Biden Halts Student Loan Payments: An appeals court temporarily blocked the Biden administration’s new repayment plan, SAVE, for eight million borrowers enrolled in the program.
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Miguel Cardona, the secretary of education, said in a statement that SAVE plan borrowers will be put into forbearance while our administration vigorously defends the plan in court.
In the coming days, the Department will provide regular updates to borrowers affected by these rulings.
At this time, borrowers can’t apply for the SAVE repayment plan or any other income-based payback plan. The U.S. Court of Appeals for the Eight Circuit, which is based in St. Louis, granted an administrative stay request by Missouri and other Republican-led states.
This means that the Biden administration cannot “implement or act pursuant” to the rule that created the SAVE program last summer, according to the court filing.
It has generated zero-dollar payments for 4.5 million low-income borrowers and is more generous than previous income-driven repayment plans.
Biden Administration Halts Student Loan Payments Amid Legal Challenges
Earlier this week, two groups of Republican-led states filed separate lawsuits challenging the legality of the SAVE repayment plan, causing millions of borrowers to lose their financial lives. The order, issued on Thursday, is the latest in a series.
A lawsuit was filed in March by eleven states, led by Kansas, in U.S. District Court.
Andrew Bailey, Missouri’s attorney general, and six other states sued in U.S. District Court for the Eastern District of Missouri the following month.
In both suits, plaintiffs argued that the administration exceeded its authority, and that the repayment plan was a backhanded attempt to erase debts.
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In a social media post, Bailey described the latest ruling as a “HUGE win for every American who still believes in paying their own way.”
The recent move goes a lot further than the many orders that came before it. Due to the Missouri case, a preliminary order stopped some loan cancellations but did not stop the whole program from running. A ruling in Kansas had stopped only parts of the program that weren’t in place yet.
However, earlier this month, the U.S. Court of Appeals for the 10th Circuit in Denver blocked that decision as well.
Education Department officials were preparing to halt payments for three million borrowers before Kansas’ ruling was blocked.
A 42-month, pandemic-related pause that began during the Trump administration had already caused the federal student loan machinery to struggle to return borrowers to repayment last fall.
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The extreme, unsigned, single-sentence order from a judge out of Missouri’s Eighth Circuit Court of Appeals just sent the student loan system into chaos, said Mike Pierce, executive director of the Student Borrower Protection Center, an advocacy group, “and borrowers will be forced to pay the price.”
Under SAVE’s income-driven repayment plan, borrowers make payments for 20 years (25 years for graduate degree borrowers) based on their income and the number of people living in their home. ‘
At the end of that time, any debt that is still there is forgiven. The Education Department said that the time that borrowers spend in this forbearance will not count as acceptable payments toward loan forgiveness.
During this time, borrowers will also not be able to temporarily combine their student loans into one loan. It’s not clear how much borrowers will have to pay each month, even when the payments start up again.
The Department was putting the last pieces into place of the SAVE program; they were scheduled to take effect July 1, and included reducing payments to 5 percent, from 10 percent of a borrower’s discretionary income. Also, it’s halted those recalculations.
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