Court Rulings Halt Key Provisions of SAVE Plan

Important Update: Court Rulings Impact SAVE Plan Provisions

In a surprising turn of events, courts in Kansas and Missouri have ruled against certain key provisions of the SAVE plan, creating significant uncertainty for millions of student loan borrowers.

The Legal Challenge

On June 24, 2024, the courts sided with the Attorneys General of Kansas and Missouri. The lawsuits argued that specific elements of the SAVE plan, particularly the payment percentages of 5%-10% of discretionary income and the loan forgiveness for smaller balances, were not authorized by Congress. As a result, these provisions, which were supposed to start on July 1, 2024, have been halted.

What This Means for Borrowers

The rulings have thrown both the U.S. Department of Education and federal student loan servicers into a state of limbo. Borrowers who were on Income-Driven Repayment (IDR) plans were placed in administrative forbearance for July, anticipating new payment terms in August. However, with the court's decision, this recalibration of payments is now paused, leaving borrowers in a state of uncertainty.

Particularly affected are those who borrowed less than $12,000 and were expecting loan forgiveness after 10 years of repayment. Additionally, the plan had provisions for expedited forgiveness for those with higher loan amounts, extending forgiveness eligibility by one year for every additional $1,000 borrowed, up to a maximum of 20 or 25 years, depending on whether graduate loans were included. These borrowers now face the prospect of continued payments for potentially up to another decade.

What Remains Unchanged

Despite these setbacks, not all aspects of the SAVE plan have been derailed. Several beneficial components remain intact, including:

• An increase in protected income thresholds.

• Continued interest subsidies.

• Interest capitalization regulations.

Furthermore, the phase-out of the PAYE plan and the changes in family size treatment for married borrowers filing separately will continue as planned.

Moving Forward

The recent court rulings have undoubtedly created a challenging situation for many borrowers. It’s crucial to stay informed and keep in touch with your loan servicer for updates on how these changes might affect your specific circumstances. While the halted provisions of the SAVE plan are a setback, the remaining benefits still offer some relief and support to those navigating their student loan repayments.

Stay tuned for more updates as the situation develops, and don’t hesitate to reach out if you need assistance understanding how these changes impact your repayment plan.

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