As states challenge Biden’s student loan repayment plan, he presses on

When President Biden announced his plan to provide student debt relief for 43 million borrowers nearly two years ago, there was a piece to his program that attracted less attention: a new student loan repayment program that would cut monthly payments in half for millions.

The repayment program, called SAVE, was meant to become a permanent fixture of the federal student loan system, offering a more affordable path to repayment, particularly for lower-income borrowers. But two groups of Republican-led states have filed separate lawsuits to block the SAVE program — including many of the states that challenged Biden’s $400 billion debt cancellation plan, which was struck down by the Supreme Court last year.

Missouri, along with six other states, filed suit Tuesday in US District Court for the Eastern District of Missouri, seeking to upend the program. That follows a challenge filed by 11 other states, led by Kansas, in late March. Both suits argue that the administration has again exceeded its authority, and that the repayment plan is just another backhanded attempt to wipe debts clean.

“Yet again, the president is unilaterally trying to impose an extraordinarily expensive and controversial policy that he could not get through Congress,” the plaintiffs said in the complaint filed in Missouri.

The latest legal challenge landed just a day after the Biden administration renewed its efforts to offer more extensive debt relief in an attempt to make good on a campaign promise during an election year. That effort, which joins existing programs offering targeted relief, is also expected to be challenged.

The SAVE plan, which opened to borrowers in August and has more than 8 million enrollees, isn’t a novel idea: It’s an income-driven repayment program based on a roughly 30year-old design that ties borrowers’ monthly payments to their income and household size. But SAVE has more generous terms than previous plans.

Here’s what we know:

Why are groups suing now?

Anything related to student loan relief has become politically charged. Here, the states argue that the SAVE plan is unlawful in large part because of its high projected costs, which they said should require approval by Congress.

The Congressional Budget Office estimated that SAVE would cost $261 billion over 10 years, but another analysis came up with a much larger number.

Economists for the Penn Wharton Budget Model, a research group at the University of Pennsylvania, projected it would cost $475 billion over the same period — with roughly $235 billion of that attributed to the increased generosity of SAVE relative to existing plans, according to Kent Smetters, a professor at Wharton and the faculty director of the Penn Wharton Budget Model.

SAVE’s terms are more favorable: It reduces payments on undergraduate loans to 5 percent of a borrower’s discretionary income, down from 10 percent in the plan it replaced, known as REPAYE. After monthly payments for a set number of years — usually 20 — any balance is forgiven. (Graduate school debtors still pay 10 percent over 25 years.)

The program shortens the repayment term for people who initially borrowed $12,000 or less to 10 years, at which point any remaining debt is canceled.

SAVE also tweaks the payment formula so more income is protected for a borrower’s basic needs, reducing payments overall.

What will determine whether the cases move forward?

Before a court can get to the arguments of a case, the plaintiffs must establish that they have standing to sue — that is, they are suffering a concrete harm that can be remedied by the courts.

Some legal experts said Missouri may have a better chance at passing this test; after all, it succeeded when the states challenged Biden’s broad debt relief program. Though a district court in that case initially found that the states did not have standing to sue, the decision was reversed by an appeals court and the plan was put on hold. Later, the Supreme Court held that Missouri had standing because it would have lost revenue from the Missouri Higher Education Loan Authority, or MOHELA (a federal loan servicer, which is considered an arm of that state), if the debt cancellation proceeded. That was enough to let the case move forward, and Missouri is making a somewhat similar argument here.

The states also claim in the lawsuit that forgiveness will deprive them of tax revenue.

But legal experts and advocates say the states could change their tax laws and collect the extra revenue.

If either of the recent cases moves forward, the states will get their chance to argue that the Education Department overstepped its authority — most likely by turning to a legal principle known as the “major questions doctrine.” The thrust of that doctrine is that Congress must speak clearly when it authorizes the executive branch and its agencies to take on matters of political or economic significance. In the past, courts would typically defer to agency interpretations of ambiguous statutes.

Should borrowers do anything differently now?

Borrower advocates suggest focusing on what you can control — continue to enroll in the repayment plan that makes most sense for your situation.

But keep in mind that the Biden administration plans to phase out some income-driven repayment plans July 1, when all of SAVE’s benefits take full effect.