Last week, a federal court blocked a Biden-era initiative aimed at lowering – and in some cases, erasing – student loan debt for millions of borrowers across the United States.
This policy was called the SAVE plan and lowered monthly payments for nearly everybody who took out a federal student loan to pay for school.
The income-based policy also ensured that people who made payments on time wouldn’t see their loan balances grow due to interest. The way the plan did this was by having the government pick up more of the tab for borrowers.
This is why soon after it was announced, several Republican-led states challenged the plan in court. And for the time being, it seems like they won.
For more analysis on how this affects borrowers, the Texas Standard was joined by Persis Yu, executive director and managing counsel for the Student Borrower Protection Center. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: So how many people were getting lower payments under the SAVE plan?
Persis Yu: So far, 8 million borrowers across the country have enrolled in the SAVE plan and were getting lower payments. Millions more could be eligible, had the court not stepped in and stopped the plan.
Parts of the SAVE plan had been implemented already when the court had initially enjoined the rule, so borrowers had a greater amount of their income protected, and so their payments had already been lowered from what it was prior to the Biden administration implementing this plan.
What was the basis of this lawsuit?
This was a lawsuit originally brought by a coalition of Republican attorneys general led by the state of Missouri. And Missouri is home to this loan servicer, MOHELA. And the entire basis of this lawsuit is asking for this court to invalidate the SAVE plan, because at its core, the states are arguing that it will cost the loan servicer, MOHELA, money when borrowers are resolved of their debt and they lose the loan accounts.
So what this case really is doing is pitting the interest and the financial well-being of millions of student loan borrowers against a single loan servicer in Missouri.
So under the SAVE plan, some students – some people no longer students – would have had their student loans erased. How did that work?
So the way that this plan works, which is the same as how the other earlier versions of the income-driven payment plans had worked, is that borrowers pay a certain portion of their income, and then after making those payments for a certain number of years, any remaining balance would be forgiven.
And so this is essentially to ensure that the student loan doesn’t become a debt trap – that it is affordable, but that there is eventually a light at the end of the tunnel for these borrowers.
Now that the SAVE plan has hit a wall, what does this mean for all those people who enrolled in it?
This has thrown the entire system into chaos right now, and it is not entirely clear what it is going to mean for those borrowers.
While the rule is enjoined, there is at least a forbearance in place to protect borrower’s monthly finances right at this moment. But it’s very unclear the long-term plan for these borrowers, and it does cause a lot of uncertainty.
Moreover, these borrowers, especially if they’re public service workers like nurses, teachers, firefighters, they’re not able to get credit for this time towards public service loan forgiveness. So it is hurting a lot of borrowers to have this limbo, both in the short term and very much in the long term.
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To my understanding, the SAVE plan passed on some of the cost of student loans back onto taxpayers. Do we know how much it would have cost if it did go into effect?
So there are various different estimates about the costs of the SAVE plan. I think one of the pieces that is very complicated to understand the true cost of this plan is that this is also a plan that kept borrowers in repayment.
So while this did have some cost because the government might pay back some of these loans for some of these borrowers, it also ensured that many of these borrowers were making payments and not defaulting on their loans.
And so it’s not entirely clear to me how much of this truly gets burdened. It’s not clear to me how much taxpayers actually would pick up versus how much the government would have recovered anyway, because a lot of these borrowers, it’s based upon their income. It’s about what they can afford to pay.
I think I read the SAVE plan would have cost around $500 billion over the next decade. How accurate is that estimate?
I think there’s a lot of questions about what goes into the cost estimates for the SAVE plan. And one of the things that I think is important for folks to remember is that this is about repayment, and this is about making payment possible for millions of student loan borrowers.
And so what a lot of these estimates don’t take into consideration is the fact that without an affordable option, many borrowers are going to default on their loans and just not be able to make their payments at all.
So before the SAVE plan was put on hold, the Supreme Court blocked a separate Biden-era policy that would have canceled student debt for something like 40 million Americans. How similar was this recent court ruling on the SAVE plan to that attempted debt cancellation?
Well, I think that these are two very different things. And they have often been conflated because the debt-relief plan was about a one-time plan that would have provided relief to borrowers as a result of the pandemic and try to get people back into repayment.
One of the things that’s interesting, kind of just like historically, is that the SAVE plan was in the works long before Biden’s debt-relief plan had been announced. It just was going through a very lengthy regulatory process to get to the place where the rule was announced.
But this plan is really about repayment, and it is about the options to keep borrowers current on their payments. It’s about making sure that borrowers can meet their obligations while also feeding their families, paying their rent, and doing the things that everyday working families need to do.
Student loan forgiveness and subsidies were a big part of the Biden administration’s approach to affordability and higher education. Do we know yet how the Trump administration is going to approach this issue?
So it’s yet to be seen how this administration handles this. So far, it looks like the Trump administration is going to take the most maximal approach to interpreting this court order. They have already stopped accepting applications not just on the SAVE plan, but on all income-driven payment plans.
There are other income-during payment plans and, in fact, the court order talked about income-based repayment as one authorized by Congress. But borrowers right at this moment do not even have access to that plan.
So unfortunately, it looks like the way that this is being interpreted is going to hurt even more working families across the country.
