Millions of borrowers were thrown into deeper uncertainty this week after a federal appeals court issued a preliminary injunction blocking a key Biden administration program that reduces payments and speeds student loan forgiveness.

The SAVE plan is a new income-driven repayment program that President Joe Biden unveiled last fall. SAVE provides lower monthly payments than other IDR options, an interest rate subsidy that prevents loan balances from ballooning, and student loan forgiveness of as little as 10 years for some borrowers. But the program has faced legal challenges from Republican-led states, which argue the program is illegal and should be struck down. More than eight million borrowers have registered in SAVE.

On Friday, the 8th Circuit Court of Appeals issued a preliminary injunction that formally blocks the SAVE plan as litigation continues. The injunction replaces an earlier one temporary stay issued last monthand the court suggested that the SAVE plan may ultimately be struck down. This will also effectively extend an administrative forbearance for millions of borrowers already enrolled in the program.

“I disagree with the Eighth Circuit’s decision blocking our administration’s SAVE plan,” Education Secretary Miguel Cardona said in a statement on X on Friday.

Student loan forgiveness under the SAVE plan had been blocked

As a result of legal challenges from the coalition of Republican states, a federal district judge in Missouri had blocked student loan forgiveness under the SAVE plan. But the judge allowed other parts of the program to continue, including lower monthly payments and an interest rate subsidy that prevents runaway balance growth.

The parties appealed to the 8th Circuit Court of Appeals. In July, that court issued a temporary order halting (or halting) implementation of SAVE while it considered whether to implement a broader preliminary injunction — a longer-lasting order that would halt part or all of the SAVE plan as legal proceedings continued .

In response to this order, the Biden administration placed the eight million borrowers enrolled in SAVE to an administrative indulgence. During the grace period, no payments would be due and no interest would accrue, according to the Department of Education.

The court extends the block for student loan forgiveness and other features of the SAVE plan

On Friday, the 8th Circuit issued a decision allowing a preliminary injunction to take effect. The court’s order specifically prohibits the Department of Education from implementing student loan forgiveness, reduced payments or waived interest under the SAVE plan while the lawsuit continues.

The Biden administration is “enjoined from any further remission of principal or interest, from not charging borrowers accrued interest, and from further implementing SAVE’s payment threshold provisions.” ordered the court. “This injunction will remain in effect until further order by this court or the United States Supreme Court.”

The court found that the provision of the Higher Education Act governing certain IDR plans, including SAVE, does not expressly authorize student loan forgiveness, even though the statute delegates broad authority to the Department of Education to draft regulations governing these programs. The law expressly limits income-based repayment under these programs to a maximum of 20% of discretionary income over a 25-year period, but leaves the rest of the details up to the department. Still, the 8th Circuit ruled that the Biden administration likely went too far with SAVE.

“We agree with the district court that the government’s “interpretation” of this provision to allow loan forgiveness of this magnitude “is questionable,” particularly in light of the fact that “other parts of the HEA . . . expressly permit loan forgiveness,” such as IBR plans,” the court wrote.

Groups that advocate for student loan borrowers criticized the ruling.

“Three Republican-appointed judges have decided it is in the public interest to leave millions of people in limbo and break the student loan system,” Mike Pierce, executive director of the Student Borrower Protection Center, said in a statement Friday.

Biden Administration Extends Freeze on Payments and Interest for Borrowers Enrolled in SAVE Plan

Biden administration officials indicated that administrative forbearance for SAVE registrants would continue after the 8th Circuit’s decision.

“Borrowers currently enrolled in SAVE will receive interest-free forbearance,” Secretary Cardona confirmed Friday.

“During deferment, SAVE borrowers will not be required to make payments,” according to education department. “SAVE borrowers will not receive interest on their loans during the grace period.” Importantly, however, time in forbearance will not count toward student loan forgiveness under IDR plans or public service forgiveness.

But the effects of the 8th Circuit’s order are felt not only by borrowers enrolled in the SAVE plan. The education department has taken down online IDR and direct consolidation applications to revamp its systems to comply with the court orders. And officials have warned that borrowers who want to change repayment plans or submit an application for any IDR plan will face long processing delays. As a result, advocacy groups are urging the Biden administration to extend administrative forbearance to all student loan borrowers, not just those enrolled in SAVE.

“How long will the Department of Education allow borrowers to sit in limbo and be confused about one of their most expensive monthly bills and repayment options,” said Braxton Brewington, a spokesperson for the Debt Collective, a debt group that advocates for borrowers. “The Biden-Harris administration must put all federal student loans on hold while right-wing courts, investigating student loan servicers and the Republican attorney general work to further hurt borrowers.”

“There is only one way to protect borrowers from this bare-bones partisan chaos: Secretary Cardona must freeze payments for everyone now,” Pierce said.

What’s Next for the SAVE Plan and Student Loan Forgiveness?

The Biden administration will almost certainly appeal the 8th Circuit’s ruling to the Supreme Court. The court is already considering an appeal from the 10th Circuit on another legal challenge involving the SAVE plan, making it significantly more likely that the nation’s highest court will have to weigh in. The Supreme Court’s conservative majority struck down Biden’s first attempt at mass student. loan forgiveness last summer in a controversial 6-3 decision, suggesting the SAVE plan may be in very real danger.

Meanwhile, the Biden administration is putting the finishing touches on one new initiative to forgive student loanscompletely separate from the SAVE plan. This new program will focus relief on several groups of borrowers and could benefit 25 million Americans. Millions of those borrowers recently received notices from the Education Department giving them an opportunity to opt out before automatic student loan forgiveness begins, possibly in October. But this new plan is also likely to face legal challenges.