Student-loan borrowers on Biden's new repayment plan get a win after a federal court rules that cheaper monthly payments can go into effect

Ayelet Sheffey
·3 min read
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Student-loan borrowers on Biden's new repayment plan get a win after a federal court rules that cheaper monthly payments can go into effect

  • Two federal judges blocked cheaper monthly payments and student-debt cancellation through the SAVE plan.

  • The 10th Circuit granted Biden's request to stay one of the rulings, allowing new provisions like lower bills to be implemented.

  • The Education Department has directed servicers to move forward with borrowers' lower payments.

The legal roller coaster for millions of student-loan borrowers on President Joe Biden's new repayment plan continues.

A court ruled that borrowers on the SAVE income-driven repayment plan can get the new benefits set to go into effect in July, like lower payments, for the time being after a legal challenges blocked their implementation. However, student-loan forgiveness through the plan is still blocked.

On June 30, Biden's Education Department filed a request to stay the Kansas district court's recent decision to block key parts of the SAVE income-driven repayment plan, like lower monthly payments for undergraduates, to be implemented in July.

It's a result of two separate lawsuits filed by GOP state attorneys general to block parts of SAVE. Along with the Kansas court's decision, a Missouri judge ruled that the forgiveness promised through the plan is blocked, as well, as the legal process progresses.

The 10th Circuit Court of Appeals granted the Education Department's request the same day it was filed, ruling that Kansas' preliminary injunction on the SAVE plan is stayed pending the appeal.

Education Secretary Miguel Cardona said in a statement that the 10th Circuit "sided with student loan borrowers across the country who stand to benefit from the SAVE Plan – the most affordable repayment plan in history."

"Borrowers will hear directly from their loan servicers and the Department as we implement the new, lower monthly payments for borrowers enrolled in SAVE," he said.

This means that for now, the Education Department can continue working to implement the new SAVE provisions set to go into effect this July. The department said that it has directed servicers to move forward with the new repayment provisions.

Additionally, per the department, if borrowers received a bill from their servicers with a lower monthly payment for July, they should plan to make that payment. If a borrower was placed on forbearance prior to the court rulings due to repayment recalculations, their first lower monthly payment will be due in August.

The Education Department paused payments for 3 million borrowers last week in light of the rulings. In Monday's guidance, the department said that those borrowers would also remain in forbearance in July, with their first payment due in August.

While the stay is a win for Biden's administration, it'll likely add further confusion for borrowers on SAVE who are struggling to understand what these legal challenges mean. The department removed online applications for income-driven repayment plans to avoid misinformation as these legal challenges progress last week, but in light of the stay, the department is now working to restore access to the online applications.

Some advocates and Democratic lawmakers have previously criticized the lawsuits for the confusion and financial burden they've caused borrowers — Persis Yu, executive director of the advocacy group Student Borrower Protection Center, previously said in a statement that the lawsuits are "imperiling the financial security of millions and throwing the student loan system into an untenable chaos."

Despite the stay on the Kansas court's decision, the Missouri court ruled the SAVE plan provision to cancel student debt for borrowers with original balances of $12,000 or lower after making as few as 10 years of payments is still blocked.

The Justice Department will appeal that decision, as well, with an Education Department spokesperson saying a recent staying that the administration "will not stop vigorously defending the SAVE Plan, the most affordable repayment plan in history, and will continue to fight for this long-overdue relief, no matter how many times Republican elected officials and their allies try to stop them."

Editor's note: This story was updated after publication to include a comment from the Education Department.

Read the original article on Business Insider