New SAVE Plan Lawsuit Injunction Ruling

Hello and welcome to another episode of the Student Loan Planner Podcast. It's Travis, and today we're going to be talking about this recent court ruling with the save plan injunction being a permanent injunction now pending the final decision of the LoRa court that the decision was just sent to. So I want to explain this a little bit, what it means for borrowers, what it means for you, and I want to just give a little bit of a background about this whole thing. Feels kind of nauseous talking about all this because it's just been going on for so long, but at some point I actually think we're going to get a final decision on this and then we're going to have round two of this final decision, and I do think we're going to start seeing some movement, like serious movement, in maybe even just a couple weeks, but it could be a few weeks. So let me explain what I mean. So save plan lawsuit, everybody kind of that listens to this podcast is familiar with that existing, right? There was the Missouri lawsuit and the Kansas lawsuit. Kansas lawsuit was more led by like FFEL, like the state guarantee agencies, and then the Missouri lawsuit was led by the state of Missouri on behalf of Mojila because they proved they could sue in Biden v. Nebraska because of the cancellation case. That was the big thing with standing, right? So Missouri sues over the save plan, sued at the last second, and what happens is two judges appointed by President Obama in two different district courts said slightly different things, but both of them put a preliminary injunction on the save plan. There's different parts of it. So the first preliminary injunction, one of them was on the 5% of your income for undergrad loans and one of the other injunctions was about the 10-year accelerated forgiveness, but it left everything else in place asking the question, well, why did they wait till now to sue if they have such a problem with it? And then it got appealed to the 8th Circuit Court and the other case in a different district got appealed to a different court. I think it was the 11th Circuit, but then the 8th Circuit came out with like a one-sentence ruling almost that was just like, we're stopping everything, right? That came out in basically June, I think, of 2024, roughly June, and then they expanded that injunction even bigger because they realized, well, what Biden's Department of Ed is going to do is just try to circumvent the injunction and just call the save plan the repay plan and just forgive loans through that route instead with the exact same terms or very similar terms, right? And so this, you know, state of Missouri obviously didn't like that. They kind of made that case to this very, very conservative 8th Circuit Court of Appeals and on that Circuit Court of Appeals, I believe it was three judges appointed by Republican presidents where they were extremely skeptical of not just the save plan, but the whole idea of student loan forgiveness in general and they needed to look for a reason to block it. They needed a legal theory as to why you should block it and, of course, when you're suing to block something, you throw everything at the wall and see what sticks. And in this particular case, one of the theories that was put forward was basically that, well, maybe because the ICR statute is what the save plan authority is based on, the ICR statute says nothing specifically about forgiveness happening at the end of 25 years. It just says that the payments may not last longer than 25 years, but it doesn't explicitly say that the loans are forgiven the same way that it does with the IBR statute that was put out there in 2007. ICR statute was 1993. So, you know, because the ICR statute doesn't explicitly say forgiveness, the 8th Circuit just basically says, well, maybe the whole, like, save plan and repay and pay, maybe none of these ICR plans allow forgiveness at all. And so we're going to put a pause on all that. We're going to put a pause on the entire save plan rule because the save plan rule is so big. It's like over 400 pages of stuff with commentary included, like this court's got to decide, you know, which parts are real, which parts are allowable, which parts are not allowable. Let's just stop the whole thing, right? And then we can figure it out later. And I don't know why this is the case, but we literally waited for months for the 8th Circuit to take their preliminary injunction to a final injunction and, or permanent injunction, as I guess what I should say, a permanent injunction pending a ruling. And I'm not using the exact legal terminology, but that's just basically what it is, right? And so the 8th Circuit, instead of, like, deciding itself, essentially said, well, what we're going to do is we're going to kick it back down to the lower court. And that's what they did. They kicked it back to the Eastern District of Missouri in St. Louis. And that means that the hearing or the ruling has got to come out of that district court now. And, you know, the question will be, how will that court rule? And depending on how that court rules, what will happen with the Trump administration being in power instead of the Biden administration? And what does it mean for borrowers? First of all, what does the injunction mean? The injunction just says that if, you know, you can't get forgiveness under a 20- or 25-year plan or any ICR-related plan. So that means to get forgiveness, let's say you're on the pay plan and to get forgiveness, you would have to switch from pay to IBR to actually get the forgiveness processed at this moment. This is at this very moment. If you were on ICR or, you know, something like, you know, the save plan forbearance and you're already at your 20- or 25-year threshold, to get forgiveness right now at this very moment with the injunction in place, you would have to switch to the IBR plan to get forgiveness at all. But that doesn't necessarily apply to PSLF. The reason I know that is because there's ambiguity as to whether or not this very broad injunction applies to forgiveness through ICR plans for PSLF. Now, PSLF says all these plans count. But what it doesn't say, you know, in the order is how we're supposed to treat PSLF in terms of Department of Ed making decisions. And so what's happened so far is Department of Ed has felt like, well, this injunction only applies to the 20, 25-year forgiveness. It doesn't apply to the 10-year forgiveness. And so that's what the way the Department of Ed has been interpreting it so far. And the reason I know that is because PSLF processing cases have continued to happen after weeks into the Trump administration for people on the pay plan, for example. So we're still getting people, seeing people get forgiveness under PSLF using pay. Even now, literally as of a couple days ago, I've seen cases in one of the Facebook groups rerun where people are still getting it. So that's the current state of things, I think, with this injunction in place, is if you're going for PSLF, everything's fine. PSLF buyback, you can switch to IBR if you want to. But, like, the PSLF people at the moment have a lot more choices. People that are going for the 20, 25-year forgiveness, you're a lot more stuck at the moment. I want to emphasize at the moment. And why do I say at the moment? It's because this injunction is so broad because they haven't figured out what they want to do. And so this is going to go to the district court, and the district court's more moderate. It just has a little bit more of a mix of judges appointed by Republicans and Democrats, and it's going to be interesting to see how they rule. I would anticipate a more moderate ruling coming out of the district court than I would anticipate coming from that circuit court of appeals because the circuit court of appeals was, like, chosen very specifically so that it would get appealed to that specific court because I think there's 10 judges appointed by Republicans, one appointed by a Democratic president. So, you know, let's say that this goes to the lower court. Let's say they come out with a moderate ruling. Maybe let's say they come out and they say, oh, well, say it was actually a little bit okay. There's just parts of it that are not okay. And everybody's like, oh, my gosh, this is shocking. Now I can use SAVE. Yay, I can relax. Well, unfortunately, that's not how it's going to work because if they come out with a more moderate ruling, what I anticipate is that the ruling would be appealed to the 8th Circuit Court of Appeals. Now there's a potential complicating factor in this. And the complicating factor in this is the House Republicans are counting on taking the repeal of the SAVE plan, the savings from repealing the SAVE plan, and taking the full, like, 300 billion of savings from ending the SAVE plan and counting that as an offset for the tax cuts they want to do and for the other spending stuff they want to do. You know, so if you think about what does that mean? So, well, if a court strikes down the SAVE plan, you can't count those savings twice. In other words, like, if it just goes away because it's an executive action that's illegal, well, yeah, like, the federal deficit would fall based off of projected rules and CBO rules and that kind of stuff. But I don't think that they would get to take repeal of the SAVE plan and count that as $300 billion of student loan savings for their bill that they're crafting. Now it could potentially be a huge problem for the Republican caucus trying to put together a very controversial bill. The media's going to focus a lot on that headline cost in terms of how much it's going to add to the deficit. And, you know, another 300 billion of extra cost on that bill could mean you can't go as deep into the tax cut territory. You have to cut back some other things in the budget. So what might happen is you get a more moderate ruling in the district court level that keeps the SAVE plan a little bit in place, and maybe the Trump administration decides to appeal it, but to try to somehow take their time, and then maybe tries to get through a budget reconciliation bill where they can claim the savings from limiting the SAVE plan themselves. And if they were to do that, then they could get, you know, claims, huge savings, they're cutting the deficit, all this stuff, and maybe it's not in their interest to necessarily get it appealed to the 8th Circuit in that case. Or alternatively, you know, Missouri decides to appeal it because they just want to do what they want to do, and the 8th Circuit, you know, makes a decision and, you know, it's going to be interesting to see what happens when the plaintiff sues, like, a party in the presidency that kind of agrees with the position. I'm not exactly sure how that'll play out. I think that this idea of all ICR plans cannot be used, I don't think that's going to stay around. I think that what's going to come out eventually is that, you know, non-SAVE plans are okay, and I think that they're going to say ICR is okay. I think they're just going to say that, you know, you can't go bigger and broader than what Congress has done with the IBR plan because that suggests what the limits of Congress's generosity is. That's my guess as to what eventually they'll rule on. They'll probably try to come up with some sort of torture legal reasoning to say that because I think that any other ruling that does bar all the ICR plans would be really problematic for so many borrowers that Congress would hear about it in a big way, and there'd be a ton of political pressure to do something about it. So if you really think about highly educated voters, people in their 30s, 40s, 50s, these are going to be active constituents, highly engaged constituents. You know, you might say, I don't have a lick of confidence in that. I mean, but I know that they're not going to be doing away with IBR for people that already have loans. For people that are new borrowers, they might, but I think it's pretty likely, given that everybody's saying we're not touching IBR for existing borrowers, that IBR at least is a safe option. Now, for the majority of people listening to this that are depending on going for forgiveness for their strategy, that still means you're going for forgiveness. It just means that you're maybe going for a less generous version of forgiveness, but I think that with the potential creation of a new income-driven plan, that is possible through legislation, and it's possible that we would have a new income-driven plan and an old income-driven plan kind of like we've had for so many years. It wouldn't be that shocking to think about that. So this is what we're on legal watch for is we're watching out to see does the SAVE plan get repealed formally in the courts by the lower court? Does the state of Missouri decide to appeal it to the 8th Circuit to get a stronger conservative legal ruling against it to broaden the scope of the final ruling? It's just kind of saying where the court would probably rule if they ruled on the merits, but it's not an actual ruling. So we have to have the ruling and the 8th Circuit's decided, well, we want to let this lower court decide first to see what they say, which is interesting. So they're letting the slow walking of the legal process play out in real time, and so we just have to see what happens. Got to be patient. I know it's difficult right now, but hopefully you're in the, if you're trying to pay off your loans one day and you're in the SAVE forbearance, well, then get your 0% and be grateful for the 0% for however long it lasts and then just be ready to pivot. And if you're not in the SAVE forbearance and you're trying to get credit towards forgiveness, then if you are doing PSLF, you might be okay trying for buyback. If you're not doing PSLF, then you definitely need to look at switching to a different repayment plan. And IVR is a safer one compared to some of the other options out there, but the other options would still be viable options, I think, for people long-term. I think that you just might have to wait out this administration potentially and be prepared to do that in case that you did want to go for the pay ICR type of repayment plans. I mean, stuff is a pendulum on the student loan world. And what's happened is we went from no forgiveness in 1992 to ICR, not very generous forgiveness in 1993 to IVR in 2007 and PSLF in 2007, which more generous, right? And then repay in, or pay, I guess, in 2012 and then repay in 2016 and then SAVE in 2022. And it's just been more generous with every successive administration. With Trump, it was the student loan pause. He didn't actually introduce any changes to student loans besides that. And then now with Trump 2.0, it's a lot more of an aggressive, sort of anti-woke, like going after that kind of stuff that they perceive that way, right? And so student loan borrowers with higher educated voters being disproportionately Democratic voters now more so than they ever have been, that's definitely something that's going to make student loans a target of being less generous. And it's essentially swinging that pendulum back the other way on how generous this stuff is for student loans, that the rules are for student loans. And in terms of if we had a Democratic administration, my guess would be that pendulum would swing back to more generous towards forgiveness, right? The only kind of caveat I'd say is if you do see a reconciliation bill come out, including terms on income-driven repayment, IDR, then the issue with that would be that a Democratic president couldn't undo that unless that Democratic president had Democratic House and Senate. So if you did get some changes like that, it's kind of, in 2028, you might say, well, what would be the chances that you could get an executive action that reinstates, saves, and gets forgiveness going again? I mean, there's some possibilities, but if you get a strong legal ruling that blocks the ICR statute, limits the power of the president with executive actions with student loans, or if you even get, like there's been talk of including in that budget reconciliation bill like provisions that would limit the Secretary of Education to promulgate any regulation that would cost more than $100 million for student loans of any kind, and they're projecting that'd save $30 billion, and presumably they think they can include that in a budget reconciliation bill. So that would prevent any future Democratic president from doing what Biden did on student loans if it passes, and if that Democratic president did not have either, both the House and the Senate to be able to pass a change to whatever bill the Republicans end up passing. This is if they pass it. I think that I keep telling folks, like, you're gonna be real surprised once the rubber meets the road and the text gets out there publicly and the lobbyists start working on their tasks of contacting people. I think you're gonna be fascinated by how much resistance comes out of the woodwork to blocking certain key provisions of these reconciliation bills that Republicans in Congress are putting forward. When you've got a three-seat majority, almost everybody is a kingmaker at that point, right? And all you're looking for if you're a lobbyist interest group is you're looking for three or four swing district moderate members in the Republican caucus to try to block something, or you're looking for three or four conservative members in the Republican caucus that you can maybe convince that, hey, this thing is not conservative enough, right? So you're just talking about all kinds of difficulties getting something passed in the same way the Democrats had such a difficult time passing signature legislation like Build Back Better and stuff like that. So if I'm a borrower right now, I'm taking a deep breath. I'm realizing I'm gonna have to be patient. I'm grateful for things like the IDR waiver, PSLF waiver that have not been repealed, the interest pause that hasn't ended yet on the save plan forbearance, the fact that you are much better informed than the vast majority of people with student loans. And I'm just, you know, essentially waiting to see what is gonna happen with this court case. Just go to studentloanplanner.com slash book to get your own personal consultation. And thank you so much for listening. And I hope you have a wonderful rest of your week.