How are legal challenges to SAVE affecting the student loan program?

Introduction

As students returned to school in August, the Supreme Court let stand an injunction blocking the newest income driven student loan repayment plan, known as Saving on a Valuable Education (SAVE). This development, following multiple extensions of the COVID-related payment pause and legal wrangling over debt cancellation, has pushed an already complex and underresourced student loan system to the brink of crisis.

The impacts of this legal uncertainty are rippling across the student loan landscape. Attentive borrowers nearing loan forgiveness and low-income borrowers who expect their income to increase in the future are frustrated that important functions of the student loan system have essentially ground to a halt.

Many of the 8 million borrowers already enrolled in SAVE likely view the current injunction as a welcome pause on payments and interest accumulation, unaware of the potential impact if SAVE is ultimately struck down. Some lower-income borrowers and participants in the Public Service Loan Forgiveness (PSLF) Program stand to lose the most from this dysfunction. Taxpayers are losing billions as borrowers remain in interest-free forbearance, while institutions of higher education struggle to advise students on how to manage loan obligations.

The Department of Education website now contains a warning that information regarding income driven repayment programs may not be accurate, leaving borrowers making key financial decisions in the dark. The Supreme Court’s expectation that a court of appeals will issue a ruling “with appropriate dispatch” notwithstanding, the timeline for resolution is unclear but could extend more than a year, as cases proceed in lower courts before a likely appeal to the Supreme Court.

The legal limbo has effectively paralyzed federal student loan repayment for those seeking income-driven options. New borrowers or those entering repayment for the first time face substantial uncertainty about what loan repayment options will be available in the future. Confusion about what repayment rules a borrower can expect complicates decisions about how much to borrow and what career path to pursue.

What are the origins and implications of the courts’ recent orders blocking SAVE?

What is income driven repayment (IDR)?

The conventional student loan repayment plan has a fixed term (usually ten years) and a fixed interest rate, much like a car loan or a fixed-rate mortgage: Borrowers pay the same amount every month for the term of the loan.

Under income driven repayment (IDR), loan payments depend on the borrower’s income, and the time in repayment is up to 25 years, after which remaining balances are forgiven.¹ Note that the terminology can be confusing. As described below; similar-sounding “Income Based Repayment” (IBR) and “Income Contingent Repayment” (ICR) are specific types of IDR plans in the United States. We follow the norm of using the umbrella term “income driven repayment” or IDR to refer to the class of repayment plans where payments depend on income, with remaining balances discharged after a designated time in repayment.

Economists have long noted that the standard ten-year repayment plan has two problems that can be addressed with the IDR approach. First, IDR can shift payments from lower-earning, early-career years to later, higher-earning years, better aligning the timing of loan payments with the timing of income over the borrower’s career. Second, post-secondary education is an investment that typically pays off, but it involves some risk. IDR provides a form of “insurance” to borrowers who experience worse than expected returns to their postsecondary investment and struggle to repay their loans.

Designing an IDR program that provides insurance while minimizing costs to the government and unintended consequences—such as expansions of low-value programs, tuition inflation, overborrowing, and reduced labor supply during repayment—is a difficult challenge.² Both Congress and the executive branch, with support from both parties at different times, have taken several cracks at this challenge since 1993, producing different IDR programs with a dizzying array of eligibility and repayment rules. SAVE is the most recent and most generous IDR plan to date.

Before the introduction of the SAVE program in 2022, the Department of Education offered four income-driven repayment programs: Income Contingent Repayment (ICR), Income Based Repayment (IBR), Pay as You Earn (PAYE) and Revised Pay as You Earn (REPAYE). REPAYE became SAVE.

All IDR programs have a similar structure. The monthly payment is set to a fixed percentage of income above a threshold, and any remaining loan balance is forgiven after a specified number of qualifying payments. The amount of income that is protected and the percentage of income paid differ by plan, as do other important provisions, such as which loans are eligible, how unpaid interest is treated, the treatment of spousal income for married couples, and the time to loan forgiveness.

The 1993 Omnibus Reconciliation Act (OBRA93) authorized the Department of Education to establish an IDR program, the first of which was called Income Contingent Repayment (ICR). ICR first became available to borrowers in 1995. All borrowers with Direct Loans (loans that are held by the Department of Education), including parents who took Parent PLUS loans, are eligible to participate in ICR, but ICR is less generous than later programs and takeup has long been modest.

The 2007 College Cost Reduction and Access Act (CCRAA) specified a second, more generous IDR option known as Income Based Repayment (IBR). For most borrowers, IBR is a better option than ICR, but Parent PLUS loans are not eligible for IBR. CCRAA and the Health Care and Education Reconciliation Act (HCERA) of 2010 authorized the Pay As You Earn (PAYE) program, which started in 2012. PAYE is more generous than IBR for some borrowers, but participation in this program was limited to new borrowers. The Obama administration later added the Revised Pay as You Earn (REPAYE) program, which was similar to PAYE but available to more borrowers and made several other changes relative to PAYE; REPAYE became available in 2016.³

What is the SAVE program?

In August of 2022, the Biden-Harris administration announced plans for a new income driven repayment plan, later dubbed Saving on a Valuable Education (SAVE), at the same time they announced their proposed debt forgiveness plan; the latter was later rejected by the Supreme Court.

The Department of Education developed the SAVE plan through rulemaking, and the implementation of the plan, which replaced the Revised Pay as You Earn (REPAYE) program, opened for enrollment in the fall of 2023. The remaining provisions were scheduled for implementation in July of 2024, but never went into effect. The Final Rule called for PAYE and ICR to close to new enrollment on July 1 of 2024, reducing the number of IDR plans available to new borrowers to two. Existing PAYE and ICR enrollees could stay in those plans or switch to SAVE.

SAVE is significantly more generous than earlier IDR plans for most borrowers, especially for undergraduate borrowers. We summarize the main differences of SAVE relative to earlier programs below.

Payments are lower in SAVE

In SAVE, borrowers have to reach a higher level of income relative to other IDR plans before payments are required. And for undergraduate borrowers, the payment rate was scheduled to be lower starting in July 2024, but that provision never went into effect. Together, these changes (would) reduce monthly payments substantially for many borrowers.⁴

Table 1 illustrates the calculation of payments under SAVE and its predecessor REPAYE.⁵ Under REPAYE, the payment was equal to 10% of income above the protected income threshold. In 2023, for example, the poverty line for a single individual was $14,580, so the protected income threshold was $21,870. A borrower with income below that level would pay nothing. A single borrower with no dependents and $40,000 in income would owe $1,813 per year (10% of $40,000 minus $21,870) or $151 per month under REPAYE.

In the SAVE program, the protected income threshold is 225% of the poverty line, or $32,805 for an individual with no dependents; a borrower with income below that amount does not have to pay anything if they participate in SAVE. (The protected income threshold rises with family size. A borrower in a family of four, for example, would not pay anything until their income reached about $70,000.)

For graduate loans, the payment rate is still 10% of discretionary income, so the payment for a single graduate borrower in the SAVE plan with $40,000 in income would be $720 per year or $60 per month (instead of $151). The payment rate for undergraduate loans was scheduled to be 5% (rather than 10%) under SAVE, so that borrower’s payment would have been half as much, $360 per year or $30 per month (instead of $151) if the loans were for undergraduate education, about one-fifth as much as they would have paid under earlier IDR programs.

More generous treatment of “uncovered interest” in SAVE

Sometimes a borrower’s payment under IDR is not enough to cover the interest on the loan. In that case, the loan balance would grow even though the borrower is making payments (because they are not paying down principal). Existing IDR plans differ in how they treat this “unpaid interest.” Some subsidize part or all of the uncovered interest at least for a few years, but the SAVE plan is significantly more generous than earlier plans for some borrowers. In the SAVE plan, the Department of Education pays the uncovered interest; this means that the balance cannot grow while a borrower is in SAVE.

For borrowers who have persistently low income relative to their loans and stay in an IDR plan until their remaining balances are forgiven, the treatment of uncovered interest does not affect how much they pay each month. They will pay a fixed percentage of their discretionary income, regardless of how large their loan balance is on paper.⁶

For borrowers who exit SAVE before reaching forgiveness, the program’s treatment of unpaid interest results in lower loan balances compared to older IDR plans, so the remaining balance is smaller if they switch to a standard repayment plan.

SAVE reduces the time to forgiveness for some borrowers

For undergraduate borrowers who borrowed less than $12,000 in total, the SAVE plan would shorten the time to forgiveness to ten years, with that timeline scaling up proportionally for borrowers with original balances between $12,000 and $22,000.⁷ This provision could benefit low-income borrowers at a relatively low cost to the government because collecting small payments for so long may not be cost-effective.⁸

SAVE would be expensive and could have unintended consequences

The generous terms of SAVE benefit borrowers, but they also raise concerns about the potential cost to taxpayers and impact on both borrower behavior and tuition.

Estimating the cost of income driven repayment plans has been challenging because the “inputs” to the estimates—including expected employment, earnings, and repayment trajectories—are difficult to predict. The Department of Education produced cost estimates for the new SAVE program as part of the rule-making process, and independent groups released estimates when the program was first announced. Those estimates were large and highly variable.

In January of 2023, the Department of Education estimated SAVE would cost $138 billion over ten years, revising the estimate up to $156 billion in the final regulations issued in July of 2023. In March of 2023, the Congressional Budget Office estimated SAVE would cost $276 billion, including $122 billion for outstanding loans and $154 billion for new loans. Other estimates, such as those from the Penn-Wharton budget model are even higher, at $475 billion.

One reason it is hard to estimate the costs of SAVE to the government is that the models incorporate key assumptions about how borrowers and institutions will adapt in response to the changes. The magnitude of these responses is difficult to predict, but SAVE clearly creates incentives that could be costly for the government.

Under SAVE, more borrowers would have loan payments that do not depend on how much they borrow because their payment will be based on their income, not how much they owe, for the life of the loan. This creates incentives for some borrowers to take out larger loans that will eventually be forgiven.⁹

Historically, IDR was expected to save taxpayers money by allowing borrowers who might have otherwise defaulted on their loans to instead spread their payments over a longer time horizon, repaying more than they would have in the absence of IDR.¹⁰ When IDR is so generous that a typical borrower does not expect to repay some or all of their loans, IDR becomes more of a subsidy than an insurance policy, departing from the original purpose of IDR and increasing costs to taxpayers. A Brookings analysis suggests that under SAVE, a majority of undergraduate borrowers would expect to have at least some debt forgiven after 20 years. 

Subsidies implemented through IDR are almost certainly less effective at promoting college enrollment than upfront subsidies such as Pell grants or reductions in tuition. Even with generous IDR, pricing is not transparent and borrowers face uncertainty about how much they will need to repay. A transparent reduction in the price of education at the time it is received would increase post-secondary enrollment more.

Incentives for institutions to increase tuition and encourage borrowing with the expectation of forgiveness are also stronger under SAVE, though those incentives existed under earlier IDR programs as well. A recent paper provides some support for the concern that the student loan program can affect tuition: The findings suggest graduate programs responded to increased availability of loans for graduate education under the Grad Plus program by increasing tuition.

These unintended responses by both borrowers and institutions of higher education have the potential to increase the cost of SAVE, possibly substantially, over time.

How does IDR relate to Public Service Loan Forgiveness (PSLF)?

Layered on to the IDR programs is the PSLF program, authorized by the 2007 HCERA. PSLF allows borrowers who make payments while working full time for an employer in the public or nonprofit sector to have their loans forgiven after 10 years instead of 20 or 25 years when they participate in an IDR repayment plan.¹¹

PSLF and the various income driven repayment programs interact: PSLF becomes more generous when IDR is more generous, and a given IDR plan is more generous in the presence of PSLF. The PSLF program itself is not being challenged in the current lawsuit, but because of this relationship between PSLF and IDR, the legal action related to SAVE also affects PSLF participants.

How was income-driven repayment working before SAVE?

The administration of IDR programs was plagued by problems in the decades before the introduction of SAVE, depressing participation. For example, a March 2022 Government Accountability Office report found that the Department of Education had “not taken the necessary steps to ensure that all eligible loans receive IDR forgiveness.” Record keeping was poor, leading to error-ridden payment counts. Accurate guidance to loan servicers and, in turn, to borrowers in the IDR program was absent.

Other reports called out loan servicers for “forbearance steering,” whereby servicers directed borrowers in financial distress to enter forbearance—which would generate interest accrual and growing balances—rather than the more-favorable IDR programs for which they were qualified.

Beginning in 2021, the Biden-Harris administration initiated reforms to address long-standing administrative problems faced by student loan borrowers. In April of 2022 (well before the introduction of SAVE), the Department of Education announced its plan to implement a one-time “adjustment” in IDR payment counts aimed at rectifying the administrative problems that prevented borrowers from receiving proper credit under IDR.

The details for the IDR account adjustment were announced a year later (April 19, 2023) and provided for generous treatment of prior time in repayment for credit towards loan forgiveness. Under this policy, the Department of Education has been reviewing borrowers’ accounts to give them additional months of credit towards loan forgiveness under those programs.¹²

For some borrowers, the IDR account adjustments gave them enough credit to have their remaining balances forgiven. For others, it dramatically shortened the remaining time to forgiveness under SAVE or other IDR programs.

Despite the many problems with the administration of these programs described above, participation in IDR plans did increase substantially leading up to 2020. Figure 1 shows trends in IDR participation for Direct Loans in repayment since 2013 (the earliest year for which we have data).

At the start of 2013, when PAYE was in its infancy and the ICR and IBR programs were the main IDR options, only about 20% of direct loan balances in repayment and 10% of borrowers were in IDR programs. By the start of the pandemic, the share of Direct Loan balances in IDR programs had grown to 50%, accounting for 31% of borrowers, with the majority of these borrowers in the newer PAYE or REPAYE programs.¹³

Notably, the higher share of balances compared to borrowers points to the popularity of the IDR programs with borrowers with large loan balances.

With the disruptions of the COVID-19 pandemic, student loan payments were paused (placed in a forbearance status with no interest accrual) from March 2020 to October 2023 for borrowers with federal Direct Loans in repayment status.¹⁴ During the payment pause, many borrowers who would have applied for an IDR plan did not do so because they did not have to make payments, so IDR participation declined in this period. Participation in IDR increased sharply after the loan pause ended and SAVE opened for enrollment, which happened around the same time in the fall of 2023.

The Department of Education and White House promoted SAVE heavily. Beginning in the fall of 2023, the Department initiated intensive public outreach efforts to increase SAVE enrollment including the SAVE on Student Debt campaign which worked with more than 100 national organizations in a grassroots campaign to reach an estimated 18 million Americans in their “Week of Action.” In addition to outreach from loan servicers directly to borrowers, the Department of Education has promoted the SAVE program in its press releases and social media accounts. In the spring of 2023, the White House announced the “SAVE Day of Action,” a major push to boost SAVE enrollment, one day before the first lawsuit was filed on March 28; a second suit followed shortly after.

Figures 2a and 2b focus on the change from March of 2020 (before the loan pause) to March of this year, just before the latest injunction went into effect. Both balances and borrowers in REPAYE/SAVE increased dramatically, which was only slightly offset by a reduction in other IDR plans. There are now 7.8 million borrowers enrolled in SAVE, with collective balances of $429 million.

How does SAVE relate to other loan forgiveness plans?

As noted above, plans for SAVE were announced at the same time as the headline-grabbing proposal to cancel up to $20,000 in existing debt for most borrowers, later blocked by the Supreme Court. How does SAVE relate to that proposal? The two approaches speak to some of the same goals—both political and economic—but they differ in key ways.

The legal basis of the two efforts is different. The debt cancellation proposal was an (attempted) exercise of the Education Secretary’s power under the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) to “waive or modify” loan provisions in a national emergency. SAVE, on the other hand, was adopted through the rulemaking process drawing on authorities to set the provisions of IDR plans under the Higher Education Act (HEA).

The debt cancellation proposal was purely backward looking, affecting only existing debt. SAVE would be available to both existing and future borrowers, and as with all IDR plans, some participants would see their balances cancelled after a specified time in repayment. Still, IDR programs have not traditionally been considered “loan forgiveness” policies, but the flip side of payments being lower in SAVE is that more debt would ultimately be forgiven. Critics, including the plaintiffs in the pending litigation against SAVE, argue it is so generous as to cross the line from IDR plan to a de facto debt cancellation plan.

Although SAVE is, as noted, a repayment plan, the Biden-Harris administration has—at times—marketed it as a loan forgiveness program, pointing to 1.9 million SAVE borrowers who have seen their balances totaling $62 billion wiped out as of May 2024. But much of that forgiveness is likely attributable to a different initiative—the “payment count adjustment” described above—rather than to SAVE.¹⁵

To complicate matters further, there is another loan cancellation plan in the works, distinct from the earlier debt cancellation proposal and the SAVE plan. When the Supreme Court struck down the earlier plan, Biden vowed to pursue debt cancellation using authorities granted to the Secretary of Education under HEA and announced the start of a negotiated rulemaking last June. The proposed rule, issued in April, if adopted would provide debt cancellation for borrowers who have been in repayment a long time, have seen their balances grow since entering repayment, or who borrowed to attend institutions that were later decertified or failed to meet accountability requirements. The rule has already been temporarily blocked by the courts even though it is not final. Still, the Department of Education sent emails to borrowers asking if they want to opt out of this plan (that does not yet exist).

What are the legal challenges to SAVE?

The legal battles over SAVE have unfolded rapidly across multiple federal courts since two separate coalitions of states filed lawsuits in district courts in April and May of this year, about eight months after the plan first enrolled borrowers. The Plaintiffs argue that SAVE exceeds statutory authority and that the Department of Education did not follow proper administrative procedures in devising the rule.

Table 2 summarizes the key events in the SAVE rollout and of the legal challenge.

SAVE opened to enrollment in August of 2023, at which point borrowers in the REPAYE plan were automatically transitioned to SAVE; many saw their payments fall substantially as the discretionary income threshold was increased. Some borrowers who qualified for the shorter time to loan forgiveness had their balances wiped out. Implementation of the reduced payment rate, which would reduce payments for SAVE participants further, and the phase out of the PAYE and ICR plans were scheduled to happen on July 1, 2024, as noted above.

Plaintiffs argue that the SAVE rule exceeds statutory authority and that “questions regarding the nature and scope of student loan forgiveness are issues of vast political significance,” implicating the “Major Questions” doctrine. They contend that by offering generous repayment terms and faster loan forgiveness, SAVE effectively converts the student loan program into a grant program, beyond the Secretary of Education’s authority. Although estimates of how much SAVE will cost vary widely, as discussed above, the cost is high by any definition. The government counters that the Higher Education Act provides broad discretion to the Secretary in designing income-contingent repayment plans.

Shortly after the Eighth Circuit’s order, the Department of Justice filed a request for clarification on whether the injunction applied to all provisions of the Final Rule creating SAVE, including those affecting payment plans other than SAVE/REPAYE, or just the specific regulations governing SAVE/REPAYE. The court declined to clarify, suggesting the injunction applied not just to SAVE/REPAYE but to other IDR plans and, by extension, the IDR plans that can be used with PSLF.

With the Supreme Court’s August 28, 2024 orders declining to vacate either the Eighth or the Tenth Circuit’s orders, the focus now shifts back to lower courts, where there is considerable uncertainty about how the case will be resolved. A hearing is scheduled for October 24. In any case, it is unlikely that the case will be resolved soon, as the lower courts need to review evidence, hear arguments, and issue rulings, which will likely be appealed back up the appellate ladder. In the meantime, the entire IDR payment system is in chaos.

What is happening while the case proceeds?

At the time the courts blocked SAVE on July 18, the plan had been operating for almost a year and had enrolled almost 8 million borrowers. In response to the injunction, borrowers enrolled in SAVE were placed in interest-free “general forbearance.” These borrowers do not have to make payments and their loans are not accruing interest, but they also cannot receive credit towards forgiveness under PSLF or an IDR plan. It is not clear whether switching to a different IDR plan where they could receive credit is possible at all, but it certainly is not easy.

PAYE and ICR are currently closed to new enrollment as a result of the injunction.¹⁶ That leaves the IBR plan, which is technically open to new enrollment, and the Department of Education says that borrowers can still apply for SAVE/REPAYE.

However, in July, the Department of Education took down the online application for all IDR programs. The Department said borrowers could submit a paper application for SAVE/REPAYE or IBR to their servicer, but borrowers should note that “as a result of the injunction, servicers have temporarily paused processing of IDR applications… We do not currently have an estimate of how long this will take.”

In practice, borrowers appear not to have been able to enroll in an IDR plan or change plans. Borrowers might see their payment reduced while the application is processed, but it is not clear whether applications are, in fact, being processed or what borrowers who submitted a paper application while the online application was unavailable should do. ¹⁷

What are the costs to borrowers and taxpayers?

The uncertainty surrounding the resolution of the legal challenge makes it difficult to predict the full costs of this disruption, but those costs are certainly high.

Direct impacts on current borrowers

Several groups are particularly affected by the inability to enroll in SAVE or other IDR plans:

• New graduates entering repayment for the first time, who often face low initial earnings and could benefit from income-linked payments
• Borrowers not already enrolled in an IDR plan who are experiencing income shocks or periods of financial hardship who need the flexibility of income-driven plans to avoid delinquency

Without access to SAVE or other IDR options, these borrowers may need to make significant personal sacrifices such as reducing essential consumption or taking on additional employment to meet their loan payment obligations under less flexible repayment plans. In addition, these borrowers may face increased risks of delinquency, which can trigger a difficult and protracted debt spiral as balances accumulate.

For the nearly 8 million borrowers already enrolled in SAVE, the impact of the injunction varies depending on their circumstances. Borrowers who were making monthly payments (did not have a “zero payment”) before the injunction now benefit from what is essentially an interest-free loan while they are in general forbearance. They get a break from making payments, and their balance will be the same when the situation is resolved and they need to start making payments again.

Borrowers whose income is low enough that they had a “zero payment” in SAVE have seen no immediate change in their financial situation; they continue to make no payment on their loans. But they are not getting credit towards forgiveness.

Borrowers who might eventually have their loans forgiven under SAVE or another IDR plan may face long-term costs. The forbearance period does not count toward the time in repayment required for loan forgiveness (either 20 or 25 years of qualifying payments). For such borrowers, this may increase the total paid over the life of the loan and delay forgiveness.

The fact that borrowers cannot get credit for payments while in general forbearance is particularly problematic for those who qualify for PSLF. While borrowers can submit the paperwork certifying their public sector employment, they need to make a payment (or qualify for a zero payment) at the same time as that employment to get credit towards PSFL forgiveness.

To take a particularly stark example, a borrower who is enrolled in SAVE and PSLF and is one payment short of 120 qualifying payments needs to make that remaining payment while working full time for a qualifying employer. Right now, they can file the PSLF paperwork, but they cannot make a qualifying payment. Were they to remain in that job, presumably they could make their last payment and have their remaining balance discharged when the legal situation resolves. However, if they change jobs, they would have to “buy back” credit by making retroactive payments. Even with the buyback option, the situation is understandably nerve-wracking for borrowers, especially given the government’s poor track record on administering PSLF and IDR. This is an extreme example, but the logic applies to PSLF-eligible borrowers earlier in repayment, and those borrowers may not be eligible to “buy back” credit.

Impact on educational investment decisions and career choices

The uncertainty surrounding the student loan program complicates crucial financial decisions for students and families. The potential elimination of SAVE could make college less affordable, particularly for undergraduate borrowers. Uncertainty about loan repayment options could reduce educational attainment, increase reliance on private loans with less favorable terms, or lead some students to forgo higher education altogether.

The suspension of SAVE may also influence career decisions, particularly for recent graduates and those considering public service professions. The generous terms of SAVE, especially when combined with the Public Service Loan Forgiveness program, would make lower-paying but socially valuable careers like teaching, social work, or public interest law more financially viable for many borrowers. With SAVE suspended, the calculus for these career choices may shift.

Cost to the government and distributional implications

Estimating the cost of the current forbearance period is challenging due to the uncertainty about how long it will last and who is currently participating in the SAVE program. However, the cost of the COVID-19 payment pause provide some guidance and suggest the general forbearance due to the injunction costs taxpayers around $2 billion per month.¹⁸

While SAVE enrollees have lower incomes on average than the general borrower population, the current forbearance is still likely to disproportionately benefit higher-income, higher-debt borrowers because they tend to have larger loan balances—often due to graduate borrowing —so they will benefit more from the fact that interest is not accumulating. Higher-income borrowers with large balances are also particularly likely to have the financial savvy and guidance to access IDR. Indeed, recent evidence shows that among borrowers with high debt-to-income ratios—those who are most likely to benefit from IDR—enrollment in income-based repayment is much higher among high-income than low-income borrowers.

Again, we can draw on evidence from the payment pause, which also suggests a long period of forbearance for SAVE borrowers is likely to benefit higher-income borrowers the most. Estimates suggest that more than 65% of the benefits of the payment pause accrued to families with incomes greater than $75,000 as these families tended to have particularly large balances and payments.

Overall, borrowers with larger balances (who tend to be richer) benefit the most from not accumulating interest; borrowers with very low incomes and in PSLF are most likely to be harmed by not getting credit for payments.

Costs of confusion, frustration, and administrative burden

Administrative burdens and differences in access to personalized assistance contribute to differences in take-up of IDR by socioeconomic circumstances, and these factors are likely magnified during the SAVE injunction.  

One need only follow the string of changing and obtuse statements posted by the Department of Education regarding the status of the SAVE program to get a feel for the confusion borrowers may feel. To be fair to the Department, some of the back-and-forth stems from legal uncertainty originating in the courts.

Between July 1 and the start of September, the Department of Education’s webpage providing guidance to borrowers enrolled in SAVE changed seven times. Communications have often been confusing and sometimes contradictory. For example, the Department’s website simultaneously states that borrowers can still apply for IDR plans, including SAVE, while also noting that servicers have paused processing of IDR applications.

As of this writing, Federal Student Aid (FSA) admits that it is unable to provide borrowers with accurate information about their income driven repayment options: The website now includes a note saying “the information presented on this page related to income-driven repayment plans, including the SAVE Plan, may not be accurate at this time.”

Moreover, private loan servicers have to process changes in repayment plans and oversee the “street level” communication with borrowers, adding another opportunity for miscommunication.

This confusion and inconsistency can lead to wasted effort, frustration, and stress for borrowers attempting to navigate the system. While these costs are difficult to quantify, borrowers have expressed anger and frustration on social media.

What can be done?

Because SAVE is subject to an injunction, the Department of Education’s immediate responsibility is to ensure access to repayment options under Income Based Repayment. The Department must clarify and make legally permissible options work for borrowers, even as the scope for implementing SAVE remains constrained. Making the online application available again is an important first step, but borrowers must still make this important decision without accurate guidance.

In the medium and longer terms, a renewed emphasis on improving implementation of the basic functions of the Department would be welcome. Regardless of where the fault lies (Congress, the courts, and the Department surely all bear some responsibility), government agencies should not be asking people to print and fax paper forms in 2024. Similarly, every effort must be made to avoid a repeat of this year’s FAFSA debacle, which put some of the most vulnerable students at the greatest disadvantage.

Colleges and universities are on the frontlines of dealing with students’ concerns related to student loan borrowing and repayment. The Department of Education needs to provide these institutions with clear information and assistance to support students effectively during this period of uncertainty.

Reestablishing the credibility of the student loan program—a key component of the higher education system—is also critical. Repeatedly changing the rules threatens to undermine faith in government.

Ultimately, the goal should be a student loan system that provides clear, consistent, and fair terms for borrowers while ensuring the long-term viability of federal support for higher education. Achieving this will require thoughtful policy design, improved administration, and a commitment to addressing the root causes of rising student debt. Income driven repayment programs cannot be the only—or even the main—policy lever to improve affordability.