Bills for student loan borrowers in SAVE program to be lowered in July

Millions of student loan borrowers were expecting lower monthly bills in July until a legal challenge to the Biden administration’s new relief package emerged last week.

But on June 30, a federal appeals court approved a major provision of the U.S. Department of Education’s new Savings for Valuable Education (SAVE) program.

Bottom line: As promised, most registered borrowers will still see their July bills drop.

Here are some answers to other questions borrowers may have.

President Joe Biden launched the SAVE program in the summer of 2023, calling it the “most affordable student loan program ever.” So far, about 8 million borrowers have signed up for new income-driven repayment plans, according to the White House.

Under an IDR plan, a borrower’s monthly payment is determined based on a portion of his or her discretionary income. They are forgiven after a period of time (usually 20 or 25 years). (SAVE replaces the Department of Education’s previous REPAYE option, a revised pay-as-you-go program.)

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The SAVE scheme has some of the most generous terms to date, which has sparked the current controversy.

Instead of paying 10% of their discretionary income each month, borrowers will pay just 5% to repay their undergraduate debt under REPAYE.

Those making less than about $15 an hour have monthly bills of $0, and borrowers with smaller balances are entitled to loan forgiveness in the fastest possible time frame (as early as 10 years).

“The SAVE program is very generous to borrowers, almost like a grant after the fact,” higher education expert Mark Kantrowitz previously told CNBC.

Republican-backed states including Florida, Arkansas and Missouri filed lawsuits against the SAVE program earlier this year.

States argued that the Biden administration’s SAVE measure exceeded its authority and was essentially an attempt to find a roundabout way to forgive student debt after the Supreme Court blocked its sweeping plan last year. In response, two federal judges in Kansas and Missouri last week temporarily halted key parts of the SAVE program.

As a result, the Biden administration is unable to forgive debt more quickly under a new income-driven repayment plan or further reduce borrowers’ payments as planned in July.

The rulings came just days before the payments were reduced. As a result, the U.S. Department of Justice prepared to appeal the injunction, and the Department of Education announced it would temporarily halt payments to many SAVE borrowers while the legal proceedings play out.

Now it has decided to go ahead with the payments. That comes as the Biden administration succeeded in appealing one of the injunctions that prevented it from lowering payments. The case has yet to be decided, but at least for now the Department of Education can get to work reducing borrowers’ bills.

Meanwhile, a second injunction against the SAVE program issued last week by a Missouri federal judge on accelerated loan forgiveness remains in effect.

Thanks to the successful appeal, the Biden administration is now pushing for provisions of the SAVE program that would cut borrowers’ monthly payments to 5% of their discretionary income. Many people will find their bills cut in half.

The Department of Education says if your loan servicer has sent you a bill that reflects your lower payment, you should plan to pay that bill in July.

If you’ve been placed in forbearance because your loan servicer is still calculating the new lower payments or you anticipate your bills will be temporarily paused during a legal event, you should plan to make your first payment in August. (And that bill should go down.)

The department says that if a borrower has a $0 monthly bill under SAVE (about 4.5 million people do this), you will continue to owe no debt and be considered on time with your payments.