By Megan Walter, Senior Policy Analyst

The Biden administration has made student loan debt relief a focus of its education policy agenda, seeking to ease the financial burden of student loan debt for millions of borrowers. From an ambitious plan for large-scale debt cancellation to targeted relief programs like the SAVE plan, President Joe Biden has attempted to overhaul a system that has disproportionately impacted low- and middle-income Americans.

His efforts have faced staunch legal opposition, with one plan ultimately struck down by the Supreme Court in June, 2023. Now, new challenges have emerged as political opponents and interest groups seek to block the administration's latest rulemaking efforts focused on student loan debt relief.

As the legal battles continue, the fate of Biden's student debt relief policies remains uncertain, with significant implications for millions of borrowers, as well as leaving financial aid offices scrambling in their attempt to counsel students without clear answers.

One-Time Student Loan Debt Cancellation Plan by Executive Order

In August 2022, the Biden administration unveiled their initial debt cancellation plan, proposing to forgive up to $20,000 for eligible borrowers who met specific income thresholds. On behalf of the administration, the Department of Education (ED) launched an application for borrowers to apply for this initiative, and within weeks, more than 26 million borrowers applied, and nearly 16 million borrowers were approved before the legal challenges halted the process.

A lawsuit filed by six Republican-led states — Nebraska, Missouri, Arkansas, Iowa, Kansas, South Carolina —  alleged that the President had overstepped his executive authority by using the Higher Education Relief Opportunities for Students (HEROES) Act of 2003 as his basis for his authority to provide this forgiveness, and that this form of debt cancellation would harm state revenues, particularly from loan servicers in those states. Lower courts subsequently issued rulings that blocked the loan forgiveness plan from progressing, and after an Eighth Circuit Court of Appeals ruling against the President, the administration decided to take the case to the Supreme Court.

In June 2023, the Supreme Court ruled against the administration, voting 6-3, and ultimately putting a definitive stop to the administration's plan. The Chief Justice said the Biden administration “lacked the authority under the HEROES to unilaterally cancel debt and that such sweeping policy changes needed explicit Congressional approval.”

The final ruling was issued shortly before the expiration of the student loan payment pause and the resumption of repayment for millions of borrowers who had their loans paused for over 3.5 years during the COVID-19 pandemic. The decision also reignited debates over the extent of presidential power and forced the President to turn to new avenues to pursue debt relief.

The SAVE (Saving on a Valuable Education) Plan

Within hours of the Supreme Court ending the administration’s pursuit for broad student debt cancellation, the President through ED announced the finalization of its new income-driven repayment (IDR) plan, Saving on a Valuable Education (SAVE), which replaced the Revised Pay As You Earn (REPAYE) plan. This program was developed over the course of negotiated rulemaking sessions held in late 2021.

Features of the new SAVE plan included higher income protection, lower assessment of discretionary income for undergraduate borrowers, elimination of negative amortization, and early loan forgiveness for low-balance borrowers, with phased early implementation for some provisions and full implementation set for July 1, 2024.

In October 2023, prior to the start of repayment after the COVID-19 pause, borrowers who were previously in REPAYE had the higher income protection provision of the SAVE plan automatically applied to their loans. In January 2024, a provision of the SAVE plan, that cancels debt for low-balance borrowers, took effect, and by February ED had canceled nearly $1.2 billion dollars in student loan debt.

In March 2024, two lawsuits from attorneys general in Kansas and Missouri were filed, and sought to prohibit ED from implementing any more provisions of the SAVE plan. The lawsuits were upheld and temporary injunctions were placed in June against the portions of the plan that had not yet been implemented. This caused ED to react quickly and remove the online application to apply for IDR plans from the website, as they didn’t know the future of the SAVE plan, or the effects these lawsuits would have on the other IDR plans. ED still allowed borrowers to apply for IDR plans by paper applications, though the processing of these forms is currently on hold by federal loan servicers, per ED’s instructions. Subsequently, ED also placed all borrowers enrolled in the SAVE plan into an interest-free administrative forbearance. While the forbearance does not require borrowers to make payments, it also does not allow the time in forbearance beyond a 60-day processing forbearance to be counted towards time-based forgiveness or public service loan forgiveness.

In response to the lawsuits, ED, represented by the Department of Justice (DOJ), appealed to the Supreme Court to vacate the injunction blocking all SAVE plan student loan relief during litigation. The Supreme Court denied the request, and the case was handed back to the Eighth Circuit Court. ED asked them to consider and decide on their appeal on an expedited basis, which would allow the Supreme Court to hear any further appeal in this upcoming term — by June 2025 — if necessary. Currently, there are oral arguments for the Eighth Circuit Court set for October 24, 2024.

Targeted Loan Relief Through Negotiated Rulemaking

In the third and most recent attempt to provide student loan relief for borrowers, the administration undertook negotiated rulemaking sessions in late 2023 and early 2024. These sessions focused on creating additional targeted pathways for debt relief and reform.

Following those sessions, ED unveiled proposed rules in April on targeted debt relief. This package excluded proposed rules on “financial hardship,” as that issue paper was negotiated later than the other topics due to time constraints.

In September, even as final rules still have not been released, seven Republican-led states preemptively filed a lawsuit to block ED from implementing the plans laid out in the proposed rules. Three days later, a district court ruled in favor of the lawsuit, issuing a temporary restraining order against ED, and most recently on September 18th, a judge extended the temporary restraining order for an additional 14 days until October 2nd. These actions have prevented ED from implementing the proposed rules until the matter is resolved in the courts.

The Uncertain Future of Student Debt Relief

While the first attempt by the administration was rejected by the highest court, and two of the administration’s latest attempts at targeted loan forgiveness and relief remain tied up in lawsuits with no set date for resolution, millions of borrowers — those enrolled in the SAVE plan, those trying to apply for an IDR plan, and those who were hoping to benefit from the latest negotiated rulemaking proposals — remain in limbo.

The ongoing legal battles surrounding the SAVE plan, and imminent sunsetting of programs like Fresh Start and the on-ramp period to student loan repayment, have created significant challenges for financial aid administrators as they try to advise borrowers in this constantly-changing environment. NASFAA has asked ED to ensure communications and public-facing websites are up-to-date and consistent, and that servicers are providing accurate information to borrowers.

“As the government sunsets these [Fresh Start and the On-Ramp to Repayment] safety nets, it’s especially critical that the department conduct direct outreach to these borrowers to explain the current status of the income-driven repayment (IDR) plans,” said Karen McCarthy, NASFAA vice president of public policy and federal relations. “Recent court challenges to the Saving on a Valuable Education (SAVE) plan has left borrowers confused about whether these plans are still an option, how to apply for them, and what happens after they apply.”

To help members keep track of the many different moving parts on these issues, we have also created a student loan relief timeline which will be updated as new developments arise. Read Today’s News for timely updates on these important issues as well.

Publication Date: 10/2/2024

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