Student-loan payment pause to take effect for millions amid court challenges to debt relief

By Jillian Berman

The Biden administration said it is implementing the pause for certain borrowers enrolled in the SAVE plan

Millions of student-loan borrowers are getting a reprieve from their monthly payments while litigation challenging the Biden administration's repayment plan makes its way through the court system.

The 3 million borrowers eligible for the pause are enrolled in the SAVE program and have a monthly payment that is more than $0 a month, a Department of Education spokesperson said Friday. Borrowers whose loans are paused won't see interest accrue while their payments are on hold.

The announcement comes days after two federal courts put parts of the SAVE program on hold. The Department of Education spokesperson said the agency would inform borrowers who are eligible for the pause directly over the coming days.

The pause marks the latest development in a battle between the Biden administration and Republican policymakers over the White House's student-loan policy.

Administration officials have said programs they've launched to cancel debt and make payments more manageable are both legal and a necessary response to a broken student-loan system. Their opponents argue the plans go beyond what Congress intended when lawmakers created certain student-loan provisions and that the relief is too costly for taxpayers.

The Biden administration launched SAVE last year after the Supreme Court knocked down President Joe Biden's plan to cancel up to $20,000 in student loans for a wide swath of borrowers. SAVE is a version of income-driven repayment - a suite of plans that allow borrowers to pay their debt as a percentage of their income and then have the remainder cancelled after a certain number of years of payments.

Income-driven repayment has been available since the early 1990s, and officials have tweaked it over the years, but SAVE is the most generous version yet for borrowers. It protects a larger share of borrowers' income before payments kick in and keeps balances from ballooning when borrowers' income-tied payments are too low to cover the interest.

Republican attorneys general sued to block the plan earlier this year. Two separate court rulings in those cases blocked two provisions of SAVE while the cases work their way through the legal system.

Borrowers with only undergraduate loans were set to have their payments drop to 5% of their discretionary income in July, down from 10%. Borrowers who had some undergraduate debt and also had loans from graduate school were supposed to have their payments set to a share of their discretionary income somewhere between 5% and 10% in July as well. Now those lower payments are on hold.

In addition, under SAVE, borrowers who took on $12,000 or less in debt can have their debt wiped out after just 10 years of payments. In previous versions of income-driven repayment, borrowers could only have their debt cancelled after at least 20 years of payments.

One of the court rulings temporarily blocked the Biden administration from cancelling more debt under SAVE. So far, the Department of Education has discharged $613 million for 54,300 borrowers through SAVE.

A Department of Education spokesperson said the agency is implementing the pause for three million borrowers to best support them while meeting the terms of the court rulings blocking provisions of SAVE.

In addition to the pause, the Department of Education will pull down online applications for income-driven repayment and loan consolidations for four to six weeks, a spokesperson said.

The legal back and forth over SAVE highlights the potential challenges the Biden administration's latest mass debt relief plan faces. The Department of Education is finalizing a debt cancellation plan that, if implemented, would impact at least 25 million borrowers. But officials face an uphill battle getting cancellation through before November's election.

-Jillian Berman

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06-28-24 1751ET

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