The Trump administration on Tuesday said it has reached an agreement with seven states to resolve a lawsuit challenging the legality of former president Joe Biden’s student loan repayment plan, a deal that could leave millions of borrowers scrambling to find another option to repay their debt.
The 7 million people now enrolled in the Saving on a Valuable Education program, commonly known as Save, will have a limited time to find a new plan if the U.S. District Court for the Eastern District of Missouri approves the proposed settlement, the Education Department said. The proposed deal does not provide an explicit timeline, and the department did not respond to questions about the deadline. Before now, enrollees had three years to switch out of the Save plan because of the tax law that President Donald Trump signed in July, but that exit has been slow-going amid a backlog in processing applications for other income-driven repayment plans.
The settlement stems from a lawsuit brought by Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio and Oklahoma to overturn Save, which offers lower monthly payments and a faster path to loan cancellation.
“The Trump Administration is righting this wrong and bringing an end to this deceptive scheme,” said Undersecretary of Education Nicholas Kent in a statement Tuesday. “The law is clear: if you take out a loan, you must pay it back. Thanks to the State of Missouri and other states fighting against this egregious federal overreach, American taxpayers can now rest assured they will no longer be forced to serve as collateral for illegal and irresponsible student loan policies.”
Student loan borrowers have been caught in the middle of an ideological battle between liberals who say they want to ease the burden of education debt and conservatives who call that effort fiscally irresponsible and patently unfair to Americans who never went to college. The fight has spawned one lawsuit after another and thrown the entire student loan repayment system into chaos.
The U.S. Court of Appeals for the 8th Circuit had imposed a sweeping injunction that halted the program and disrupted several older repayment plans for nearly four months while it weighed the merits of the case brought by the seven states. In response, the Education Department postponed payments for about 8 million borrowers who were enrolled in Save through an interest-free forbearance, forgoing collection of billions of dollars in debt while the case was being litigated. In August, the Trump administration resumed applying interest on those loans while still allowing enrollees to postpone their payments, and the vast majority have stayed in forbearance.
Transitioning millions of people into other repayment plans will be no small feat. Servicers are already contending with a backlog of applications for the remaining three income-driven repayment plans, which are more expensive than Save. All but one of those plans is going away after July 1, 2028, because of the tax law. Starting next July, borrowers will also have the option of the new income-driven repayment plan, dubbed the Repayment Assistance Plans, which ties monthly payments to a borrower’s income, ranging from 1 to 10 percent depending on earnings.
The Save saga has spanned two administrations and left millions of borrowers in a state of uncertainty.
The Congressional Budget Office estimates Save will cost some $230 billion over the next decade, but the Biden administration said the figure is closer to $156 billion.
Missouri Attorney General Catherine Hanaway praised President Trump for the settlement and his “real, long-term solutions instead of illegal student loan schemes.”
“Our Office fought for hardworking Americans who were being preyed upon by Biden administration bureaucrats, and we won in court every time,” Hanaway said. “Unilaterally saddling taxpayers with someone else’s Ivy League debt ignored congressional authority and was clearly unlawful.”
Biden introduced the Save plan in 2023 as millions of Americans resumed student loan payments after a more than three-year hiatus because of the pandemic.
The plans peg borrowers’ monthly payments to a percentage of their income and promise to eventually forgive the balance of the debt. Save stands out from the other plans because it shields more of a borrower’s earnings from the calculation of payments and offers a shorter path to loan forgiveness. Enrollees who borrowed $12,000 or less for college or graduate school can achieve loan forgiveness after a decade of payments, instead of for 20 or 25 years. The plan has already wiped clear the balances of 414,000 people.
Within months of its debut, Republican state officials challenged the program by arguing that Congress never envisioned such generous terms. They filed two separate lawsuits to challenge Save. Both resulted in partial injunctions that prevented the Biden administration from fully implementing the plan, which includes a component that would have cut many enrollees’ payments in half over the summer. Missouri then petitioned the appeals court to stop the plan altogether.
In challenging Save, the state of Missouri said the Missouri Higher Education Loan Authority, a quasi-state agency that services federal student loans and funds state scholarships, would lose revenue when the loans are canceled.
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