the order was a “HUGE win for every American who still believes in paying their own way.”

This latest action goes much further than the flurry of previous orders did. A preliminary injunction stemming from the Missouri case had suspended only some loan cancellations but did not stop the entire program from operating. And a Kansas ruling, which had initially halted only parts of the program that were not yet in place, had been blocked earlier this month by another federal appellate court, the 10th U.S. Circuit Court of Appeals in Denver.

Before the ruling in Kansas was blocked, the Education Department had been preparing to pause 3 million borrowers’ payments to comply. The federal student loan machinery had already been struggling to return borrowers to repayment last fall after a 42-month, pandemic-related pause that began during the Trump administration.

The “extreme, unsigned, single-sentence order from a judge out of Missouri’s 8th Circuit Court of Appeals just sent the student loan system into chaos,” said Mike Pierce, the executive director of the Student Borrower Protection Center, an advocacy group, “and borrowers will be forced to pay the price.”

Under SAVE’s income-driven repayment plan, borrowers make payments based on their income and household size, generally for 20 years (25 years for graduate degree borrowers). Any remaining debt at the end of that period is wiped out.

The time borrowers spend in this forbearance will not count as qualifying payments toward loan forgiveness, the Education Department said, and borrowers are also temporarily unable to consolidate their student loans.

Even when the payments turn back on, it’s unclear how much borrowers’ will owe each month. The Department had been in the process of putting the last pieces of the SAVE program into place; they were expected to take effect July 1, and included reducing payments to 5%, from 10% of a borrower’s discretionary income. But those recalculations have also been halted.

This article originally appeared in The New York Times.