President Joe Biden announces the cancellation of an additional $1.2 billion in student loan debt for about 153,000 borrowers in February.
The 8th Circuit Court of Appeals in Missouri ruled on Thursday that President Joe Biden's Saving on a Valuable Education income-driven repayment plan cannot be implemented as planned.
Federal student loan borrowers on the SAVE plan were expecting or already enjoying lower monthly payments from July onward, and others were hoping to see their loans forgiven after a decade of payments.
The temporary stay blocks all aspects of the SAVE plan from moving forward until further notice. It's unclear when the courts will issue a final ruling.
"It wasn't so long ago that a million borrowers defaulted on their student loans every single year, mainly because they couldn't afford the payments," Secretary of Education Miguel Cardona said in a statement. "The SAVE plan is a bold and urgently needed effort to fix what's broken in our student loan system and make financing a higher education more affordable in this country."
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If you're already enrolled in the SAVE plan, you'll be placed in an interest-free forbearance while the administration "continues to vigorously defend the SAVE Plan in court," the statement said.
The 8th Circuit ruling addresses just one of the two lawsuits currently being litigated to determine the SAVE plan's fate. If the 10th Circuit Court of Appeals in Kansas issues a different ruling, the Supreme Court may have to step in. But if the 10th Circuit also rules against the Biden administration, it's unlikely the SAVE plan will be able to move forward, according to the Student Borrower Protection Center.
"We are assessing the ruling and will be in touch directly with borrowers about how this will affect them," the Federal Student Aid website read as of Friday.
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What happens next for borrowers
Over 400,000 borrowers have already had their debt forgiven under the SAVE plan and nearly 8 million had enrolled in the program, according to the White House. Borrowers who had their debt discharged will not be impacted, an administration spokesperson confirmed.
Those already enrolled in the SAVE plan and placed in forbearance can rest knowing they don't have a payment due for the time being.
If the SAVE plan remains unavailable, other income-driven repayment plans may still be options for borrowers looking to lower their monthly payments, but applications for those programs are closed as of Friday morning as well.
Activist groups have called on the Biden administration to "shut down" the student loan system "until borrowers have access to the rights they were promised under the law," Mike Pierce, executive director of the Student Borrower Protection Center, said in a statement.
The court's decision "just sent the student loan system into chaos and borrowers will be forced to pay the price," Pierce said. "It is clear that the Biden Administration can and must protect borrowers from this partisan lawfare."
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Editor's note: This story has been updated to include that borrowers who had their debt discharged on the SAVE plan will not be impacted by the ruling.
