11 Red States Are Suing to Block Biden’s SAVE Loan Repayment Plan. Here’s What Borrowers Need to Know.

• Kansas
• Alabama
• Alaska
• Idaho
• Iowa
• Louisiana
• Montana
• Nebraska
• South Carolina
• Texas
• Utah

The Saving on a Valuable Education plan (SAVE) promises low monthly federal student loan debt payments calculated using a borrower’s income level. Borrowers can also have their debt erased after 20 years of continual payments or see complete forgiveness after 10 years' worth of payments if their original loan balance was $12,000 or less.

Let’s dig into the details and the implications of this legal case:

What Is the Legal Basis for This Case?

The suing states allege that Biden’s SAVE plan is illegal for four reasons:

• The SAVE plan is a violation of the separation of powers.
• It was an agency action that exceeded the powers granted to ED by Congress.
• SAVE’s details are arbitrary.
• Biden violated the Administrative Procedure Act (APA) when creating the SAVE plan.

The 11 states allege that the SAVE plan negatively impacts their states.

First, they allege that substantial sums of debt can be forgiven through the SAVE plan. States, however, cannot collect taxes on discharged federal student loan debt until 2025, so they are harmed by the inability to make money off discharged loans.

Second, many government entities within a state rely on the Public Service Loan Forgiveness (PSLF) program to recruit workers. PSLF promises complete debt forgiveness after 10 years of repayment while in a public service job. Because the new SAVE plan also offers debt relief after 10 years in some circumstances, PSLF may become a less potent recruiting tool.

Attorneys general are asking the U.S. District Court of Kansas to declare the SAVE plan unlawful and prohibit ED from continuing to offer SAVE.

Does This Case Have Legs?

Past court decisions regarding student loan forgiveness suggest this case could go far.

The U.S. Supreme Court’s 2023 decision regarding Biden’s student loan forgiveness proposal may provide some precedent. Six Republican-led states brought the lawsuit to the Supreme Court, which ultimately agreed in a 6-3 decision that the proposal was an unconstitutional overreach from the executive branch.

The Supreme Court’s decision centered mainly on the mechanism Biden used to install the relief plan.

However, one oft-overlooked part of the decision was what the court called the “major questions doctrine.” Essentially, the court asks whether a government agency’s actions, even if technically sound, go beyond the scope that any government agency is meant to go. Policy and regulatory actions involving large sums of money, the court has said, should be left to Congress to decide.

The University of Pennsylvania’s Penn Wharton Budget Model predicts that the SAVE plan will cost $475 million over the next decade.

With a price tag that large, the major questions doctrine may again come into play.

One key area that may be this case’s downfall is the question of “standing.” For a court to rule on something, the people or entities — in this case, the 11 states — filing the suit must prove that the law or policy “injures” them somehow.

As with many lawsuits against Biden’s initial loan forgiveness plan, this is where this latest case may fall short.

The 11 suing states allege that the SAVE plan “injures” them because it decreases the value of PSLF as a recruiting tool and will negatively impact tax revenue.

Courts broadly have not accepted either argument as a basis for standing. The U.S. Supreme Court only agreed to rule on the widespread debt relief plan because it determined that the loan server MOHELA was a direct subsidiary of Missouri, one of the suing states.

Without a direct entity to point to as being harmed, this case may fall short.

Implications of Any Court Decision

The most immediate result of a court ruling in the 11 states’ favor is that it would end the SAVE plan.

There are deeper implications, however.

ED developed the SAVE plan through a process known as negotiated rulemaking. This involves gathering higher education stakeholders to negotiate new policies, collecting public comments, and eventually proposing regulations that consider these viewpoints.

A court deciding that negotiated rulemaking can’t be used to make sweeping regulatory changes could jeopardize other Biden-era initiatives.

The Biden administration has leaned on negotiated rulemaking since taking office to implement many of the president’s higher education reforms and priorities. Policies influenced by negotiated rulemaking have included:

• Gainful employment
• Closed school discharge
• Borrower defense to repayment
• Public Service Loan Forgiveness
• Transcript withholding
• TRIO eligibility for noncitizens
• The 90/10 Rule
• College meal plan refunds
• Pell Grant eligibility for incarcerated students

It’s also the mechanism Biden is using for his “Plan B” debt relief proposal.

A ruling that ED overstepped its authority, even while going through the negotiated rulemaking process, could lead to further reversals of Biden-era policies.