Report > Student Loans, Postsecondary Education
Defying Intent: Biden’s SAVE Plan and the Original Goal of Income-Contingent Repayment for Student Loans
By Jason Delisle | June 6, 2024
Key findings
In its regulations establishing a new income-driven student loan repayment plan called SAVE, the Biden administration has claimed legal authority far outside what Congress intended when it enacted the law. Lawmakers believed the authority would be used to create only limited income-driven repayment plans, not a sweeping loan forgiveness plan like SAVE. Specifically:
- The SAVE plan uses legislative authority that Congress intended to have minimal budgetary impact, but the Biden administration estimates that its SAVE plan will cost at least $156 billion over 10 years, while others estimate the cost will be closer to $500 billion.
- Loan forgiveness is a central feature of SAVE, with large numbers of undergraduate borrowers expected to have balances cancelled after 10 to 20 years of repayment, including months when their payments were $0. Lawmakers did not originally intend for loan forgiveness to be a major benefit of income-driven plans and intended borrowers to repay for 20 or 25 years before having debt cancelled.
- SAVE provides “zero-dollar payments” for incomes that reach well into the middle class, and it allows minimal payments (equaling 5% of “discretionary income”) well into the upper-middle-class. The original law upon which Biden bases his claimed legal authority for SAVE was intended to provide a safety net only to low-income students. For other borrowers, it intended much higher monthly payments.
Congress intended income-driven repayment to be a flexible repayment option for borrowers with a last-resort loan forgiveness option that imposed negligible costs on taxpayers. The Biden administration’s SAVE plan runs roughshod over those intentions, and it may not survive pending legal challenges as a result.
Introduction
The Biden administration began implementing a new income-driven repayment (IDR) plan for federal student loans in 2023 called Saving on a Valuable Education (SAVE). The SAVE plan is the latest version of a long string of IDR plans but is by far the most generous for borrowers and costly to taxpayers. The plan became only partially available in 2023 but will become fully available in 2024. Some borrowers have already received the plan’s loan forgiveness benefits, however, because the Biden administration made key provisions retroactive.
All IDR plans, including SAVE, allow borrowers to make payments on their loans that are set to a share of their incomes rather than their balance or interest rate. Borrowers also qualify for cancellation of remaining balances after meeting certain repayment periods. Prior plans operate mainly as safety nets, especially for undergraduate borrowers. They provide flexibility in repayment amounts but require borrowers to pay for longer than the standard 10 years. Loan forgiveness occurs only after 20 or 25 years of monthly payments.
In contrast, loan forgiveness is a central feature of the SAVE plan, especially for undergraduate borrowers, because it requires much lower payments than other plans and earlier loan forgiveness. It also waives all unpaid interest monthly, unlike other plans. Several sources estimate that most undergraduate borrowers are likely to have at least some debt forgiven if they use SAVE.
Due to these benefits, the Congressional Budget Office (CBO) estimates that the SAVE plan will increase the cost of the loan program by $15 billion a year, making it one of the costliest changes to the loan program ever. Due to implementation of the SAVE plan and other Biden administration changes that interact with it, the student loan program is projected to cost nearly $42 billion in 2025, up from $12 billion in 2020. These effects are no accident. The Biden administration has highlighted loan forgiveness benefits as a key feature of SAVE.
The SAVE plan has prompted legal challenges both from Congress and from states that argue the administration lacks the legal authority to create such a costly plan that forgives so much debt. Republicans in the House and Senate sought to use Congressional Review Act procedures in 2023 to overturn the SAVE plan, although that effort failed to win approval by slim margins. In separate cases led by Kansas and Missouri, several states challenged the constitutionality of the plan in federal court. Those cases are pending.
This report informs the legal challenges to SAVE by examining the original intent of Congress when it created the authority that the Biden administration used to implement SAVE.
