SAVE Plan Student Loan Payments Can Be Reduced After All, Court Rules

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Key Takeaways

• A federal court order last week would have stopped parts of the income-driven student loan SAVE repayment from going into effect on July 1.
• Those parts included a reduction in payments, down to 5% of borrowers' discretionary income from the 10% required for undergraduate loans. 
• On Sunday night, a judge granted the Department of Education a stay in the case, allowing the reduction and other suspended pieces of the plan to be implemented while the government appeals the original ruling.

The Department of Education can proceed with halving student loan payments for those enrolled in a new income-driven repayment plan, according to a ruling.

Last week, federal court judges blocked parts of the Saving for a Valuable Education (SAVE) student loan repayment plan. Major provisions of the plan, including cutting required payments to 5% of borrowers' discretionary income, were originally scheduled to go into effect July 1.

However, in a last-minute decision Sunday, the Department of Education was granted a stay, which allowed the payment reductions and other blocked provisions to go through as planned.

"Yesterday, the U.S. Court of Appeals for the Tenth Circuit sided with student loan borrowers across the country who stand to benefit from the SAVE Plan—the most affordable repayment plan in history," said Education Secretary Miguel Cardona. "Borrowers will hear directly from their loan servicers and the Department as we implement the new, lower monthly payments for borrowers enrolled in SAVE."

Latest Challenge to Student Loan Debt Relief

The legal saga is the latest challenge to a string of attempts from President Joe Biden's administration to relieve student loan debt for millions of borrowers.

The SAVE plan was developed last year after the Supreme Court struck down Biden's original student loan forgiveness program and is far more generous to borrowers than the older income-driven repayment (IDR) plans it replaces.

Like previous iterations of IDR plans, borrowers who make payments for 20 or 25 years have remaining balances forgiven. But under the SAVE plan, required payments are far lower. In fact, 4.5 million borrowers are making progress toward forgiveness without paying anything each month and another 153,000 loans have been forgiven.

The stay only suspends the injunction in Kansas, which blocked the payment reductions. It does not lift the injunction in Missouri, which prevents the Department of Education from forgiving more loans under the plan.

Read the original article on Investopedia.