6 Student Loan Forgiveness Takeaways After Court Deals Major Blow To Key Plans

A federal appeals court issued a significant ruling this week that dealt a major blow to several popular federal student loan repayment plans that, until now, led to eventual student loan forgiveness. Millions of borrowers could be impacted by the fallout from the decision.

The court ruling stems from a legal challenge brought by Republican-led states over President Joe Biden’s SAVE plan, one of several income-driven repayment (or IDR) options that allow borrowers to make payments based on their income and family size, with any remaining balance forgiven after 20 or 25 years. In its decision this week, the 8th Circuit Court of Appeals extended and expanded a preliminary injunction blocking the SAVE plan, and suggested that the program is likely to get struck down. But the court went even further and doubled down on a disputed conclusion that student loan forgiveness is not allowable under two other popular IDR plans.

While the lawsuit is not over, and this week’s ruling does not represent a final decision, the court has made its position quite clear. And the implications could be profound for borrowers pursuing student loan forgiveness under IDR plans. Here are the major takeaways.

Student Loan Forgiveness And Lower Payments Under The SAVE Plan Are Likely To Get Struck Down

The SAVE plan was intended to be the most affordable IDR option available to borrowers. The program, first launched in 2023, offered lower payments in most cases compared to other IDR plans including Income-Contingent Repayment, Income-Based Repayment, and Pay As You Earn (these plans are usually referred to by the acronyms ICR, IBR, and PAYE, respectively). In addition, SAVE has a generous interest subsidy designed to stop runaway balance growth associated with interest accrual, which has been a significant downside of IDR plans for some borrowers. And while IDR plans historically have allowed for student loan forgiveness after 20 or 25 years in repayment, SAVE can allow for even faster loan forgiveness for borrowers who took out relatively small balances.

But the 8th Circuit concluded that the generous features of the SAVE plan go too far and are beyond what Congress intended when it enacted a law authorizing the creation of income-driven plans more than three decades ago. The Biden administration and student loan borrower advocates had argued that Congress gave the Department of Education brought discretion to draft regulations governing these programs. But the 8th Circuit interpreted the scope of Congress’s intent quite narrowly, and strongly suggested that the SAVE plan is likely to get struck down. This could ultimately force millions of borrowers to switch to other repayment plans, significantly increasing their monthly payments.

SAVE Forbearance Continues, Extending Pause On Student Loan Forgiveness Progress

Borrowers who had enrolled in SAVE were put into a forbearance last August when the 8th Circuit issued its first decision granting a preliminary injunction. During the forbearance, no payments are due and no interest is supposed to accrue on the borrower’s balance. However, the time spent in the forbearance will not count toward student loan forgiveness. That’s true both for IDR in general, but also for Public Service Loan Forgiveness (or PSLF), which is not currently being challenged.

This week’s court ruling means that this forbearance is likely to continue for now. According Department of Education guidance, officials anticipate the SAVE plan forbearance lasting for most of 2025. That could change, however, and it’s important to note that this guidance was published under the Biden administration, and has not been updated since.

Borrowers who are stuck in the SAVE plan forbearance and want to resume progressing toward student loan forgiveness under IDR or PSLF can apply to change to a different IDR plan. However, borrowers should be aware that the other IDR plans have comparatively fewer benefits and different eligibility rules, and may result in much higher payments. The Department of Education also warns borrowers to expect lengthy processing delays for new IDR applications.

Student Loan Forgiveness Under Two Other IDR Plans May Be Struck Down

Unfortunately for many borrowers, the fallout from the 8th Circuit’s ruling may not just be limited to those who had enrolled in the SAVE plan. The court has also extended a block on student loan forgiveness at the end of the 20- or 25-year term under two other IDR Plans, ICR and PAYE. And the court seems likely to ultimately strike down loan forgiveness under these plans, as well.

ICR, PAYE, and the SAVE plan (as well as SAVE’s predecessor plan, REPAYE) were all created under the same statutory authority, a provision of the Higher Education Act that Congress passed in 1993. The court reasoned that while Congress clearly stated that these types of income-driven plans should have payments tied to income with a maximum repayment term of 25 years, that doesn’t mean Congress actually intended for there to be student loan forgiveness at the end, because the statute does not expressly call for a discharge at the end of the repayment term. The Biden administration and student loan borrower advocacy groups had argued that there was no other rational way to interpret Congress’s intent — and that forcing borrowers to pay off their loans in full would be impossible for many people using the repayment formula that Congress authorized. And forcing these borrowers who cannot pay off their loans based on their income-driven payments into a different, more expensive plan, or forcing them to make a balloon payment at the end of the 25-year term, would defeat the purpose of creating these plans in the first place.

Instead, the court concluded that Congress intended for student loans to be fully repaid under these plans – despite the fact that (somewhat ironically) there is no language in the statute that explicitly says that. This conclusion represents a complete upending of more than 30 years of regulations, promissory note language, and Department of Education guidance across multiple administrations that unequivocally told borrowers to expect student loan forgiveness at the end of the IDR term for ICR, PAYE, REPAYE, and SAVE.

Student Loan Forgiveness Under IBR Remains Intact

The IBR plan, however, is distinct. IBR was created by Congress through separate legislation in 2007. And unlike the 1993 statute that ultimately led to the creation of the ICR, PAYE, REPAYE, and SAVE plans, Congress did expressly indicate that there will be student loan forgiveness at the end of the IBR term.

The 8th Circuit conceded in its decision this week that student loan forgiveness is allowable under IBR. In fact, the court used that fact to support its conclusion that student loan forgiveness is not allowable under the other IDR plans; if Congress had intended for there to be student loan forgiveness after 25 years under ICR and related plans, the court reasoned, then lawmakers would have said so in the statute, like they did for IBR. The court rejected counterarguments that Congress’s use of this language when it established IBR was actually a reflection of the fact that student loan forgiveness was already allowable under ICR.

Importantly, “Payments on PAYE, SAVE, and ICR are counted toward IBR Plan forgiveness if the borrower enrolls in IBR,” confirms the Department of Education in published guidance. That means a borrower shouldn’t lose their IDR student loan forgiveness progress by changing from one of the blocked IDR plans to the IBR plan.

Student Loan Forgiveness Under PSLF Remains Intact

Similarly to IBR, the PSLF program was created by Congress. The governing statute and the subsequent regulations both expressly allow for student loan forgiveness after 120 qualifying payments, which is the equivalent of 10 years. Furthermore, the governing statute and regulations both specifically state that payments made under IBR, as well as the other IDR plans (ICR, PAYE, REPAYE, and IBR) count toward student loan forgiveness under PSLF, provided all other eligibility criteria are being met.

The 8th Circuit did not indicate in its decision this week that the injunction would apply to PSLF, even for borrowers enrolled in a repayment plan subject to the injunction. And as of this writing, the Department of Education has made no public announcement that PSLF is impacted by the recent decision. Of course, borrowers who are in the SAVE plan forbearance cannot receive PSLF credit while they remain in that forbearance, and that has not changed – so some borrowers may want to explore changing to a different repayment plan to resume progress toward PSLF.

Congress Could Act First To Change Or Repeal Student Loan Forgiveness Under IDR Or PSLF

While the 8th Circuit’s ruling is generally bad news for borrowers, it’s not a final decision, and the litigation is ongoing. The appeals court sent the case back down to the lower federal district court for further proceedings. In the meantime, the SAVE plan and student loan forgiveness under ICR and PAYE are enjoined — meaning blocked — but not overturned.

However, it’s possible that Congress could act first, before there’s a final ruling in the litigation. Congress is reportedly considering repealing all existing IDR plans, including IBR, and replacing them with a single new IDR plan that would use a similar repayment formula, but would eliminate student loan forgiveness after 20 or 25 years. According to the most recent proposal, current borrowers would be grandfathered into existing repayment plan options. Meanwhile, Republican lawmakers are also exploring potential changes to eligibility for the PSLF program. Nothing has been finalized yet, however, and the situation remains very fluid.