Ala., Alaska, Idaho, Iowa, Kansas, Louisiana, Montana, Nebraska, South Carolina, Texas, and Utah are the eleven states that are suing. Democrats don’t run many of the states.
An Education Department spokesman said on Friday that the department would not comment on cases that are still being litigated.
However, the department said that Congress gave the agency the power to set the terms of income-driven payback plans in 1993. The SAVE plan is the fourth time that the agency has used that power.
The spokesperson said in an email, “The Biden-Harris Administration has been working hard to fix a broken student loan system. As part of that, they have made the most affordable student loan repayment plan ever, which lowers monthly payments, protects millions of borrowers from runaway interest, and moves borrowers closer to debt forgiveness faster.”
People who take out student loans through the SAVE plan have to pay back their debts with between 5 and 10 percent of their extra income. People who borrow money but make less than 225% of the government poverty line—that is, just under $34,000 a year for a single person in 2024—won’t have to make a monthly payment. People who owe less than $12,000 will not have to pay back their loans if they make payments for 10 years.
The department is allowed to change the terms of student loans by the Higher Education Act. However, the states say that the SAVE plan actually forgives billions of dollars in student debt “while changing the terms of loan repayment.”
The states say that the plan turns the loan into a grant, which is not something the Education Department can do.
They say that because this is a matter of “great economic and political significance,” the department can’t forgive these debts without permission from Congress.
In this case, the states that collect income tax say that the rule cuts into this source of income. In the American Rescue Plan, it was said that canceled student loans could not be counted as income until the end of 2025. The states say that the SAVE plan will give students more debt relief before that date, which means that it won’t be taxed.
The claimants pointed to what a department spokesperson said, who said that the SAVE plan had already helped borrowers in Kansas get rid of almost $10 million in debt. There is a claim that Kansas cannot collect income tax on this amount, even though it could have if the loans were canceled in 2026 or later.
The rule that made SAVE is also “arbitrary and capricious,” the claimants say, because it doesn’t take into account how much the plan will really cost.
This week, Democrats in the U.S. Senate presented a bill that would make the SAVE plan official law. They said that the bill would help keep the SAVE plan from being rolled back by future governments.
“We must do everything we can to solve America’s student debt crisis,” said Oregon Sen. Jeff Merkley. “I’ve long pushed for better income-based repayment programs.” He also said that the act would give “student borrowers a much-needed path to loan forgiveness for years to come.”
