Amna Nawaz:
The Trump administration has reached a joint settlement with seven states that will effectively shut down a key Biden era student loan relief program.
John Yang looks at what’s behind the change and what it could mean for borrowers in the months ahead — John.
John Yang:
Amna, it’s called Saving on a Valuable Education, or SAVE. It bases borrowers’ monthly payments on their incomes and provides a faster path to loan cancellation.
The Trump Education Department doesn’t like it. Instead, it’s created several other repayment options. And with this proposed settlement of a lawsuit brought by seven Republican states, they’re ending it.
But what about the roughly seven million people currently enrolled in it?
Danielle Douglas-Gabriel is The Washington Post’s national higher education reporter.
Danielle, let’s start with SAVE, this program that is going away, or if the judge approves it’s going away. What made it so attractive and what made it so generous for borrowers?
Danielle Douglas-Gabriel, The Washington Post:
So, John, first, thank you for having me.
And, with SAVE, it is an income-driven repayment plan, one of four that the government offers. What makes it different from the other existing income-driven payment plans, some dating back two decades, is that SAVE has a higher threshold for how much of your disposable income gets counted in the calculation for your monthly bill.
So, for a lot of people, that means that they saw their monthly payments go down pretty dramatically. It also has a faster path to debt cancellation, meaning that, if you borrowed less than $12,000 from the government and have been in repayment for 10 years, your remaining balance would be forgiven.
And when it was implemented back in October of 2023, about 400,000 people saw their student loans forgiven as a result of this provision. Well, that cancellation provision became the point of contention for the states that filed this lawsuit several months later.
As they said the Biden administration had exceeded its authority by offering this debt relief without congressional approval.
John Yang:
Tell us a little bit about the path this lawsuit has taken, because it essentially kept the program from being fully implemented, right?
Danielle Douglas-Gabriel:
Yes.
So there were two lawsuits initially, and the one that was filed by or led by the state of Missouri and the six other states is the one that kind of had the biggest impact on the program, is that it effectively shut down the whole thing.
And, essentially, the Biden administration had phased in SAVE, and one phase of it was shut down initially by the courts, but the rest of it was allowed to go forward. But this particular case shut down the entire thing. There was an injunction that was pretty far — far-reaching.
And as a result, the department placed about eight million people originally who were enrolled in the program in a form of forbearance, where their payments were being postponed and interest weren’t — wasn’t accruing on their loans.
The problem is that, for folks who wanted to go into other income-driven payment plans, there was a — as a result of the injunction, a lot of those plans were shut down for several months because the application for them were all a part of the SAVE. It was also including SAVE. And so the department had to reconfigure that and figure out how best to get people into these programs without running afoul of the courts.
Now, that has created so much chaos when it comes to people who are trying to figure out what’s the best path to repaying their loans.
John Yang:
Why doesn’t the Trump administration like this? What’s their objection?
Danielle Douglas-Gabriel:
I think the student loan forgiveness component certainly is a huge part of the objection.
There’s has been an ideological battle between conservatives, who feel that student loan forgiveness, any far-reaching student loan forgiveness in particular, really is an affront to people who have not gone to college. They shouldn’t have to foot the bill for folks who did pursue a college education.
At the same time, there are still existing loan forgiveness programs that are in place, such as Public Service Loan Forgiveness that teachers, social workers, and police officers take advantage of. And so those things are safe. But this particular plan, it was a signature part of the Biden administration’s campaign to fix the student loan system.
And it also, I think, suffered from kind of the ongoing angst against student loan forgiveness that the program that was struck down by the Supreme Court really, really, really centered on. And so even though this is totally different than that wide — that far-reaching program that was struck down by the court, they were kind of viewed in the same lens.
Unfortunately, what that means for a lot of borrowers who benefited from SAVE is that they will no longer have this generous repayment option afforded to them.
John Yang:
And under this proposed settlement, what’s the timeline? When does this program wind down?
Danielle Douglas-Gabriel:
That is the big question, John. Everyone is trying to figure exactly when.
Now, keep in mind, the congressional One Big Beautiful Bill Act that passed this summer actually had wind — was starting to wind down SAVE. The congressional Republicans said that, by 2028, if you were in the SAVE plan, you had to get out. It was over.
Now, what we don’t know and what this settlement hasn’t explicitly said is, what’s the timeline? So, I really think this is something that we will have to continue to pay attention to as it unfolds in the courts. And then also the Department of Education is going to convene a panel of experts to kind of flesh out the details of how to wind down this program.
John Yang:
You have talked to a lot of people in this program. What does this decision or this agreement do to them and the others who are in the program?
Danielle Douglas-Gabriel:
I think it just heightens a lot of the confusion and a lot of the uncertainty, especially since this settlement hasn’t offered a distinct and explicit timeline.
I spoke to a borrower who she already switched out of SAVE and into one of the other income-driven plans, one that was far more expensive. And this woman, who’s a teacher, has seen her payment go from $373 a month to $875.
Now, couple that with an increase in her health insurance at the same time, having to cover her mortgage and just other living expenses, it’s a real strain. And it’s a real adjustment for a lot of Americans to have to make at a time when people are worried about inflation and gas prices and grocery prices.
So I think this is a huge adjustment for borrowers. And hopefully there will be guidance to help them out of this. What certainly no one wants to see is a huge rise in delinquencies on these loans and defaults on these loans that could really hurt people’s financial lives.
John Yang:
Danielle Douglas-Gabriel of The Washington Post, thank you very much.
Danielle Douglas-Gabriel:
Thank you.
