Student Loan Forgiveness: Navigating the Legal Challenges
The landscape of student loan forgiveness is complex, marked by numerous legal challenges and shifts in policy. Borrowers and policymakers alike grapple with the intricacies of repayment plans, forgiveness programs, and the legal battles that shape their future. This article examines the key legal challenges surrounding student loan forgiveness initiatives, exploring the different phases of loan forgiveness attempts and the legal arguments against them.
The SAVE Plan and Legal Roadblocks
The Biden Administration's Saving on a Valuable Education (SAVE) Plan, an updated Income-Driven Repayment (IDR) Plan designed to ease the burden of student loan repayment, has faced significant legal challenges. IDR Plans allow borrowers to make lower monthly payments (a percentage of their discretionary income) over a longer period. The SAVE Plan made these terms more generous by defining "discretionary income" as income above 225% of the applicable federal poverty guideline, setting monthly payments at $0 for those below that threshold, capping monthly payments at 5% of income above that threshold for undergraduate loans, and canceling loans with an original principal balance of $12,000 or less after 120 monthly payments.
However, the SAVE Plan has encountered legal obstacles. In June 2024, judges in Kansas and Missouri agreed that the SAVE Plan potentially violated the major questions doctrine. The Tenth Circuit stayed the injunction in the Kansas case, while the Eighth Circuit enjoined the entire plan in the Missouri case. The Supreme Court denied an emergency application to allow the SAVE Plan to take effect during litigation. The Eighth Circuit heard oral arguments, and a decision is pending.
To comply with a federal court injunction blocking implementation of the SAVE Plan, the Department of Education announced it would restart interest accrual for borrowers with loans in the SAVE Plan on August 1, 2025. The Department stated it had the authority under the SAVE plan to prevent borrowers from going into negative amortization, which is the authority the Department relied on to put borrowers in zero percent interest rate status. Outside of that regulatory provision in SAVE (which is enjoined), the Department lacks the authority to put borrowers into a zero percent interest rate status.
The HEROES Act and the Supreme Court
President Biden announced a three-part plan for mass student loan forgiveness upon taking office. Six states sued, arguing that the HEROES Act, which allows the Department of Education to "waive" or "modify" the terms of specific loans, did not authorize $400 billion of across-the-board forgiveness.
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In Biden v. Nebraska, the Supreme Court sided with the states, finding they had standing to sue because the Missouri Higher Education Loan Authority (MOHELA) would be harmed by the loan forgiveness. The Court also found that the Biden Administration had exceeded its authority under the HEROES Act, invoking the "major questions doctrine." The Court determined that eliminating billions in student debt was a significant act that Congress would have addressed explicitly. The Court enjoined the HEROES Act forgiveness plan.
The "One-Time Account Adjustment" Scheme
In June 2023, the United States Supreme Court struck down an unconstitutional $430 billion student-loan cancellation program that had previously been announced by the United States Department of Education.
The Department of Education proposed a $39 billion cancellation as part of a broader plan to eliminate the federal student-loan debt of more than 3.6 million borrowers. The PSLF and IDR statutes require monthly payments for periods of 10 or 20 years, respectively. The "One-Time Account Adjustment" scheme was intended to accelerate PSLF and IDR loan-forgiveness timelines and cancel a massive amount of debt.
The New Civil Liberties Alliance filed suit on behalf of the Mackinac Center for Public Policy and the Cato Institute, arguing the Department of Education's actions violated the Constitution's Appropriations Clause and the Administrative Procedure Act. The lawsuit was dismissed due to lack of standing, and the Sixth Circuit Court of Appeals affirmed the decision.
FFELP Loans and Phase Three of Loan Forgiveness
Congress created the FFELP in 1965 to provide government-backed student loans for students who did not qualify for state or nonprofit loans. In 1993, Congress authorized the first Direct Loan program. In 2010, Congress ended FFELP loans and took over the student loan system.
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Phase Three of the administration’s forgiveness plan blurred the lines between the Direct Loan and FFELP programs. The Department proposed canceling the balance of a loan above what was initially borrowed for borrowers with income under $125,000 and up to $20,000 for borrowers with higher incomes. The Department also proposed automatically canceling the loans of any borrower who is eligible for any form of forgiveness, even if the borrower had not successfully applied for forgiveness.
Missouri discovered communication between MOHELA and the Department of Education in which the Department told MOHELA to be ready to hit the button on loan forgiveness on September 8. Missouri and other states sued again, arguing that the agency had already made its decision and, therefore, the new phase was challengeable as a final action under the Administrative Procedure Act. A court in the Southern District of Georgia temporarily blocked the plan, and the case was transferred to the Eastern District of Missouri, which preliminarily enjoined the Rule entirely.
Sweet v. McMahon: Borrower Defense and Settlement Challenges
The Sweet v. Cardona settlement (now Sweet v. McMahon) resolved a class action lawsuit brought by borrowers alleging that the Education Department had unlawfully stalled or improperly denied applications for Borrower Defense to Repayment. Borrower Defense is a discharge program for federal student loans that allows borrowers to request cancellation based on school misconduct.
The settlement divided borrowers into "class members" (those who submitted applications on or before June 22, 2022, and attended certain schools) and "post-class applicants" (those who submitted applications between June 22, 2022, and November 16, 2022). Post-class applicants were supposed to have their applications decided by January 28, 2026, with full relief (discharges and refunds) if that deadline was missed.
The Education Department sought an extension to decide whether to discharge student loans for post-class members, citing the unanticipated size of the post-class pool and resource constraints. The court sided with the borrowers, ordering the Education Department to process applications by the original deadline. The Education Department again tried to extend the deadline, but as of January 28, 2026, the court had not issued a ruling.
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Income-Driven Repayment (IDR) Application
Applying for an IDR Plan is quick and easy if borrowers provide consent for the Department to obtain their federal tax information directly from the Internal Revenue Service. This allows the Department to process borrowers’ IDR applications faster and eliminates the need for borrowers to manually upload their income information. When borrowers allow the Department to access their federal tax information, annual recertification of borrowers’ IDR plans is automatic. The Department continues to make progress on the backlog of submitted IDR applications because of a processing pause put in place by the Biden Administration.
Navigating the Future of Student Loan Forgiveness
The legal challenges surrounding student loan forgiveness highlight the complexities and uncertainties in this area. Borrowers are encouraged to stay informed about court actions, explore available repayment plans, and understand their rights and responsibilities.
The Department of Education urges all borrowers in the SAVE Plan to quickly transition to a legally compliant repayment plan - such as the Income-Based Repayment Plan. Borrowers in SAVE cannot access important loan benefits and cannot make progress toward loan discharge programs authorized by Congress. Borrowers in the SAVE Plan will see their loan balances grow when interest starts accruing on August 1. When the SAVE Plan forbearance ends, borrowers will be responsible for making monthly payments that include any accrued interest as well as their principal amounts. To compare available repayment plans, the Department encourages borrowers with loans in the SAVE Plan to use the Loan Simulator to estimate monthly payments under available repayment plans, determine repayment eligibility, and learn which option best meets their repayment goals. Borrowers who previously submitted an IDR application and selected the Income-Based Repayment, Pay As You Earn (PAYE), or Income-Contingent Repayment (ICR) Plan do not need to submit a new application. SAVE Plan borrowers working toward legal loan discharges, such as through the Public Service Loan Forgiveness Program, must switch out of the SAVE Plan to an alternative IDR repayment plan to start making qualifying payments.
On July 4th, President Trump signed the One Big Beautiful Bill Act into law, which includes a new income-based Repayment Assistance Plan that will be available to borrowers by July 1, 2026. Since the One Bill Beautiful Bill Act envisions restricting enrollment in PAYE and ICR Plans in the future, and because those two repayment plans are currently impacted by legal challenges as well, the Department urges SAVE borrowers to consider enrolling in the Income-Based Repayment Plan authorized under the Higher Education Act until the Department can launch the Repayment Assistance Plan.
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