Department Of Education Proposes Settlement Over SAVE Plan

A proposed settlement aims to end the federal student loan forgiveness plan. This follows a successful legal challenge by several states, which led the courts to block the plan.

The U.S. Department of Education has reached a proposed settlement agreement with the state of Missouri (PDF) to end the Saving on a Valuable Education (SAVE) Plan for federal student loan forgiveness after it was blocked in district and appeals courts.

If approved by the court, new borrowers will not be enrolled in the SAVE Plan, pending applications will be denied, and all current borrowers in the SAVE Plan will be moved to different repayment plans.

How Did We Get Here?

The SAVE plan was implemented in July 2023 by former President Joe Biden, and the department has been involved in a lawsuit with numerous Republican attorneys general since April 2024.

A federal appeals court in Missouri (the 8th Circuit) issued a preliminary injunction blocking the Biden administration from implementing the SAVE Plan while the court considered the case. This injunction was extended in August 2024, preventing any further forgiveness of principal or interest, halting the non-charging of accrued interest, and stopping the implementation of SAVE’s payment-threshold provisions.

The court’s ruling described the SAVE Plan as a “vast assertion of newfound power” and stated that the administration had not shown clear authorization from Congress to enact such changes. The legal challenge was brought by several Republican state attorneys general, who argued that the Department of Education under the Biden administration lacked the authority to alter borrowers’ loan terms without explicit congressional approval.

What’s Next?

If the court approves the settlement, borrowers will have a limited time to select a new repayment plan, according to the Department of Education’s press release on the SAVE Plan settlement.

The department’s Office of Federal Student Aid (FSA) will support borrowers currently enrolled in the SAVE Plan in selecting a new repayment plan.

The department will reach out to impacted borrowers to provide guidance on repaying their student loans in the coming weeks.

The department also agreed to conduct a negotiated rulemaking session to remove the plan from federal regulations. Forbearance and deferment provisions in the plan will continue to count for Income-Driven Repayment forgiveness.

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