Millions of Student Loan Borrowers to Have Payments Reduced

Certain student borrowers enrolled in a Biden administration loan relief plan will have their monthly payments cut after an appeals court ruled in the federal government's favor.

A U.S. appeals court has allowed part of President Joe Biden's Saving on a Valuable Education (SAVE) plan to go ahead after legal action taken by several states; they argued the plan was unlawful as it did not seek input from Congress. In June, judges in Kansas and Missouri ruled in favor of preliminary injunctions as part of two lawsuits brought by a string of Republican states opposed to the plan.

Read more: Student Loan Forgiveness Updates and FAQs: Who Qualifies and How To Apply

An order from U.S. District Court Judge Daniel Crabtree in Kansas paused portions of the program that had not yet been implemented; these included a reduction in monthly payments for individuals with undergraduate debt—from 10 percent to 5 percent of their discretionary income—which was scheduled to start on July 1. Meanwhile, the judge in Missouri halted new debt cancellations under the SAVE program.

However, now, the Denver-based 10th U.S. Circuit Court of Appeals ruled the 5 percent slash to monthly repayments can now go ahead, instead of being put in forbearance without accruing interest, while litigation continues.

In a brief to the 10th Circuit, the Biden administration said that Judge Crabtree's ruling would mean that the Department of Education (DOE) and loan servicers would need to reprogram complex software to calculate borrowers' new monthly payments, prepare billing notices, and process payments; work that could take months.

Read more: How to Consolidate Student Loans

In the meantime, some borrowers enrolled in the SAVE Plan would have been placed into forbearance, without accruing interest, until their loans could be serviced with accurate payment calculations.

A report by CNN found that the DOE said around 3 million of the 8 million people with federal student loan debts would have been placed into forbearance if Crabtree's injunction had not been ruled against. Newsweek has contacted the DOE via email for comment outside of normal working hours.

DOE secretary Miguel Cardona said in a statement seen by U.K. newspaper The Guardian: "The U.S. Court of Appeals for the 10th circuit sided with student loan borrowers across the country who stand to benefit from the SAVE Plan."

Cardona added: "Borrowers enrolled in the SAVE Plan can still access its considerable benefits, including undergraduate loan payments cut in half, as well as protection against interest accruing if borrowers are making their monthly payments."

Some 43 million Americans have federal student debt, with the average amount owed being around $38,000. The SAVE plan has already canceled student debt for 4 million borrowers, according to the White House.