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Lawsuit Filed to End SAVE Repayment Plan/One-Time IDR Account Adjustment

A new lawsuit has student loan borrowers nervous. Should there be concern over the future of SAVE and the one-time IDR account adjustment?

Written By: Michael P. Lux, Esq.

Last Updated:

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Update 8/14/23: The Court has dismissed the lawsuit for lack of standing. It’s great news for borrowers, but not necessarily the end of the lawsuit as appeal may be forthcoming.

Update 8/15/23: That didn’t take long. An appeal has been filed. For the reasons described below, as originally written when the lawsuit was first filed, I think Cato will lose.

In the past few days, numerous media outlets have reported on a lawsuit that would end the SAVE Repayment Plan or prevent the One-Time IDR Account Adjustment.

First, it’s worth noting that this new lawsuit has nothing to do with the SAVE Repayment plan. The reports that claim that the SAVE plan is the subject of the suit are factually wrong. If you read the actual complaint, the lawsuit is about ending the one-time IDR account adjustment.

As for the substance of the lawsuit, borrowers are justifiably worried. After the Supreme Court struck down the one-time forgiveness plan, the idea of litigation around the one-time account adjustment is troubling.

Today, I’ll explain what is at issue in the lawsuit. This will include an assessment of the case’s merits and thoughts on how borrowers should handle the uncertainty when making student loan plans.

Analyzing the Cato Institute Case to End the One-Time IDR Adjustment

Before jumping into the case details, I’d like to discuss my qualifications to offer this analysis.

I am an attorney, and I have years of litigation experience. I’ve also spent over a decade helping borrowers understand student loan policy on this site.

However, I’m not a regulatory law expert, and some of the critical areas of this case fall outside of my personal experience.

Thus, what you are about to read is my informed opinion. Where possible, I’ll link to other resources so that the legal scholars among you can go as far down the rabbit hole as you like. That said, this article is written specifically for non-attorneys.

Hopefully, I can shed some light on the situation while we wait for federal judges to ultimately make final determinations.

Another Student Loan Case, Another Standing Issue

When Biden’s plan to cancel up to $20,000 per borrower went before the Supreme Court, there were actually two cases. Several states brought one case, and another came from two student loan borrowers. In both cases, standing was a significant issue.

In the case brought by the states, the plaintiffs could meet the standing requirement because of the connection between Missouri and federal servicer MOHELA. That was a controversial decision, but it was enough for the case to proceed.

In the case where two borrowers challenged the forgiveness policy, the Supreme Court unanimously ruled that the borrowers did not have standing to challenge the forgiveness.

In this new case, the Plaintiffs are PSLF employers who claim they have standing because the IDR payment count adjustment makes pursuing PSLF less appealing, making it harder for them to attract and retain employees.

It seems likely that the plaintiffs, in this case, will eventually lose on the standing issue.

Imagine, for a moment, a repair shop just down the road from a giant pothole. People passing through town keep hitting the pothole and bringing more business to the repair shop. When the government announces plans to fix the pothole, the repair shop sues to block the repairs. Does the repair shop have the right to sue?

The analogy here is a bit simplified, but it illustrates what I see as the absurdity in the plaintiffs’ argument. I’d be surprised if the plaintiffs have standing and if the case moves forward.

Digging Deeper: One of the plaintiffs, the Cato Institute, also sued to block the one-time forgiveness plan. In that case, just like the new case, they argued that they had standing as PSLF employers.

Unfortunately, the court never ruled on the standing issue in the old case. When other challenges to the one-time forgiveness rule went to the Supreme Court, the Cato Institute case was put on hold and eventually dismissed based on the Supreme Court’s ruling.

However, both parties filed briefs explaining their analysis on the standing issue. The government’s argument starts on page 8 of this document. The response from the plaintiff is available here.

The Merits of the Case

If the plaintiff meets all of the procedural requirements to bring a case, including showing standing, our analysis then moves forward to the merits of the case.

This is one area where my lack of experience with regulatory law is an issue. (If anyone has some experience in this area, please let me know.)

The plaintiffs argue that the government didn’t follow the proper rulemaking procedure to adjust IDR payment counts as planned.

Unfortunately, I don’t have any insight into the strength of this argument.

However, I do have a couple of other thoughts as it pertains to the merits of their case:

The Lawsuit Feels Like a Political Stunt

The complaint opens by stating that “[b]efore the ink dried on the Supreme Court’s June 30 decision… the Department announced a host of equally unlawful loan cancellation schemes.”

However, the IDR payment count adjustment was announced in April of 2022, more than a year before the Supreme Court ruled on one-time forgiveness. To suggest that the IDR account adjustment was in response to the Supreme Court ruling is either misleading or shows a lack of understanding of the facts.

Advocating for your client is to be expected in a complaint, but dubious claims that are factually inaccurate are not likely to be well received by the judge in the case.

Similarly, the complaint argues that “[t]here is no statutory or regulatory authority to count non-payments during periods of forbearance as qualifying monthly payments for PSLF or IDR.”

Here again, the claim is factually inaccurate. For example, the CARES Act states that time during the Covid-19 forbearance will count toward both PSLF and IDR forgiveness.

Both plaintiffs in this case have an agenda, and this case clearly furthers their advocacy goals. That doesn’t mean they will lose, but it could explain why a weaker lawsuit was filed.

A Plaintiff Win Might Not Last

As noted earlier, a large portion of the complaint revolves around alleged violations of the Administrative Procedures Act.

In these arguments, the plaintiffs are not arguing that the rules shouldn’t exist. They argue that the Department of Education didn’t follow the proper creation steps.

Should the plaintiff win on these grounds, the Department of Education could start the rulemaking process from scratch and remedy flaws found in this case.

Why Have an IDR Count Adjustment?

As a final bit of analysis, it is worth pointing out the purpose behind the one-time IDR count adjustment.

According to the Department of Education, loan servicers were improperly steering borrowers into a forbearance when they would have been better off signing up for an IDR plan. This issue was raised by Federal Student Aid, The Consumer Financial Protection Bureau, and the attorneys general of multiple states.

To correct the improper guidance that borrowers were given by their servicers, the IDR account adjustment will award borrowers credit toward IDR forgiveness for certain deferments and forbearances.

In other words, the IDR account adjustment isn’t some scheme to go around the ruling of the Supreme Court. The one-time adjustment was created to address a specific and well-documented problem, and it was announced over a year before the court ruled on the one-time forgiveness program.

Planning and Implications for Borrowers

Once again, borrowers are caught up in uncertainty as they try to plan a repayment strategy without knowing what programs will actually be available.

For example, FFEL loan borrowers who wish to take advantage of the one-time IDR count adjustment need to consolidate their loans before December 31, 2023.

It is entirely possible that this case will not be resolved before that deadline.

In my opinion, this case is far weaker than the case that ultimately sunk the one-time forgiveness plan. If I had FFEL loans, I’d probably be consolidating right now so that I could sign up for the SAVE plan when payments resume.

Even if the one-time adjustment were to get struck down, I’d expect the Department of Education to attempt a more narrow version of the program, or to assist borrowers who consolidated in reliance of the program.

However, nothing is set in stone. Litigation is inherently unpredictable, and anything could happen. Things may go poorly for borrowers, and the administration might do nothing to address the issue. It’s conceivable that borrowers who consolidate specifically for the one-time adjustment look back and regret their decision.

That all said, I’d be surprised if that is what happened.

At present, the IDR account adjustment is an excellent opportunity for borrowers to move closer to loan forgiveness. I’d hate to see people miss out because they assumed the worst would happen.

I think it is a weak lawsuit, and I don’t think it is something borrowers should stress out about.

It’s a situation worth monitoring, but I won’t be rethinking my student loan repayment strategy because some think tank decided a new policy meant that student loan borrowers might not be financially desperate enough to work for them.

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About the Author

Student loan expert Michael Lux is a licensed attorney and the founder of The Student Loan Sherpa. He has helped borrowers navigate life with student debt since 2013.

Insight from Michael has been featured in US News & World Report, Forbes, The Wall Street Journal, and numerous other online and print publications.

Michael is available for speaking engagements and to respond to press inquiries.

41 thoughts on “Lawsuit Filed to End SAVE Repayment Plan/One-Time IDR Account Adjustment”

  1. Hi Michael, just a quick update, I read the appeal here: https://nclalegal.org/wp-content/uploads/2023/10/Appellants-Opening-Brief.pdf and in the appeal they seem to “center” the PSLF topic even further, saying that
    “First, by crediting borrowers with years of non-payment toward PSLF’s payment- and-service requirements, the Adjustment unlawfully abridges PSLF’s statutory 10-year payment requirement.” etc. I’m curious about your thoughts on the following:

    1. Does the appeal seem to further underscore that they are in fact using PSLF forbearance forgiveness as a foundational principle for their argument, and
    2. Do you think that ultimately dilutes or weakens their argument because wouldn’t it open up PSLF folks to having their debts reinstated based on what this appeal is asserting?

    Having read the appeal do you think they have more, less or the same of a chance of kicking this up the chain to ultimately put it in front of the Supreme Court?

    Thanks Michael!

    Reply
    • First, a couple of thoughts on appeals generally: After a district court rules, every party has the right to an appeal to a Court of Appeals, which is the document you are looking at. The Supreme Court is very different. While many litigants would like to go to the Surpreme Court, the Court only is willing to hear a very small portion of those cases. Appeals are granted in cases of major significance and cases where the rule in one circuit does not match the ruling of another circuit. While student loans are a topic of major signficance, this particular case is insignificant, especially compred to the two student loan cases that the court heard last term. It almost certainly will not take up this case.

      As for your other questions, I think you are hitting at one of the points that makes their argument nonsensical. The government is fixing the PSLF program so that it works for borrowers where it has failed in the past. If anything, it makes working in public service more appealing, not less appealing.

      That said, none of these issues are arguments will matter. The plaintiffs in this case don’t have standing, and the Court of Appeals should side with the district court that threw out the case on standing grounds.

      Reply
  2. Thanks for your efforts. I consolidated my FFEL to a direct loan at the beginning of this year, and it was forgiven in the first group. Hopefully the courts don’t force them to reinstate it, but time will tell. Such is life. Anyway thanks again, you make things about as clear as they are going to be from this vantage point, or I guess anyone’s.

    Reply
  3. I want to point out that this exact same authority – to count months in forbearance (12/36) as qualifying payments was used to recalculate payment counts under PSLF. Given this, it seems that they would need to argue that they didn’t have any more authority to authorize those payment counts than they do to authorize the same payment counts under IDR. In fact, from what I can tell this is the exact mechanism that allowed so many PSLF folks’ forgiveness to go through. So in theory it seems that they would also need to be prepared to face a clawback of those funds too and yet I see nowhere on the web an indication that anyone is contesting the payment recount under the PSLF temporary waiver. Any thoughts on this? Thanks!

    Reply
    • That is interesting.

      First, I’ll start by saying that a lawsuit preventing a government program and a lawsuit undoing a government program are two very different animals. There is a reason that they filed this lawsuit before the first round of borrowers were forgiven under the IDR adjustment.

      I haven’t seen any lawsuits contesting the limited waiver on PSLF, and given that the program ended nearly a year ago, I doubt we will ever see one.

      Ultimately, I think this case serves as a good reminder that anyone can file a lawsuit and they can argue whatever they want, but in many cases, it doesn’t change anything.

      Reply
      • Thanks for your reply Michael. Interestingly, apparently the case that’s currently in the courts is in fact mentioning that the same policy is / was being applied for both IDR and the PSLF temporary waiver – contesting them in both cases. Again, this is the exact same policy that indeed made PSLF sail through with billions in forgiveness that have already been awarded. Forbes in their 8/7 article titled “Could New Lawsuit Reverse Biden’s Latest Student Loan Forgiveness Approvals?” they cite the current complaint under appeal as saying the following:

        “No authority allows the Department to count non-payments as payments,” says the Complaint. “In addition to illegally accelerating PSLF and IDR forgiveness by three years, the ‘One-Time Account Adjustment’ scheme will outright cancel a massive amount of debt owed to the Treasury.”

        Which means, apparently they are not only going after IDR but also PSLF forgiveness. To which (I hope) they will have a much harder uphill battle. Can you imagine what would happen if they won with SCOTUS and then wanted to claw back not only the IDR forgiveness but also the PSLF forgiveness? Under this rubric it seems they can’t really go after one without going after the other.

      • If you look at the lawsuit, the relief requested doesn’t even mention any sort of clawback or retroactive action to go after previously granted PSLF. Additionally, they are only going after PSLF in the sense that they don’t want the IDR account adjustment to impact PSLF payment counts.

        I’d also note that the judge dismissed this case, and while they are exercising their right to appeal, I don’t think this is something that should concern borrowers.

      • Thanks Michael – feel free to delete my previous reply to your reply. I just downloaded a copy of the complaint (the Forbes article on 8/7 titled “Could New Lawsuit Reverse Biden’s Latest Student Loan Forgiveness Approvals?” has a link to it).

        And guess what? It IS PSLF and IDR they are going after!!! They want both revoked and they want the debt reinstated for those who benefit(ted) from both programs.

        To which I say “well, good luck with that”!

  4. Michael,
    It seems to me that people who refinanced their Direct student loans through a company such as SoFi are getting screwed by all of Biden’s plans, including the SAVE plan. It seems like this plan is discriminating against all the other student loans borrowers that still owe a great deal of money on their loan. Why should only certain student loan borrowers receive help, but not others, especially when the loan originated as a Direct Loan from the government. What are your thoughts?

    Reply
    • That is a tricky question. When the borrower refinances their debt, the federal loan is paid in full, and a new private loan is created with the private lender. When this happens, the government is no longer the lender or servicer of the debt, which limits the relief they can offer, especially if the help is coming from the President/Department of Education and not Congress.

      I think your larger point about private student debt getting ignored by the relief is a really good one. The worst student loan horror stories that I have seen all involve private loans.

      There is more federal debt in total, but private loans are the biggest problem for many borrowers.

      Reply
  5. So I’m wondering, say the judge strikes down the appeal filed by the plaintiffs. Would that mean the end of the matter?

    Reply
    • It would almost certainly end this particular case. Conceivably, the Supreme Court could agree to hear the case, but this rarely ever happens, especially because the Supreme Court heard two student loan cases last term.

      Reply
    • That’s a great question. Unfortunately, it is also a really complicated legal question that goes beyond my student loan experience.

      I’ll say this: it’s unlikely something like that happens, but I won’t say impossible.

      Reply
  6. The IDR Adjustment is going through as we speak. Now that it is underway, what happens to someone like me? I will have 25 years(grad loans) in on 11-1-24. I have one year of qualifying deferment included in that as well. Direct Loan Consolidation in 2011…started repayment on 11-1-99. If a judge stops forgiveness, what happens to me? If others qualify, and receive forgiveness, will I miss out then? The government should be required to fix its past counting errors on my account. It shows I started paying in 2011, which is incorrect.

    Reply
    • These are tricky questions to answer, Amy. For starters, I will be very surprised if the judge halts the IDR adjustment because of this lawsuit. However, if something crazy happens, it will depend on the court’s ruling. It’s possible you don’t get the benefit of the one-time adjustment. You might still get it even if the Department of Education loses. We can only speculate at this point.

      The one thing I want to make clear is that this won’t impact the IDR plans or the IDR forgiveness program generally. They are challenging the one-time account adjustment, not the validity of SAVE, IBR, or IDR forgiveness.

      Reply
      • Does the fact that the Dep of Ed is already applying this One Time Adjustment to accounts as we speak provide any precedent or possible relief for those of us that have a little more time yet? I really don’t want to start back at 2011 when I consolidated. It doesn’t seem fair for only ‘some’ to get it. It would seem us borrowers would be significantly more ‘harmed’ than Cato/Mackinac.

      • As I mentioned earlier, I really don’t want to get into the game of guessing exactly how a judge might rule. Sharing my opinion as I have in this article is about as far as I’m able to go.

        That said, some borrowers already benefitting from the one-time adjustment, and getting their loans forgiven is a positive sign for the rest of us who have a bit longer to go.

        I also agree with your thoughts on the fairness of some people getting it but not all, but I don’t know how that might impact the case, a potential ruling, or how the Department of Education might respond. Sadly, right now, we are in wait-and-see mode.

  7. Would not the CARES Act provision that forbearance during COVID be counted as payment actually bolster CATO’s argument? If congress felt they needed to explicitly give that power to the Dept of Ed then they most likely, or at least CATO could argue, did not intend that power implicitly in the HEA or other related acts. The lack of explicit congressional verbiage really makes this veer directly into SCOTUS’ major question doctrine.

    Borrowers need to tread carefully. Old time borrowers may be doubling, tripling, or more their principal balances with a direct loan consolidation which also is a contractual agreement which resets forgiveness counters to zero, not only for forbearances but for any other repayment or deferment. With only the contested promise on the Dept of Ed’s website to counter that contractual agreement.

    My question to you as an attorney is what recourse (if any) would student loan holders who consolidated have if IDR adjustment is struck down? Loan holders with huge principals because of accrued interest and reset forgiveness counts all because the Dept of Ed strongly advised, almost “steered,” them to direct loan consolidations. I’ve heard possible estoppel actions, but don’t have a grasp of that path.

    Reply
    • You’ve definitely hit on one of many arguments that cuts both ways. Another example: CATO claims that by making PSLF easier, people won’t stay as long, but you could also argue that by making the program easier, you encourage more people to go into public service.

      As far as the recourse for borrowers if the worst happens, your estoppel suggestion is one that seems logical to me, specifically promisorry estoppel. Basically, the government makes a promise and the borrower makes decisions in reasonable reliance of the government delivering on that promise, in this case consolidating. In contract law, the party that made the promise is bound to deliver on that promise when the other party has made decisions to their detriment in reasonable reliance of that promise. However, at this point we now have a terribly complicated question with issues of sovereign immunity, contracts, regulatory law, and more. All of these questions go far beyond student loans and my practice experience.

      Ultimately, I think all of this confusion just exemplifies the weakness of the CATO case. Their arguments are unclear to the point where it is a challenge to identify exactly what it is they want to change and how they want it changed. Worried borrowers are filling in the unknown details and assuming the worst.

      I’d also note that during the limited waiver on PSLF, borrowers could consolidate their federal loans and receive credit for payments made prior to consolidation. Many borrowers have already received forgiveness under this now concluded program. Thus, there is definitely precedent for giving borrowers credit for activity prior to consoldiation. Additionally, under the new SAVE regulations, borrowers that consolidate get credit for payment activity from before consolidation. This is distinct from the IDR count update that is being challenged.

      Reply
      • Thank you for such a detailed response! I wasn’t aware of the new language on the payments credit separate from the IDR waiver, at least that’s a small consolation if this goes through that we won’t be fully reset to zero, but still leaves the interest capitalization as an issue. Regarding the lawsuit the concern shouldn’t be CATO at this point, but if someone who has precedence in standing like Missouri decides to throw their hat in the ring. At least some lucky borrowers will hopefully get discharged next week.

  8. Do you know anything about how to find my payment count? I got the email saying I’m eligible for forgiveness, but I think I may be eligible with or without the three-year adjustment. It seems like they must have done a count before sending out the email. My loans were with Navient before I consolidated. They never could tell me where I stood.

    Reply
    • Unfortunately, there isn’t a location that has IDR counts available for each loan.

      Your count update was prioritized because you are so close to forgiveness. For most borrowers, the update will happen in early 2024 at the earliest. Hopefully, after the update happens the Department of Education will make that information readily available.

      For now, the best you can do is to look at your loan status history and to the math yourself.

      Reply
    • If you go on the Federal Student Aid.gov website, there is an option to download your loan data into .csv/excel format. An in-depth search of the data will indicate the initial date that your loan(s) went into re-payment. Begin the count from there, but use the new IDR adjustment guidelines for which forbearance and deferments are allowed to determine the total months count.

      Reply
    • I understand they are also contesting including payments made before IDR programs were available. IDR programs were not available 20 years ago. 🙁 so unfortunately, IF they were to win their case no one would be eligible for forgiveness

      Reply
  9. how are borrowers who have 120 qualifying payments under PSLF and waiting for discharge would be affected if any. sounds like they would want to discount covid non payment months that was qualifying for PSLF. can they retroactively discount those as non-qualifying (3 yrs worth of qualifying payments).

    thank you!!

    Reply
    • Great question.

      I’ll preface my answer with the typical lawyer response and say that in litigation, anything can happen, but I don’t think you will be impacted. Specifically, the Covid forbearance time counting towards forgiveness was approved by Congress in the CARES Act, so that particular detail is on really strong legal ground.

      If you were dependent on the one-time adjustment to increase your count to 120, it could potentially impact you, but aside from that, you are probably in the clear on this particular lawsuit.

      Reply
      • Thanks for your reply Michael. I was not affected by one time adjustment.
        I have read on some other forums that CARES Act approval holds for the first 6 months of loan pause, but other extensions were not?
        and what are the chances that they put all the forgiveness discharges on hold until things are sorted through the court?

      • That is a fair point. The text of the statute is specific about the first six months, but the remaining months are left wide open. Still, the Department of Education has consistently stated that the entirety of the Covid pause will count toward both PSLF and IDR forgiveness. I’d be very surprised if they attempted to backtrack on this or if the court forced them to.

        Likewise, I don’t think it is realistic that all forgiveness discharges would get put on hold while the case is pending. The “on hold” that you are describing is called a preliminary injunction, and the judge isn’t going to issue one that is so broad it impacts borrowers with loans not impacted by the suit.

  10. Can you specifically comment on those of us who got the July 14th Email saying they would start discharging our loans on August 13th. I was one of the people who got this email. I’ve technically been in repayment for 27 years. I fully finished school in 2002 and consolidated in 2004. I got on IBR as soon as it came out–so 2007? maybe. I am not eligible for PSFL (even though I worked for local government for 16 years–I am considered an independent contractor.) Why should this lawsuit even apply to me at all and what do you see happening for people in my shoes?

    Reply
    • I suppose there are four possible outcomes for people in your shoes:

      1) Forgiveness goes through as planned. (I’d say this is the most likely outcome.)

      2) Forgiveness eventually goes through, but it gets delayed while the lawsuit is pending. (This is a real possibility but not the most likely outcome.)

      3) The lawsuit ends the one-time adjustment, but new rules are created so that you get credit for the payments made before you consolidated.

      4) The lawsuit ends the one-time adjustment, and you don’t get credit for anything beyond the IDR payments you have already made.

      Reply
      • Thanks for this article and your responses to these comments. I’m curious of your thoughts on the implications of the 2nd possibility.

        It would seem to me that, if this happens, borrowers would need to start making payments on loans starting Oct 1 with interest accrual starting on Sept 1. So, a PI (preliminary injunction) has the real implication of harming borrowers even if the lawsuit merely pauses the forgiveness. Instead of going into savings accounts, this money will not collect interest and instead go to the servicers, something that is unrecoverable by borrowers. This would seem to have broad implications especially as the PI asks for a stop to “any forgiveness.”

        Could this create an interesting case where it opens the Cato institute to liability based on the doctrine of tortious interference? In essence, borrowers have a contract with the dept. of ed. and as part of that contract, if the forgiveness loan condition is satisfied, which the dept. of ed. is signaling to some borrowers is the case, then, per the contract, the loan should be forgiven. In comes 3rd party Cato to interfere and cause damage, even if its “merely” forgone interest accrual. (Times hundreds of thousands of borrowers, eventually.) Admittedly, its creative but is it any more creative than Cato’s standing theory? (rhetorical question)

      • When borrowers make extra payments on direct loans after they have earned forgiveness, they usually get a refund on those payments. There is still the lost potential interest issue that you point out, but I suppose borrowers could request a deferment or forbearance if things get put on hold while they await the outcome of the litigation.

        As for your tortious interference theory, it is interesting, but I’d be really surprised if there was anything there. Given the PI requirements, it would be really disappointing if one was granted in this case.

  11. Wasn’t one of the issues in the Myra Brown case was that she wasn’t allowed to make comments publicly similar to what Cato is whingeing about as well?

    Reply
    • You are right, Nicole.

      However, there is a subtle difference because the Brown case involved rules created under the HEROES Act, which specifically stated that many of the APA requirements were waived. Thus, it is conceivable that Cato could be successful with this argument where Brown failed.

      Reply

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