Millions of borrowers are facing the risk of increased student loan payments after a group of Republican-led states challenged President Joe Biden’s new SAVE plan, an income-driven repayment program that ties monthly payments to income and family size. The lawsuit seeks to overturn the entire SAVE program, which has already enrolled at least 7.5 million borrowers. If the challenge succeeds, borrowers could see their monthly payments increase.
The lawsuit likens the SAVE plan to Biden’s previous student loan forgiveness initiative, which was overturned by the Supreme Court last summer due to a lack of Congressional authorization and its high cost. However, the SAVE plan was created under the Higher Education Act, giving the Department of Education the authority to establish regulations for income-driven repayment plans. Legal experts believe the SAVE plan is on stronger legal footing than Biden’s previous debt relief program.
One possible outcome is that a court could block early student loan forgiveness under the SAVE program, which allows forgiveness in as little as 10 years for borrowers with lower loan amounts. Alternatively, a court could block new enrollment in the SAVE program while allowing existing borrowers to continue making payments. In the worst-case scenario, the court could overturn the SAVE plan for everyone, resulting in higher student loan payments for millions of borrowers.
If the SAVE regulations are overturned, borrowers could revert to the previous Revised Pay As You Earn (REPAYE) plan, resulting in higher monthly payments and the loss of an interest subsidy that waived excess interest accrual. This could be most detrimental to married borrowers, as REPAYE factors in spousal income regardless of tax filing status, unlike SAVE which only includes spousal income for those who file taxes jointly. The outcome of the legal challenge remains uncertain, but borrowers are at risk of facing increased student loan payments as a result.
