There is some big student loan news that came out this week that needs to be highlighted. One of my concerns with anything done by Executive Order (meaning the President bypasses Congress to implement a policy) is that it can be undone just as quickly. This is true for any student loan policy conducted via Executive Order. The SAVE program was one such policy created by Executive Order, and provisions of that program were struck down by two judges in response to lawsuits filed by several Republican State Attorneys General. Here is what happened and how it affects you.

A pair of Federal Judges struck down certain provisions of the SAVE program. In Missouri, the State Attorney General brought a case against the Department of Education on behalf of the Missouri Higher Education Loan Authority. Student loan borrowers will recognize that agency by its acronym, MOHELA. The State Attorney General successfully argued that the Department of Education would harm MOHELA through reduced payments for the loans MOHELA services that are in the SAVE plan.

Meanwhile, the State Attorney General of Kansas successfully argued that the reduced payments from the SAVE plan enacted by the Dept of Education lacked clear authority from Congress. The sticking point was the cost of the program. SAVE is expected to cost $435 billion dollars over the next ten years. For context, the program SAVE replaced (RePAYE) had a total price tag of $16 billion. The Attorney General argued that the massive cost of the SAVE program fell outside the authority of the Dept. of Education and that a program of this magnitude needed to be implemented by Congress.

How does this affect the SAVE program?

The program itself is not being struck down—only certain provisions. One provision was the new 5% payment formula for those with undergrad loans. The old formula was 10%. This means that borrowers with undergrad loans would have had their payments cut in half. A lot of them might have received $0 payments. This provision was slated to go into effect in July. Other provisions being struck down were the automatic forgiveness of borrowers whose original student loan balance was less than $12,000 AND who also had 10 years of qualifying payments or borrowers who met the 20-year forgiveness qualification. These provisions only applied to undergraduate loans, as graduate loans have a 25-year forgiveness qualification.

How does this affect you?

If you have graduate student loans, this does not affect you much. Your payments will still be the same, and your forgiveness qualification will still be 25 years. If you had a mixture of graduate and undergraduate loans, you would not see the expected reduction in your payment come July due to a weighted average formula of your graduate and undergraduate loans. The biggest losers from this are those whose loans are all from undergrad enrolled in SAVE. They will not benefit from immediate forgiveness under the program, nor will their payments be cut in half next month.

Uncertainty. Elections. Solutions.

This throws another wrench into the student loan system. With so many changes over the past 4 years, it is no wonder borrowers feel like a plastic bag drifting through the wind (thanks Katy Perry). Since the Pandemic, student loans have become a hot political topic for both parties. Former President Trump has vowed to block the SAVE program, while President Biden has vowed to preserve it. Here at Nxt:Gen Financial Planning, I am closely monitoring all the student loan news so you don’t have to. If you are a Nxt:Gen client and would like to discuss your current student loan plan, you are more than welcome to book a time on my calendar. I am always here to help. If you are not a Nxt:Gen client, and are wondering how to incorporate your student loans into your overall financial plan, I invite you to schedule an Intro Call.