Supreme Court maintains hold on income-driven student loan repayment plans
A sign outside the Supreme Court on June 30, 2023. The court on Wednesday rejected the Biden administration’s motion to lift a court-ordered injunction that suspended income-driven repayment plans. Credit: AP/Mariam Zuhaib
ALBANY — The U.S. Supreme Court’s decision to continue the suspension of a popular federal program that forgives some or all of college students’ education loans puts thousands of New Yorkers’ accounts on hold, with an uncertain future.
On Wednesday the Supreme Court rejected the Biden administration’s motion to lift a court-ordered injunction that has suspended the Saving on a Valuable Education Plan and other income-driven repayment plans since July. Lower courts are considering a Republican lawsuit challenging the constitutionality of the program.
Until a legal decision is made, student borrowers are in a holding pattern. Other federal loan forgiveness programs, many tied to working in public service, continue unaffected by the court action.
President Joe Biden created the program to contend with the massive debt graduates and former college students are facing after a historic spike in the cost of higher education. The plan bases payments on a borrower’s discretionary income, after taxes and basic household costs, rather than a balance set in loan agreements. That translates to payments based on about 5% of disposable income. There are several other measures in the plan to forgive debt after 10 or more years of regular payments. The plan also helps avoid default and inflated balances.
The average student loan debt is $37,853 per student who pursued a bachelor’s degree, according to the independent Education Data Initiative. Supporters say that debt unfairly hinders former students starting careers, buying homes and contributing more to local communities.
Borrowers in the SAVE program will have their accounts moved into "forbearance." That means no payments will be required in August. No interest will be added to debt during forbearance, according to the federal Education Department.
"Borrowers affected by this court decision will hear from us or from their loan servicers in the coming days," the Education Department said. "We will continue to update this page with what this means for borrowers."
The department will update information for borrowers at ed.gov/Save.
Borrowers and employers who are paying on an employee’s behalf can make payments during this forbearance and the payments will be applied to bills sent after the court case is settled.
Borrowers who don’t want to be placed in forbearance may also contact their loan service to change repayment plans to continue making payments.
Yes, but the terms will be subject to the outcome of the legal challenge in the Supreme Court.
New applicants should expect "a lengthy delay in processing applications." There is no estimate for how long that will be.
However, if loan servicers such as state agencies or private-sector lenders need time to process an application, interest can accrue for up to 60 days. If the application isn’t processed within 60 days, the applicant will be placed in "general forbearance," where no interest will accrue and no payments will be required.
Nationwide since 2023, more than 8 million borrowers have been accepted into the SAVE plan, according to the federal Education Department. New Yorkers are estimated to be a large chunk of that total, but no total figure was provided by the state. The state Higher Education Services Corp. ended its role as guaranty agency for the federal loans and that service was assumed by the nonprofit Trellis Co. of Texas, said state HESC spokeswoman Angela Liotta. Neither Liotta nor a spokesman from Trellis responded to requests for comment on how many New Yorkers are impacted.
About 1 million borrowers earning about $15 an hour, which is close to New York State’s minimum wage, wouldn't have any monthly payments. Other borrowers will save about $1,000 a year and many will see their monthly loan payments cut in half, according to the Biden administration.
For example, a borrower of $12,000 or less will have the balance of the debt forgiven by the federal government after 10 years of regular payments. That rate continues for up to 25 years, so a typical borrower of $14,000 would have their balance forgiven after 12 years.
Seven states led by Republicans sued the Biden administration. Elected officials from those states argued the federal Education Department lacks the authority to make changes in income-driven repayment plans between students and states. A different loan forgiveness program from Biden was struck down by the conservative majority of the high court last year.
Democrats argue the massive debt is unfair to borrowers facing higher college costs and is a drag on the economy.
The Republican argument is that borrowers should repay their debts under the terms to which they had agreed.
The merits of the issue are being contested in lower courts now and those rulings are expected to be appealed to the U.S. Supreme Court for a final decision. If the high court sides fully with the Republican challenge to the SAVE plan, borrowers will have to abide by their original loan agreements and pay significantly higher monthly bills.
ALBANY — The U.S. Supreme Court’s decision to continue the suspension of a popular federal program that forgives some or all of college students’ education loans puts thousands of New Yorkers’ accounts on hold, with an uncertain future.
On Wednesday the Supreme Court rejected the Biden administration’s motion to lift a court-ordered injunction that has suspended the Saving on a Valuable Education Plan and other income-driven repayment plans since July. Lower courts are considering a Republican lawsuit challenging the constitutionality of the program.
Until a legal decision is made, student borrowers are in a holding pattern. Other federal loan forgiveness programs, many tied to working in public service, continue unaffected by the court action.
What is the SAVE plan?
President Joe Biden created the program to contend with the massive debt graduates and former college students are facing after a historic spike in the cost of higher education. The plan bases payments on a borrower’s discretionary income, after taxes and basic household costs, rather than a balance set in loan agreements. That translates to payments based on about 5% of disposable income. There are several other measures in the plan to forgive debt after 10 or more years of regular payments. The plan also helps avoid default and inflated balances.
WHAT TO KNOW
The U.S. Supreme Court’s decision to continue the suspension of a popular federal program that forgives some or all of college students’ education loans puts thousands of New Yorkers’ accounts on hold, with an uncertain future.
The court rejected the Biden administration’s motion to lift a court-ordered injunction that has suspended the Saving on a Valuable Education Plan and other income-driven repayment plans since July.
Lower courts are considering a Republican lawsuit challenging the constitutionality of the program. Until a legal decision is made, student borrowers are in a holding pattern.
The average student loan debt is $37,853 per student who pursued a bachelor’s degree, according to the independent Education Data Initiative. Supporters say that debt unfairly hinders former students starting careers, buying homes and contributing more to local communities.
How does the court action impact SAVE Plan borrowers?
Borrowers in the SAVE program will have their accounts moved into "forbearance." That means no payments will be required in August. No interest will be added to debt during forbearance, according to the federal Education Department.
"Borrowers affected by this court decision will hear from us or from their loan servicers in the coming days," the Education Department said. "We will continue to update this page with what this means for borrowers."
The department will update information for borrowers at ed.gov/Save.
Can payments still be made?
Borrowers and employers who are paying on an employee’s behalf can make payments during this forbearance and the payments will be applied to bills sent after the court case is settled.
Borrowers who don’t want to be placed in forbearance may also contact their loan service to change repayment plans to continue making payments.
Can you still join income-driven repayment programs?
Yes, but the terms will be subject to the outcome of the legal challenge in the Supreme Court.
New applicants should expect "a lengthy delay in processing applications." There is no estimate for how long that will be.
However, if loan servicers such as state agencies or private-sector lenders need time to process an application, interest can accrue for up to 60 days. If the application isn’t processed within 60 days, the applicant will be placed in "general forbearance," where no interest will accrue and no payments will be required.
How many New Yorkers are impacted?
Nationwide since 2023, more than 8 million borrowers have been accepted into the SAVE plan, according to the federal Education Department. New Yorkers are estimated to be a large chunk of that total, but no total figure was provided by the state. The state Higher Education Services Corp. ended its role as guaranty agency for the federal loans and that service was assumed by the nonprofit Trellis Co. of Texas, said state HESC spokeswoman Angela Liotta. Neither Liotta nor a spokesman from Trellis responded to requests for comment on how many New Yorkers are impacted.
How significant is the benefit?
About 1 million borrowers earning about $15 an hour, which is close to New York State’s minimum wage, wouldn't have any monthly payments. Other borrowers will save about $1,000 a year and many will see their monthly loan payments cut in half, according to the Biden administration.
For example, a borrower of $12,000 or less will have the balance of the debt forgiven by the federal government after 10 years of regular payments. That rate continues for up to 25 years, so a typical borrower of $14,000 would have their balance forgiven after 12 years.
What are the politics?
Seven states led by Republicans sued the Biden administration. Elected officials from those states argued the federal Education Department lacks the authority to make changes in income-driven repayment plans between students and states. A different loan forgiveness program from Biden was struck down by the conservative majority of the high court last year.
Democrats argue the massive debt is unfair to borrowers facing higher college costs and is a drag on the economy.
The Republican argument is that borrowers should repay their debts under the terms to which they had agreed.
What’s next?
The merits of the issue are being contested in lower courts now and those rulings are expected to be appealed to the U.S. Supreme Court for a final decision. If the high court sides fully with the Republican challenge to the SAVE plan, borrowers will have to abide by their original loan agreements and pay significantly higher monthly bills.
Michael Gormley has worked for Newsday since 2013, covering state government, politics and issues. He has covered Albany since 2001.
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