At this time a couple of years ago, it looked as if one of the Biden administration’s most dangerous student-loan forgiveness schemes was unstoppable. The Supreme Court had struck down an earlier attempt, but the Saving on a Valuable Education (SAVE) plan appeared to rest on firmer legal ground. Now, with the recent reconciliation bill and the newly announced legal settlement, the menace of SAVE is finally ending.
On paper, SAVE was a student loan repayment plan. In practice, it was a mass student loan forgiveness scheme. SAVE amended the existing REPAYE student loan repayment plan, which was already much more generous than, say, the 1994 income-contingent repayment (ICR) plan. For example, ICR required borrowers to repay 20 percent of income above 100 percent of the poverty line for up to 25 years. The REPAYE plan was more generous across all dimensions, requiring 10 percent of income above 150 percent of the poverty line for 20 to 25 years. The SAVE plan was even more generous, requiring just five percent of income above 225 percent of the poverty line for as little as 10 years. SAVE was so generous that the median associate’s or bachelor’s degree graduate “will not repay a single penny of his loan,” making small payments that wouldn’t even cover the interest on the loan. All of this would have cost taxpayers around half a trillion dollars over the next decade.
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But while SAVE was a policy and budgetary disaster, it appeared to be on much more solid legal grounds than other forgiveness initiatives. SAVE modified REPAYE, which had been in effect for years, and didn’t include any blatant violations of the underlying statutory authority. But in a delicious twist of karmic justice, SAVE’s legal troubles were a direct result of the Biden administration’s overreach in its earlier HEROES mass-forgiveness attempt. When the Supreme Court looked at the HEROES plan and ruled that Missouri had standing to sue and that mass student loan forgiveness was subject to the major questions doctrine—which requires explicit Congressional authorization for policies with large political or economic implications—it provided a blueprint for fighting SAVE. Indeed, the court of appeals for the Eighth Circuit used the major questions doctrine to pause implementation of SAVE while it considered the case.
While that pause was in effect, the Trump administration and a new Republican Congress took office and passed the One Big Beautiful Bill Act (OBBBA). One of the bill’s provisions phased out the SAVE plan in 2028, generating hundreds of billions of dollars that were used to pay for other spending and tax cuts elsewhere in the bill.
But 2028 is still a long way away, which is where the new settlement comes in. Under this agreement, the Department of Education will terminate the SAVE plan as soon as it can rewrite the relevant regulations, likely in 2026, ending SAVE one or two years earlier. Around 7 million borrowers currently enrolled in SAVE will choose or be moved to a new repayment plan.
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The combination of the OBBBA and the settlement accomplishes several worthwhile goals. First, it ends another of the Biden administration’s many student loan forgiveness schemes. Mass student loan forgiveness is a terrible policy, and any moves away from it should be celebrated. Second, it will save taxpayers hundreds of billions of dollars. The money that is loaned to students comes from taxpayers, and when borrowers don’t repay, it is taxpayers who bear the cost. By drastically reducing loan forgiveness, the bill and settlement will ensure that more loans are repaid. Third, loan forgiveness encouraged colleges to raise their prices, so lowering loan forgiveness will encourage colleges to reduce their prices.
SAVE never should have been launched. But since it was, we should celebrate its coming demise.
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Image by Jim Vallee on Adobe; Asset ID#: 542579414 — Edited by Jared Gould
