(Reuters) -A U.S. appeals court allowed President Joe Biden’s administration to move forward with implementing a key part of a new student debt relief plan designed to lower monthly payments for millions of Americans.
The Denver-based 10th U.S. Circuit Court of Appeals on Sunday put on hold an injunction issued by a judge in Kansas last week at the urging of Republican-led states that argued the U.S. Department of Education’s debt relief plan was unlawful.
The Education Department said that as a result of the stay issued by the 10th Circuit panel, it will continue cutting undergraduate loan payments and has directed loan servicers it contracts with to move forward with changes under the plan.
U.S. Secretary of Education Miguel Cardona in a statement said the court “sided with student loan borrowers across the country who stand to benefit from the SAVE Plan – the most affordable repayment plan in history.”
The Saving on a Valuable Education Plan provides more generous terms than past income-based repayment plans, lowering monthly payments for eligible borrowers and allowing those whose original principal balances were $12,000 or less to have their debt forgiven after 10 years.
U.S. District Judge Daniel Crabtree in Wichita, Kansas, on June 24 had concluded that the Higher Education Act of 1965 did not clearly authorize the type of “unprecedented and dramatic expansion” of income-based repayment plans envisioned.
Crabtree, in ruling in favor of state attorneys general from South Carolina, Texas and Alaska challenging the plan, had limited the scope of his decision, enjoining only aspects of the SAVE Plan not already in effect.
But in a brief, the administration told the 10th Circuit that Crabtree’s ruling was only “technically prospective” and that, in fact, the Education Department and loan servicers would have to reprogram complex software to calculate borrowers’ new monthly payments, prepare billing notices and process payments.
That work would take months, and in the interim many borrowers enrolled in the SAVE Plan would need to be placed into forbearance until their loans could be serviced with a correct calculation of payments due, the U.S. Department of Justice argued on the administration’s behalf.
The Education Department last week said about 3 million borrowers who under SAVE would have lower monthly payments would be placed into forbearance. Those borrowers would not accrue interest during that time.
The White House has said that more than 20 million borrowers could benefit from the SAVE Plan. The administration in May said 8 million are already enrolled, including 4.6 million whose monthly payments have been reduced to $0.
While the administration sought a stay of Crabtree’s ruling, it did not seek a similar pause of a separate injunction by a federal judge in Missouri that barred it from granting further loan forgiveness for borrowers under the SAVE Plan.
(Reporting by Nate Raymond in Boston; Editing by Alexia Garamfalvi, Jonathan Oatis and Bill Berkrot)
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