Millions of Federal Student Loan Payments Put on Pause

After a federal appeals court blocked the Biden administration’s Save for a Valuable Education (SAVE) program last week, the Department of Education announced that borrowers enrolled in the plan are being moved into forbearance and will not have to make payments until the court case is resolved.

Forbearance refers to an approved period during which loan payments are temporarily suspended.

More than 8 million people are enrolled in SAVE, which was created a year ago. The DOE also said that

•  no interest will accrue on payments during the forbearance.

•  SAVE borrowers will enter interest-free forbearance irrespective of whether they have received an August bill yet.

•  borrowers affected by the court decision will hear from their loan servicers and/or the DOE “in the coming days,” the department said late last week.

SAVE Court Case Questions Scope

The court challenges to SAVE were launched by eight states, including Texas, Kansas, and Missouri, arguing that the Biden administration exceeded its authority in implementing the plan, which adjusts loan payments based on income and household size. A program that drastically reduces federal loan obligations should be authorized by Congress, not the president, the lawsuits claimed.

For certain qualifying federal student loan borrowers, SAVE lowered monthly payments to as little as 10% of monthly income last year, and in July 2024, the amount was set to be lowered to 5% of income. In May, the White House announced that total loan forgiveness had reached $167 billion for 4.75 million Americans.

The first injunction halted the DOE’s planned progression to the 5% of income threshold, and the latest ruling put the entire SAVE program into forbearance while these cases are decided.

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