Federal Loan Repayment Plan Faces Partial Court Block

A pair of federal court injunctions have frozen elements of a student loan repayment plan scheduled to roll out next week. One ruling arose from a lawsuit by Montana Attorney General Austin Knudsen and Republican attorneys general in 10 other states.

Injunctions issued Monday evening by federal judges in Kansas and Missouri temporarily block the final phase of President Joe Biden’s Saving on Valuable Education (SAVE) plan, set to start July 1. This phase included lowering the cap on monthly student loan repayments based on discretionary income, a move Biden argued would reduce student debt for millions when announcing the SAVE plan last fall.

U.S. Secretary of Education Miguel Cardona decried the court rulings, stating that the SAVE plan provided Americans “breathing room from bills that compete with basic needs.” Despite the injunctions, earlier SAVE plan changes will continue to lower monthly payments for millions already enrolled.

Knudsen welcomed the Kansas injunction. He accused the Biden administration of bypassing congressional authority, calling the SAVE plan an “unconstitutional student loan forgiveness scheme.” Knudsen and other attorneys general argued that widespread debt forgiveness would reduce state revenues.

“By the [education] department’s estimates, the ‘SAVE Plan’ would cancel over $100 billion in student debt,” Knudsen wrote. “Loan cancellation would impact Montana’s economy through lost state tax revenue and jobs, and increased law enforcement costs.”

Montana and seven other states were dismissed from the case before Monday’s injunction. U.S. District Court Judge Daniel Crabtree found those states failed to show direct harm from the SAVE plan. Only Alaska, South Carolina, and Texas, which have nonprofit government corporations servicing student loans, were allowed to proceed.

Crabtree wrote, “The other eight plaintiffs assert standing due to reduced income tax revenues from the SAVE plan, but this is an incidental effect traceable to their own tax decisions.”

The next phase of regulations will be on hold pending litigation outcomes.

Biden’s SAVE plan seeks significant monthly loan payment cuts, earlier forgiveness for students with balances of $12,000 or less, and zeroing-out payments for borrowers meeting certain discretionary income benchmarks. Students can still enroll as the injunctions didn’t affect changes implemented since last fall.

The SAVE plan is separate from Biden’s prior loan forgiveness strategy, which was rejected by the U.S. Supreme Court last year, and distinct from other income-driven repayment changes and debt forgiveness efforts by the federal education department.

Montana’s Office of the Commissioner of Higher Education declined to comment specifically on the SAVE plan injunctions. According to university system data, average loan amounts per graduate have declined across Montana campuses over the past decade, and the number of students taking out loans decreased from 65% in 2013-14 to 51% in 2022-23.

Dave Kuntz, director of strategic communications at the University of Montana, said the rulings do not impact current UM students or financial aid practices, noting that graduates leave with significantly lower debt than the national average. Tracy Ellig, Montana State University’s vice president of communications, also stated his campus has “little interaction with the loan repayment process,” and emphasized their efforts to educate students on financial literacy and timely graduation to minimize debt.