Millions of borrowers – and the federal government – are in limbo after a court ruling limited the Department of Education’s authority to forgive student loans.
Weeks after the circuit court essentially rendered illegal all income-contingent repayment programs that offer some loan forgiveness, it’s still unclear what will become of a number of the Education Department’s loan repayment programs and of the borrowers who signed up for them.
President Donald Trump’s expected move to unravel the Department of Education entirely only further complicates that future.
“This is a really hard time for borrowers, and it’s very confusing, and it’s going to harm a lot of people. Right now, no one can apply for an income-driven repayment plan,” Sabrina Calazans, executive director of the Student Debt Crisis Center, said. “If you were fired by the federal government, and before you were making $80,000, but now you’re making $0 …you’re going to be locked into that payment as if you were making $80,000 – this is really harmful to a lot of folks.”
Republican states sued the Biden administration over its Saving on a Valuable Education Plan, an income-contingent repayment plan that, among other things, forgave student loan debt for some borrowers after as little as 10 years — a departure from the standard 20-25 years.
The courts ordered the Biden administration to halt SAVE last year. But in February, a circuit court judge went even further, ruling that the law does not authorize the Department of Education to forgive student loans on ICR plans.
All income-driven repayment plans, the umbrella under which ICR plans fall, use the same application that was closed after the February court order, as the administration says it is revising it. The American Federation of Teachers sued the administration Wednesday morning for removing the application.
The Department of Education did not respond to NOTUS’ request for comment but told The Hill: “The Department is working to ensure these programs conform with the 8th Circuit’s ruling, and anticipates the revised form allowing borrowers to change repayment plans to be available as soon as next week.”
Some repayment plans remain a viable option for borrowers should the application become available again.
There is disagreement about the circuit court’s assertion that ICR plans weren’t designed with loan forgiveness in mind.
“It’s valid for the court to consider whether the Biden administration has gone too far in reducing the amounts that borrowers are expected to repay. In the process, however, the court should not reject the concept of forgiving the remaining debts at the end of the repayment period. The history clearly intended forgiveness; after all, the name of the program established by Congress is income contingent: repaying the loan depends on whether the borrower has adequate income,” Robert Shireman, a senior fellow in education policy at the Century Foundation wrote. Shireman worked on the 1992 rewrite of the Higher Education Act.
Compounding these issues, the HEA requires the Department of Education to offer an income-contingent repayment plan. With SAVE on the ropes, the Department of Education as recently as Jan. 15 was reviving Pay as You Earn and ICR plans to address this problem – it’s unclear how this statutory requirement will be squared, given the circuit court’s ruling concerning loan forgiveness in ICR plans.
That’s at the crux of AFT’s lawsuit, which alleges that the Department of Education is out of compliance with federal education statutes.
“Today, we’re suing to restore access to the statutory programs that are an anchor for so many, and that cannot be simply stripped away by executive fiat,” AFT president Randi Weingarten said in a statement.
The lack of clarity – from both the court decision and the Department of Education’s limited communication with respect to the issue – has sowed fear and outrage that the programs might be eliminated. Without income-driven repayment plans, borrowers worry that their monthly payments would balloon to what they would be on the standard plan – for some borrowers, the difference could be hundreds of dollars.
The circuit court has called for further litigation, ordering the district court to expand their request for an injunction to include not only the SAVE Plan but also the “hybrid rule”, which was the Biden administration’s attempt to continue allowing forgiveness applications by relying on the forgiveness provisions of an old ICR program.
The fate of SAVE and other income-contingent repayment plans remain uncertain. SAVE borrowers have been on interest-free forbearance since last year.
“There are contractual considerations,” Shireman told NOTUS. “Borrowers have been told by the government what the terms of their repayment are. And those have included canceling or forgiving balances after a certain amount of time. I would expect that at least some if not most borrowers already in the system would access some amount of forgiveness. The question really is about how much and on what terms.”
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Violet Jira is a NOTUS reporter and an Allbritton Journalism Institute fellow.
Clarification: This story has been updated to reflect the scope of the court ruling.