Department of Education ends Biden-era program that forgave student debt

The Trump administration reached a court settlement to end a Biden-era program that reduced or forgave student debt for between seven and eight million people. It was the Saving on a Valuable Education (SAVE) plan, an initiative of the Department of Education. According to estimates, it would have cost taxpayers between $156 billion and $475 billion over 10 years.

The settlement came in the wake of a lawsuit filed by Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio and Oklahoma to overturn the SAVE plan. This group, composed of Republican states, had argued that the program exceeded the Executive Branch's authority.

If judicially accepted, the agreement implies that the SAVE program will be repealed or terminated early. Thus, no new enrollments will be allowed, pending applications will be denied, and current borrowers will be forced to migrate to old or alternative payment plans.

Biden's plan, announced in 2023, was part of the so-called Income-Driven Repayment (IDR) plans. Its central proposal was that a debtor's monthly payment would depend not on the size of the debt, but on their income.

As President Biden argued at the time, this was a way to alleviate the student debt burden faced by millions of Americans, especially those with low or moderate incomes. In effect, many would end up paying very little or even zero dollars a month.

The plan was estimated to reach between seven and eight million people across the country.

"If you take out a loan, you must pay it back"

In contrast, Republicans argued that the plan was fiscally unfeasible, especially given the size of the public deficit. In turn, they pointed out that the plan gave "unfair treatment" to those who didn't take out loans, those who already paid theirs back, or those who didn't go to college, thus imposing a burden on those who didn't benefit from the system.

"For four years, the Biden Administration sought to unlawfully shift student loan debt onto American taxpayers, many of whom either never took out a loan to finance their postsecondary education or never even went to college themselves, simply for a political win to prop up a failing Administration," Undersecretary of Education Nicholas Kent said on the matter.

"The Trump Administration is righting this wrong and bringing an end to this deceptive scheme. The law is clear: if you take out a loan, you must pay it back. Thanks to the State of Missouri and other states fighting against this egregious federal overreach, American taxpayers can now rest assured they will no longer be forced to serve as collateral for illegal and irresponsible student loan policies," he added.

Catherine Hanaway, Missouri's attorney general, welcomed the agreement reached between the parties: "Our Office fought for hardworking Americans who were being preyed upon by Biden administration bureaucrats, and we won in court every time. Unilaterally saddling taxpayers with someone else’s Ivy League debt ignored congressional authority and was clearly unlawful."

The fate of Biden's plan now falls to the U.S. District Court for the Eastern District of Missouri, whose judges will decide whether to accept or reject the agreement reached by the Trump administration and the aforementioned group of states.

What was the cost of the SAVE Plan?

According to estimates from the Biden administration, the cost to taxpayers was $156 billion over ten years.

Other agencies, such as the Congressional Budget Office (CBO), found that estimate to be too optimistic. For the CBO, the cost amounted to $230 billion.

The most pessimistic estimate was made by the Wharton School of Business of the University of Pennsylvania, which estimated a 10-year cost of $475 billion.