Key plank of Biden student-debt relief plan can move forward, court rules

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A key piece of Biden’s student loan forgiveness plan can move forward, a federal appellate court has ruled. The move allows millions of borrowers to see their loan payments cut in half, but stops short of outright erasing debts for now. After the US supreme court last year struck down the president’s original, ambitious initiative to forgive up to $20,000 in federal student loans for each individual borrower earning less than $125,000 annually, or $250,000 for married couples filing taxes jointly, the Biden administration implemented a new loan forgiveness scheme: Saving on a Valuable Education (Save). Like other income-based student loan payment options of the past, Save calculates a borrower’s monthly payment amount based on their income and family size. But unlike previous plans, Save is based on a smaller portion of a borrower’s adjusted gross income (AGI), making the monthly payments even lower. A turbulent ride through the US court system, however, left this back-up plan in legal limbo after two federal judges in Kansas and Missouri temporarily blocked parts of it last week. As a result, many borrowers were expecting their monthly payments to be halved from 1 July, but the pending litigation against the plan prevented that from happening. The latest ruling from a three-judge panel on the US court of appeals for the 10th circuit in Denver, Colorado, allows the Biden administration to move forward and fulfill that promise, slashing lower monthly payments from 10% of borrowers’ discretionary income to 5%. Department of education secretary Miguel Cardona said in a statement: “The US court of appeals for the 10th circuit sided with student loan borrowers across the country who stand to benefit from the Save Plan. “Borrowers enrolled in the Save Plan can still access its considerable benefits, including undergraduate loan payments cut in half, as well as protection against interest accruing if borrowers are making their monthly payments.” Borrowers enrolled in Save were put in forbearance for July during litigation and will be expected to begin payments of lower amounts again in August, according to the US education department. It’s a blow to some of the 18 Republican-led states that challenged the Biden administration in two separate lawsuits, claiming it was overstepping its authority by unilaterally wiping out loans. But the battle to rescue the Save program is not over. The Biden administration is still waiting to appeal the decision of a federal judge in Missouri, John Ross, who ruled that Biden and Cardona could only lower monthly payments, not forgive student loans outright at all. More than 8 million borrowers have enrolled in Save so far, and more than $5.5bn worth of debt has already been cancelled for nearly 400,000 of those enrolled. Nearly 43 million Americans have federal student debt, with the average student debt held being roughly $38,000. A Bankrate survey found that “nearly one in five Americans say student loan debt will have a major influence on their vote in the 2024 presidential election”.