Supreme Court keeps Biden’s SAVE plan on ice. Here’s what that means for people with student loans.

When President Joe Biden unveiled his administration’s new student debt repayment plan a year ago, he heralded it as “the most affordable student loan plan ever.” Now, it also may qualify as one of the most stymied repayment plans ever created.

The Supreme Court on Wednesday declined to reinstate the program, called the Saving on a Valuable Education (SAVE) plan, as an appeals process over its legality plays out.

The SAVE plan was created to fix some long-standing problems with earlier income-driven repayment plans, or IDRs. It also debuted a month after the Supreme Court blocked Mr. Biden’s plan to erase up to $20,000 in debt per student borrower. Because SAVE also promises to lower monthly loan payments — to as low as $0 for some low-income borrowers— it proved immediately popular and today has 8 million enrollees.

The SAVE plan “was Team Biden’s creative response to an earlier Supreme Court decision rejecting its use of the COVID-19 emergency to broadly forgive student loan debt,” noted Jaret Seiberg, an analyst at TD Cowen, in a research note. “That creativity made it susceptible to legal challenge.”

Here’s what to know about the next steps for people with student loans enrolled in SAVE. 

What is the status of the SAVE plan?

Right now, SAVE is on hold due to a sweeping injunction issued last month by the U.S. Court of Appeals for the 8th Circuit. That ruling prohibited the Biden administration from implementing the parts of the plan that were not already blocked by two lower court rulings.

In those cases, judges in Kansas and Missouri in June had ruled in favor of several Republican-led states that argued the plan overstepped the Biden administration’s authority. The states also claimed that offering borrowers relief before a loan had matured could cause financial harm to lenders and loan servicers.

The upshot: Because the Supreme Court left the appeals court ruling in place, the SAVE plan is essentially frozen for the time being, 

What does that mean for SAVE participants? 

Following the 8th Circuit’s July ruling, SAVE’s 8 million enrollees saw their loan payments suspended. With the Supreme Court’s order keeping that ruling in place, those borrowers will remain in forbearance, Department of Education officials noted.

While in forbearance, SAVE participants don’t have to make monthly payments, nor will they accrue interest on their loans during that time, according to the agency. But the time someone stays in forbearance won’t count toward Public Service Loan Forgiveness (PSLF) or IDR loan forgiveness, it added. 

People enrolled in these plans can earn forgiveness after repaying their loans for a number of years, with the PSLF enrollees qualifying after 10 years of repayments, for instance. But because the time spent in forbearance won’t count toward that, it could ultimately take some borrowers more time to earn forgiveness. 

What is the Biden administration doing about the court rulings?

Education Secretary Miguel Cardona told CBS Mornings on Thursday that the Biden administration is continuing to dispute the decisions in court. 

“We’re going to continue to fight for borrowers,” he said. “Student debt shouldn’t be a life sentence.”

In the meantime, the Supreme Court said in its order that it expects the 8th Circuit to soon issue a fuller decision on the SAVE case. That could trigger an appeal to Supreme Court later this year, although a high court decision likely wouldn’t come until 2025, noted TD Cowen’s Seiberg. 

Could the presidential election have an impact on the SAVE plan? 

Quite possibly. If Democratic candidate Kamala Harris wins in November, the Education Department is likely to continue to litigate to protect the SAVE program. Her administration could also create a new repayment program designed to withstand legal challenges. 

If Republican candidate Donald Trump wins, it’s likely his administration would drop the legal battle and allow the court orders blocking SAVE to stand. A Republican win, in other words, would likely kill off SAVE for good, while forbearance would come to an end for its 8 million enrollees, Seiberg said.

For now, forbearance is likely to “stay in effect at least to the inauguration,” he said. “And a Harris win likely means it is in effect for longer.”