On Monday, 6/24/24, two different federal judges halted the second rollout phase of the SAVE repayment method.  The second phase was to be implemented on July 1, 2024.  The decisions stem from lawsuits from various Republican states that believe the SAVE program is unconstitutional.  The orders were from judges appointed by President Barack Obama.

The Department of Education announced the SAVE program shortly after the Supreme Court denied the One-Time Student Loan Forgiveness Proposal. Using a different legal procedure, it became law on October 1, 2023. The procedure bypassed the normal congressional approval process since it was an increase to the budget.

The only group that estimated the cost of this program was a Wharton study.  They estimated it to exceed $600 billion, higher than the One-Time Forgiveness of over $400 billion.  The Wharton Study did not include new loopholes that may understate the overall cost.

SAVE Methods Current Status

The judges have stopped the additional reductions and forgiveness programs planned to go into effect on July 1.  The Department of Education (DOE) has already announced a payment delay, putting borrowers in Administrative Forbearance for a month so that the bill related to phase 2 of the rollout can be properly reflected.

The orders did not take anything away at this time.  The July items will not be allowed to be implemented.  An appeal is expected based on the reaction from the White House and the DOE.  Here are the items put on hold:

• The monthly payment calculation adjustment will use a 5% factor for undergraduate loans. The new weighted average calculation for borrowers with a mix of undergraduate and graduate loans is also on hold.
• Forgiveness of original loan under $12,000 with a payment history of 12 years or more.
• Limiting the ability to switch to other Income-Driven Repayment (IDR) plans.

The initial items in Phase 1 of SAVE are still in place.  If the lawsuit succeeds, the entire SAVE program may be rescinded, and the Revised Pay As You Earned rules may be reinstated.

Who is Affected By the SAVE Lawsuit Decision

There are approximately 8 million borrowers who have enrolled in SAVE.  The DOE has promoted this option heavily.   SAVE offered significant advantages over the other  IDR methods.  It isn’t easy to project if any of these benefits will be grandfathered in if repealed.  It is unlikely based on the previous Supreme Court decision and other similar cases.  Future plans need to be made clearer on what the DOE will need to do and when that will need to be implemented.

Impact of the PAYE Elimination Decision

For many high-debt borrowers, the SAVE program’s no-negative amortization feature made it very attractive to switch to SAVE.  As part of these changes, the DOE eliminated an older method called Pay As You Earn, or PAYE.

This plan will not be available to new borrowers, and current PAYE enrollees are grandfathered in. The major difference was the graduate school debt forgiveness planning. PAYE had an end-of-term forgiveness period of 20 years versus a SAVE period of 25 years. The major difference under the SAVE program was that the loan balance would not increase due to the negative amortization rule.

Borrowers who have switched to SAVE may want to revisit this decision.   If the DOE eliminates new enrollment to PAYE as planned and SAVE is reversed back to REPAYE, that may cost the borrower more money.

SAVE Repayment Plan Halted Summary

These lawsuits had been working through the court system for a while but did not get much publicity until yesterday.  It is unclear what the outcome will be, but it is another change that borrowers will need to face.  If SAVE is repealed, then some transition period would be expected to allow borrowers to make new selections and for the loan servicers to readjust monthly payments.

This lawsuit has no impact on the IDR One-time Adjustment program, which has a registration deadline of 6/30/24.

If you need help navigating this process, please contact PayForEd or one of our trained advisors.