Court Orders Prevent Biden Administration from Lowering Student Loan Bills and Threaten Chaos for the Student Loan System

June 25, 2024 — Press Release

Orders issued by federal district courts in response to requests by Missouri and Kansas temporarily block key improvements to income-driven repayment meant to make federal student loan payment more affordable    

BOSTON – Last night, federal district courts in Missouri and Kansas introduced tremendous uncertainty into the student loan landscape when each issued separate orders partially granting and partially denying requests by two coalitions of states—led by Missouri and Kansas—to temporarily block the Department of Education from implementing rules designed to make federal student loan repayment easier and more affordable. 

“This may just be politics to the leaders of Missouri and Kansas, but for 40 million people trying to manage their student loans, it’s chaos,” said Abby Shafroth, Co-Director of Advocacy at the National Consumer Law Center.

The Department’s challenged rules make a number of improvements to income-driven repayment and replace an existing plan, called REPAYE, with the SAVE Plan (“Saving on a Valuable Education”), which offers lower monthly payments, protection against ballooning balances while making payments, and a shorter timeline to forgiveness (as short as 10 years) for people who borrow relatively small amounts. The shortened timeline is targeted at people who borrow for community college and other short-term programs. 

In Missouri, the court concluded that while “the Secretary [of Education] has clear congressional authority to promulgate the vast majority of the provisions” challenged by Missouri, Congress did not appear to have “expressly” authorized the Secretary to forgive any remaining balances in SAVE after borrowers made up to 25 years of payments. The court therefore stopped the Administration from forgiving any more loans under the SAVE plan rules until the case is resolved.  

“While the decision only temporarily suspends loan forgiveness in the SAVE plan, Missouri’s arguments threaten to upend 30 years of student loan regulations interpreting the relevant statute as providing for forgiveness for low-income borrowers of any remaining balance after an extended period of repayment,” Shafroth said. “Under Missouri’s interpretation of the law, borrowers who faithfully make their required payments for 25 years but can’t afford to repay their principal and interest in full in that time would instead be plunged into default, where they would face ruined credit and having their wages and Social Security benefits garnished for however many decades more it may take for the government to collect in full. It would be wrong to assume that Congress intended such a cruel result.”

In contrast, the court in Kansas agreed with the Biden Administration that Congress authorized the Secretary of Education to forgive remaining balances after an extended period of repayment. The court also found that the Biden Administration offered “plausible interpretations of the Higher Education Act that could authorize the SAVE Plan” in full. But the court explained that it was nonetheless bound by recent U.S. Supreme Court precedent to apply the “Major Questions Doctrine” to this case, and that therefore the Biden Administration must overcome a much higher hurdle of showing that it wasn’t just plausible but “clear” that Congress had authorized the SAVE plan. Concluding that it wasn’t clear at this stage of the litigation, the court enjoined the Administration from implementing the portions of the new rules that haven’t yet gone into effect. This means that provisions that were scheduled to go into effect July 1 will be postponed, including provisions that would cut monthly payments on undergraduate loans from 10% to 5% of discretionary income and would greatly simplify the process of re-enrolling in IDR plans every year for borrowers who had consented to data-matching – a long-sought improvement to the student loan system. Both the Kansas and Missouri orders will apply nationwide.

“As a result of Kansas and Missouri’s lawsuits, millions of Americans across the country who were counting on lower student loan payments to help them get by next month will suddenly face bills that could be hundreds of dollars higher than they had expected,” said Shafroth. “Millions more people who had expected to be able to remain in their repayment plan without having to re-apply every year will instead have to waste time filling out unnecessary paperwork or risk having their bills skyrocket unexpectedly. And every student loan borrower will face an unacceptable level of uncertainty about the size of their monthly payment, which payment plans they can enroll in, and how long it will take to pay off their loans.” 

“The Biden Administration will need to act fast to protect borrowers from the fallout from these decisions, including by ensuring that borrowers don’t pay the price for mistakes servicers may make during this chaotic time. And borrowers, especially in Missouri, Kansas, and the 16 other states behind these lawsuits, should consider making their voices heard by calling their state attorneys general and elected officials to tell them how they feel about having their bills increased and their financial lives toyed with by out-of-touch politicians.”

Additional background materials:

• Missouri preliminary injunction order
• Kansas preliminary injunction order
• NCLC’s Student Loan Borrower Assistance website, explaining the SAVE Plan
• NCLC’s Student Loan Law treatise (Section 3.5.2 explains the history of income-driven repayment, Section 3.5.3.2 explains the new IDR and SAVE plan rules)
• Policy Brief: Education Department’s Decades-Old Debt Trap: How the Mismanagement of Income-Driven Repayment Locked Millions in Debt, March 2021
• NCLC/SBPC Blog: Explosive New Evidence of Mismanagement of Student Loan Program Shows Need for IDR Waiver, April 2021
• NCLC/CRL Brief: Almost Two in Three Navient Borrowers Enrolled in IDR Plans and Making Payments During COVID-19 Federal Student Loan Payment Pause Are Underwater (Last updated August 2021)

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Since 1969, the nonprofit National Consumer Law Center® (NCLC®) has worked for economic justice for low-income and other disadvantaged people in the U.S. through policy analysis and advocacy, publications, litigation, and training. The NCLC’s Student Loan Borrower Assistance Project provides information about student loan rights and responsibilities for borrowers and advocates. We also seek to increase public understanding of student lending issues and to identify policy solutions to promote access to education, lessen student debt burdens, and make loan repayment more manageable.