Federal Appeals Court Blocks Student Loan Forgiveness, Denying Relief to Millions of Borrowers

Higher education is believed by many to be a bridge to a financially secure future. But for the more than 43 million Americans who together owe $1.6 trillion in student debt, that bridge gets longer and harder to cross when federal courts continue to block programs designed to relieve borrowers of the rising costs of loan repayment. 

Until recently, student loan borrowers enrolled in the Education Department's Saving on a Valuable Education (SAVE)  payments were cut in half and their remaining loan balances forgiven. The SAVE Plan offered forgiveness for qualified borrowers with loans up to $12,000 and promised that loan balances would not increase due to accrued interest if borrowers remained current on required payments.  The Plan changed income calculations so that more borrowers would qualify for reduced payments - sometimes as low as $0. About 8 million borrowers are enrolled in the SAVE Plan. 

But on July 18th, the Federal 8th Circuit Court of Appeals issued a temporary stay to halt the SAVE program. It is not yet known when a final court resolution will occur. 

The decision came at the behest of several conservative state attorneys general. To date, 18 states – including those with large Black and Latino populations like  Alabama, Florida, Georgia, Louisiana, Missouri, Ohio and Texas – have challenged the SAVE program's constitutionality, as well as President Biden's executive authority.

“It wasn’t so long ago that a million borrowers defaulted on their student loans every single year, mainly because they couldn’t afford the payments,” stated Secretary of Education Miguel Cardona. “The SAVE plan is a bold and urgently needed effort to fix what’s broken in our student loan system and make financing a higher education more affordable in this country.”

“Already, we’ve approved an unprecedented $169 billion in relief for nearly 4.8 million Americans, including teachers, veterans, and other public servants, students who were cheated by their colleges, borrowers with disabilities, and more,” continued Cardona. “And from larger Pell Grants to free community college, President Biden, Vice President Harris, and I continue to believe that college affordability is a cause worth fighting for – and we’re not giving up.”   

The Department simultaneously announced the following administrative adjustments for program participants:

• Forbearance: Borrowers enrolled in the SAVE plan are being moved into forbearance. During forbearance, SAVE borrowers will not have to make payments. The time in forbearance will not count toward Public Service Loan Forgiveness or Income-Driven Repayment (IDR) loan forgiveness. SAVE borrowers will not accrue interest on their loans during the forbearance. SAVE borrowers will be notified about their forbearance by their loan servicers.

• Bills and payments: Borrowers enrolled in the SAVE Plan who have received a bill for August are being put in an interest-free forbearance – payments are not required during forbearance. Borrowers enrolled in the SAVE Plan who have not yet received a bill for August will also be put in forbearance and therefore will not receive a bill.

Borrowers affected by this court decision should hear from their loan servicers and/or the Department in coming days. Updates to these developments also will be posted at www.ed.gov/save.  The court decision was met with swift and emphatic opposition from advocacy groups. 

“The role of government is supposed to be to help its citizens, not cause intentional, undue harm,” said Kristin McGuire, Executive Director of Young Invincibles, a national advocacy organization founded in 2009 that works to amplify the voices of young adults in the political process and expand economic opportunity.

“Legal challenges to forgiveness were to be expected, but it is disheartening to see our judicial system put politics over people time and time again,” McGuire added. “Continually halting student debt forgiveness is reckless and cruel for borrowers, and jeopardizes the economy and the future of our higher education system.”

Other organizations urged the Biden administration to stand against those seeking to block this needed loan relief. 

“Right-wing politicians are using the courts to wreak havoc on the student loan system and put the economic stability of tens of millions of borrowers and their families at risk,” said Persis Yu, Student Borrower Protection Center’s Deputy Executive Director. “Make no mistake: these lawsuits are shameful political gamesmanship designed to hurt President Biden at all costs, and borrowers are merely collateral damage.” 

“These lawsuits reinforce an oppressive student loan repayment system that favors the interests of big businesses at the expense of low-income borrowers and borrowers of color,” said Nadine Chabrier, Senior Litigation and Policy Counsel at the Center for Responsible Lending. “By choosing to protect the profits of exploitative loan servicers over students seeking relief from excessive loan repayments that limit their financial options, courts have created further confusion in a system that already was failing to effectively administer loan repayments or provide accurate information to borrowers about the status of their loans.”

Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at Charlene.crowell@yahoo.com.