Summer plans may have just been dashed for federal student loan borrowers hoping to see their payments drop in July. 

Federal judges in Kansas and Missouri issued rulings on Monday on separate lawsuits aiming to block further implementation of President Joe Biden's Saving on a Valuable Education income-driven repayment plan.

The decisions bar the Biden administration from forgiving any more debt under the program and from lowering borrowers' payments on the plan in July, as planned, until the cases are resolved. 

Borrowers' monthly payments are currently calculated as 10% of their discretionary income, which was scheduled to drop to 5% in July. Some borrowers have already seen their loans forgiven due to the SAVE plan.

In February, the administration started clearing balances for borrowers on the SAVE plan who'd been repaying their loans for at least 10 years and started with low initial balances. Now, borrowers who otherwise would be eligible for forgiveness under this plan will wait in limbo while the district courts decide whether the Biden administration has the authority to forgive more debt.

"The Department of Justice will continue to vigorously defend the SAVE Plan," Secretary of Education Miguel Cardona said in a statement. 

Cardona said Republican elected officials and special interest groups are trying to block the SAVE plan, "even though the Department has relied on the authority under the Higher Education Act three times over the last 30 years to implement income-driven repayment plans."

For now, borrowers currently on the SAVE plan and those who apply going forward may still be able to lower their monthly payments, depending on their income, though not to the 5% of discretionary income threshold. Borrowers can continue to enroll in the SAVE plan if they haven't already, according to the Federal Student Aid website, which says it will provide more updates soon.

Stakeholders react to the ruling

In response to the ruling, proponents of student debt relief expressed frustration with yet another Republican-backed blockage of Biden's relief plan. The states suing to block the plan argue that the SAVE plane still goes beyond the President and his administration's legal authority to cancel student debt.

The rulings not only disappoint borrowers who were banking on extra room in their budget, but also create a "recipe for chaos across the student loan system," Mike Pierce, executive director of the Student Borrower Protection Center, said in a statement.

"Millions of borrowers are now in limbo as they struggle to make sense of their rights under the law and the information being provided by the government and their student loan companies," he said.

Heading into July, borrowers may not know if their bills are accurate, whether their interest charges are correct or if the amount due today will be the same as tomorrow, Pierce added. Some borrowers already had their loans placed in an administrative forbearance for July while loan servicers worked with the Department of Education to accurately calculate borrowers' new monthly payments.

"Once again, borrowers are left with uncertainty with absurd monthly payments, continuously changing rules and deadlines which creates an overall fear of what the courts will do next," Natalia Abrams, president and founder of the Student Debt Crisis Center, said in a statement. "To be blunt, this creates utter chaos in the student loan system and it must be halted with payments paused for borrowers until SAVE is fully restored."

Not everyone is upset with the decision, though. 

"The courts' decisions…are a major victory for taxpayers and those worried about the effects those plans could have on college tuition inflation," Preston Cooper, a research fellow at the Foundation for Research on Equal Opportunity, said in an emailed statement. 

Cooper has published a plethora of research on the topic of college funding and offered ideas addressing the crisis in higher education costs, but he doesn't believe the SAVE plan is the best way to do that. He said it will stretch the already limited government budget too far, benefits too many borrowers who don't need relief and puts the burden on taxpayers.

"The next step is for Congress to overhaul the student loan system to ensure that colleges are held accountable when their students cannot repay their loans," he said.

Another wait-and-see summer for borrowers

In June 2023, student loan borrowers anxiously awaited a Supreme Court decision that ultimately saw Biden's plan to forgive student debt for millions blocked. 

The major difference this year is that borrowers are largely back in repayment. Last summer, they were running down the clock on the pandemic-era forbearance that ended in October. 

It's not clear when the federal judges will issue a final decision on whether the SAVE plan can proceed with all of its promises. For now, borrowers have the option to stick with their current repayment plan or switch to SAVE knowing their payment will still be 10% of their discretionary income for the foreseeable future. 

For some borrowers, especially high earners with average or relatively low starting balances, the standard repayment plan may offer the lowest monthly payment. You can use Federal Student Aid's loan simulator tool to see which plan is best for your situation.

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