Lower SAVE Student Loan Payments Can Proceed, Court Rules

A federal court on Sunday lifted an injunction that blocked lower student loan bills for borrowers enrolled in the Saving on a Valuable Education (SAVE) repayment plan. Meanwhile, an injunction in a separate lawsuit still blocks SAVE loan forgiveness. The lawsuits impact up to 8 million borrowers enrolled in SAVE, accounting for roughly 1 in 5 Americans with outstanding federal student loans.

• Lower student loan payments for SAVE borrowers with undergraduate loans can proceed starting in July. 

• Accelerated 10-year loan forgiveness for SAVE borrowers with $12,000 or less in principal loan debt is still on hold. 

All other components of the SAVE plan remain in place, including protection against interest accrual.

Some borrowers entitled to lower payments will have no student loan bill in July, as student loan servicers recalculate lower monthly payments.

“As the Department of Justice continues to vigorously defend the SAVE Plan, President Biden, Vice President Harris, and I remain committed to our work to fix a broken student loan system and make college more affordable for more Americans,” said Secretary of Education Miguel Cardona in a statement on Monday.

Neither of these rulings are final decisions, so the situation could change.

“There’s still a lot of chaos, and borrowers have experienced a lot of whiplash over the last week,” says Persis Yu, the Student Borrower Protection Center’s deputy executive director and managing counsel.

The Education Department and servicers will share updates directly with borrowers. Log in to your servicer’s online portal to view the latest information about your monthly payment amount. For updates about the ongoing SAVE lawsuits, go to StudentAid.gov and subscribe to the Education Department’s email list.

As a result of the latest ruling, the Education Department has directed servicers to move forward with the July 1 SAVE plan changes.

Most significantly, borrowers with undergraduate loans will see their monthly SAVE payments cut by as much as half, from 10% to 5% of their discretionary income. So if you have a $400 SAVE bill, that could shrink to $200. Borrowers who enroll in SAVE for the first time can also get the new lower payment.

Other SAVE benefits can also proceed:

• Borrowers enrolled in SAVE will receive automatic forgiveness credit for forbearances and deferments. 

• Borrowers enrolled in SAVE will be allowed to make additional “buyback” payments to get credit for most other periods of deferment or forbearance that don’t qualify for automatic credit. 

• Borrowers deemed at risk of default will be enrolled automatically in SAVE. 

• Payments made before consolidation will count toward forgiveness. 

The latest ruling isn’t a final decision. There’s not yet a briefing schedule for this case, Yu says, so it’s not clear when future rulings could happen.

On June 24, a Missouri judge issued an injunction blocking the Education Department from forgiving small principal student loan balances ($12,000 or less) in 10 years under the SAVE plan. This is the most generous income-driven repayment (IDR) forgiveness timeline — other IDR plans forgive debt after 20 or 25 years of payments, regardless of the amount borrowed.

This injunction still stands as of July 2, though it’s not a final decision. Updates could come in August, when legal briefs in the case are due, Yu says.

The Education Department began rolling out the accelerated 10-year SAVE forgiveness in February. As of mid-May, the department had approved about $5.5 billion worth of student debt forgiveness for 414,000 SAVE borrowers with lower principal balances. SAVE forgiveness that borrowers have already received isn’t at risk, Yu says.

The injunction doesn’t impact the 20- or 25-year forgiveness timeline for SAVE borrowers who took out over $12,000.

Reach out to your servicer if you have questions about your situation. While the lawsuits continue through federal courts, here’s how you could be impacted.

If you have a low enough income (about $32,800 as an individual or $67,500 as a family of four) to qualify for $0 SAVE payments, nothing has changed. You continue with $0 payments and keep earning credit toward IDR forgiveness and Public Service Loan Forgiveness (PSLF).

If your servicer sent you a bill for July, make the payment as scheduled. This bill may reflect a new lower payment amount if you have undergraduate loans.

Before the rulings, servicers emailed some SAVE borrowers in June about a temporary administrative forbearance related to payment recalculations. The email’s subject line was, “Your Student Loans Have Been Placed into A Forbearance,” according to a copy of the email reviewed by NerdWallet.

If you got this email, you won’t owe a July payment. No interest will accumulate during July, and you’ll get credit toward forgiveness under IDR or PSLF. Your bills will resume in August, with a smaller amount if you have undergraduate loans.

Servicers put a small group of borrowers into forbearance last week as a result of the court rulings, the Education Department said. These borrowers don’t owe a July payment. Bills will resume in August.

Borrowers can still sign up for SAVE and any other IDR plan.

However, the Education Department pulled down its online applications for IDR plans and loan consolidation on Friday, and began directing borrowers to submit PDF applications to their servicers.

The department changed course on Monday after the latest ruling allowing lower payments to proceed and said it would reinstate online applications by Monday afternoon. However, the applications on studentaid.gov/IDR and studentaid.gov/loan-consolidation/ remain inaccessible as of Tuesday evening.