Federal appeals court rules against Biden student debt relief program

A federal appeals court has sided with Republican-controlled states to deliver another setback to Joe Biden’s student loan relief plan designed to reduce monthly payments for millions of lower-income graduates and speed up debt forgiveness for some borrowers.

A unanimous, unsigned ruling issued on Friday by three Republican-appointed judges in Missouri blocked further implementation of the Saving on a Valuable Education (Save) plan – the Department of Education’s means-tested debt relief program that is being challenged by seven Republican-led states.

The three St Louis-based eighth circuit court of appeals justices said the states bringing the challenge “have demonstrated at least a ‘fair chance’ that they will ultimately prevail”. Two of the judges were appointed by Donald Trump, the other by George W Bush.

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Friday’s court order cannot be applied retrospectively, the judges said. More than 8 million people are already enrolled, and a total of $5.5bn has already been granted to 414,000 borrowers through the Save plan, according to the Department of Education.

The Save plan was meant to take effect in full on 1 July, but its fate hangs in the balance as courts across the country consider two legal challenges brought by the Republican-led states. It’s unclear if the Biden administration will ask the supreme court to intervene and lift Friday’s order given its previous rulings.

The means-tested repayment Save plan was launched after the supreme court’s Republican supermajority last year sided against Biden’s $430bn student debt program, which would have made good on a campaign promise and forgiven up to $20,000 for the 43 million Americans paying off federal student loans.

The cost of the Save plan was estimated to be much lower, around $156bn over 10 years, according to the Biden administration. Republican state attorneys challenging the Save plan argue that the cost to taxpayers will be as high as $475bn.

Friday’s order expands a previous ruling by a lower court that had already limited the scope of the Save plan, which the Biden administration says could benefit more than 20 million indebted former students.

In June, a St Louis-based district judge blocked the Department of Education from forgiving smaller loans of $12,000 or less in as few as 10 years, compared with the 20- or 25-year timeline earlier rules provided.

Ongoing litigation forced the Department of Education to pause the Save plan last month , so Friday’s setback has no immediate effect on the 8 million people currently enrolled in the repayment plan. The enrollees have been temporarily placed in an interest-free forbearance period during which they are not required to make monthly student loan payments.