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The Kansas and Missouri Rulings June 24: What is the Fallout for Student Loan Forgiveness?

Christie_1Just when we thought all things student loan related couldn’t get more complicated.  The Department of Education (“ED”) has been trucking along with its plans to get everyone on SAVE, correct prior problems with PSLF and the heavily used forbearance option that only caused balances to increase dramatically.

Now, on June 24, 2024, federal judges in Kansas and Missouri issued rulings that partially blocked key elements of President Biden’s SAVE plan nationwide.

What exactly has been blocked?  Two federal judges have issued preliminary injunctions that prevent ED from proceeding with certain aspects of the SAVE income driven forgiveness plan.

  • The Missouri ruling issued an injunction which prevents any further loan forgiveness under SAVE.
  • The Kansas ruling issued an injunction prohibiting the implementation of the parts of SAVE that were set to take effect on July 1, 2024 (namely the 50% reduction in IDR payments for undergrad loans).

Both rulings allow already implemented parts of SAVE to remain in effect for borrowers already enrolled in SAVE.  That means your benefits and payment amounts should remain the same for now.  Ultimately though, the 100% interest subsidy, ability to file a separate tax return, and the lower payment option allowed via a higher expense calculation is subject to a future ruling, likely by an appellate court and likely several months from now.

For those who are nearing the end of their 20-25 years under SAVE, while the litigation is pending, forgiveness will be pending as well.  Borrowers will need to determine if they want to continue making their SAVE payment with the hope of receiving a refund for any overpayments, versus asking for an administrative forbearance while the litigation is pending.

The good news is that many other loan forgiveness programs are NOT affected by these rulings.  This means the one-time account adjustment that we frequently refer to as the IDR audit is still happening.  The changes to PSLF remain in effect and that program and its changes are finally working to discharge public service workers of their student loans.  Those who have been notified that their Borrower Defense to Repayment applications have been approved via the Sweet v. Cardano settlement – while ED is behind in granting the relief, it remains valid.  The Total and Permanent Disability program remains unchallenged as well.

There are some things that we don’t yet know:

  • Can borrowers not enrolled in SAVE still enroll?
  • Will Paye and ICR still be blocked for anyone not already enrolled by July 1?  Perhaps not, because this deadline is part of the regs that will be enjoined July 1.
  •  Those already receiving forgiveness will not be affected for now, but if it was due to the new regs or SAVE, we will not know until an appellate court rules in this litigation.
  • For those in bankruptcy, the new bankruptcy IDR is part of the regs that are to be enjoined on July 1.  This means that the bankruptcy IDR may not be implemented as planned, or it may give retroactive credit once these lawsuits are finalized.

Many of these uncertainties stem from the fact that the Courts’ orders of injunction yesterday are very broad and encompass far more than just SAVE.  I wouldn’t be surprised if the orders aren’t amended in short time to clarify some of these uncertainties.  We have the rest of the week before the injunctions take effect.

There is more, we are all digesting what these rulings mean.

Unintended consequences indeed.

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