Round Two: Will the SAVE Plan Save Students?

In 2022, the Biden-Harris Administration announced plans to forgive up to $400B in student loans (“forgiveness plan”). (Amy Howe, SCOTUSblog). The Supreme Court struck the plan down in a 6-3 vote, ruling that the Biden-Harris Administration had exceeded its authority. Id. In response, the Administration has posited a new tactic to help student loan borrowers: the Savings on a Valuable Education Plan (“SAVE Plan”). This article analyzes the SAVE Plan, including key details and potential issues, as well as the positive impact it will have on future generations of college applicants.

A major distinction between the SAVE Plan and the forgiveness plan is the statutory foundation. The forgiveness plan’s statutory foundation was The Higher Education Relief Opportunities for Students Act of 2003 (“HEROES Act”). (Adam Liptak, The New York Times). The HEROES Act granted the education secretary authority to modify student loan payments specifically in “national emergency” times. Id. For example, the government declared COVID-19 a national emergency, which allowed for the pause of student loan repayments over the past couple of years. Id. In contrast, the SAVE Plan relies on the Higher Education Act of 1965 (“HEA”). (Stacy Cowley, The New York Times). HEA provides the Department of Education (the “Department”) with broader authority to control loan repayment plans and has allowed the Department to make and modify repayment plans for years without interference. (Cory Turner & Emily Olson, NPR). This means the SAVE Plan is not affected by the Supreme Court’s prior ruling on the forgiveness plan. (Adam Minsky, Forbes).

The SAVE Plan is a new repayment plan, rather than a forgiveness plan. (Department of Education). Importantly, the SAVE Plan vastly increases the current income exemption (the amount of income that is excluded from the calculation of payments), raising it from 150% of the federal poverty line to 225%. Id. The SAVE Plan also eradicates any remaining interest on federal subsidized and unsubsidized loans once a scheduled payment is made under the SAVE Plan. Id. These changes went into effect in July of 2023. Id. In July of 2024, further changes will reduce payments on undergraduate loans from 10% of assessed income (meaning income above 225% of the federal poverty line) to 5%. Id. The SAVE Plan does not eliminate outstanding loan balances immediately, but instead grants forgiveness based on the type and amount of loan. Id. For example, student borrowers with $12k or less in federal loans qualify for forgiveness after they have made payments for ten years. Id. The repayment period rises with the amount of federal loans, increasing one year for each additional $1k borrowed. Id. Students with much larger undergraduate loan balances can qualify for forgiveness after a longer time period of 20 years, and those with graduate loan balances can qualify after 25 years. (Cory Turner & Emily Olson, NPR).

While the SAVE Plan is a repayment plan, it is still estimated to cost the federal government a massive amount over future years.

A University of Pennsylvania Budget Model for the SAVE Plan estimated that, over the next ten years, the cost to the government would reach $475B, well over the estimated cost of the forgiveness plan that was struck down. (University of Pennsylvania, Penn Wharton Budget Model). Of this estimated cost, payment reductions for outstanding loans accounts for $200B, while reduced payments for loans generated in the future account for $275B. Id. In sum, the government faces paying a larger percentage of educational costs for student borrowers under the SAVE Plan. (Stacy Cowley, The New York Times). The government’s massive expenditure could potentially lead to challenges to the SAVE Plan.

There are currently no pending legal challenges to the SAVE Plan, but this does not mean they will not arise. Id. Challenging the plan requires legal standing and a showing of harm, which has proven to be an obstacle for opponents of the plan, as it acts as a benefit to borrowers and does not completely cut government income from student loan balances. Id. The Deputy Director of the National Economic Counsel has deemed the SAVE Plan authority as “crystal clear” and has stated he “would be surprised, frankly, if there was a legal challenge.” Id. Critics of the plan have referred to it as a “quasi-grant program” due to the cost to the government. (Cory Turner & Emily Olson, NPR). The ultimate legal question, and the one that might affect the SAVE Plan’s success, is whether this modification is something that falls outside the scope of the legislative intent of Congress. Id. If Congress did not intend for the HEA to allow for payment modifications and eventual forgiveness, the SAVE Plan might not survive legal challenges. Id. Despite future legal challenges that might arise, the SAVE Plan will have a large impact on the economy.

The SAVE Plan allows more community colleges to qualify for Title IV federal funding because, through borrower autoenrollment and lower tuition payments, it decreases the chances of default, which endangers access to federal funding. (University of Pennsylvania, Penn Wharton Budget Model). Lowering the default rate subsequently reduces the chances that Title IV funds, such as the Pell Grant, will be jeopardized. Id. This lower chance of losing access to federal funds will prompt more community colleges to partake in Title IV funding than were previously doing so. Id. Additionally, by lowering payments and increasing the exempt income amount, future borrowers are more likely to finance college with loans rather than paying out-of-pocket. Id. This allows students to reinject the additional money in their pockets into the economy to stimulate growth.

The SAVE Plan will enact favorable changes in student loan repayment terms by increasing the exempt income and decreasing payment amounts. Further, the stronger statutory foundation through the HEA minimizes the chances of legal challenges. While proponents and critics have varying views on the SAVE Plan, it is a meaningful step in combatting and alleviating the current student debt crisis. As more and more students seek both undergraduate and graduate degrees, the cost of education often prohibits certain educational goals. By working to make student loan payments more manageable with the ultimate goal of forgiveness, the Biden-Harris Administration is providing millions of students across the country with new opportunities. However, whether this attempt will ultimately succeed is yet to be determined.