A federal court on Friday injected new uncertainty into the years-long legal battle over the future of the SAVE plan, a popular student loan repayment plan, by unexpectedly dismissing an ongoing legal challenge. The surprise move leaves the program intact for the moment, but the future for millions of borrowers with student loans stuck in an administrative forbearance is far from clear.
The state of Missouri, along with a group of several other Republican-led states, had sued the Education Department to try to block and overturn the SAVE plan, a new income-driven repayment plan created under the Biden-Harris administration that offered borrowers historically low monthly payments, a generous interest subsidy, and in some cases, fast-tracked student loan forgiveness. In the summer of 2024, a federal appeals court issued an injunction blocking the program, resulting in millions of borrowers being placed in an involuntary forbearance that paused payments but also suspended any progress toward loan forgiveness. The court then doubled down and expanded that injunction last year.
While the states had filed the original suit against the Biden administration, the Trump administration was much more aligned with their position and largely opposed the SAVE plan, as well. In December, Missouri and the Trump-led Education Department reached a settlement agreement that, once implemented, would formally kill the SAVE plan. The parties asked a federal district court to approve that settlement and strike down the regulations governing the SAVE program. Instead, on Friday the court simply dismissed the legal challenge altogether. Here’s what’s happening, and what the ruling may mean for student loans that are enrolled in the SAVE plan and stuck in forbearance.
Settlement Agreement Would End The SAVE Plan And Force Student Loans Into Other Repayment Plans
The settlement agreement between the state of Missouri and the Education Department announced in December would, once implemented, rescind most of the regulations that established the SAVE plan, effectively ending the program.
“With one exception, Defendants will not implement any provisions of the SAVE Plan Final Rule,” reads the settlement agreement. “The exception is for the provision concerning the periods of deferment or forbearance that are counted towards eligibility for loan forgiveness under income-driven repayment plans.”
“Defendants will not forgive loans under the SAVE Plan (or under the REPAYE plan),” continues the agreement. “Defendants will not enroll any new borrowers in the SAVE Plan, will deny any pending enrollment applications for the SAVE Plan, and will continue working to move all current borrowers out of the SAVE Plan. Defendants will likewise not enforce the original REPAYE rule or otherwise enroll any borrowers, including SAVE borrowers, into the original REPAYE Plan.”
The Education Department indicated that once a federal district court approved the proposed settlement agreement, the SAVE plan would end, and borrowers with student loans stuck in the SAVE plan forbearance would be forced to move to other repayment plans.
“As part of the proposed settlement agreement, which is pending court approval, ED would not enroll any new borrowers in the SAVE Plan, deny any pending SAVE applications, and move all SAVE borrowers into available repayment plans,” said the department on its website following the announcement of the settlement. “While the settlement agreement is still pending court approval, we encourage borrowers to use Loan Simulator to explore other available repayment plans.”
Court Dismisses Legal Challenge, Leaving Student Loans In SAVE Plan For Now
But in an unexpected move, the federal district court on Friday declined to endorse the settlement agreement, saying there was no authority for the court to do so because the states and the Education Department no longer had any dispute, as they were in agreement that the SAVE plan will end. The court also noted that Congress passed legislation ending the SAVE plan, as well. Instead, the court simply dismissed the lawsuit.
“Following the administration change, Defendants did not seek further review of the preliminary injunction,” said the court in its decision. “And since then, Defendants have taken no further steps to defend the Final Rule or the SAVE plan specifically, which is now nearly defunct. As the parties alluded in their joint motion, on July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act, Pub. L. No. 119- 21, which effectively ends the SAVE plan, with a phasing out period. The parties now jointly seek the same relief in this case, which is to place the final nail in the coffin of the SAVE plan.”
“The parties have jointly asked the Court to enter a final judgment on the merits vacating the Final Rule (with the exception of one provision not specifically challenged here),” continued the court. “However, given the apparent lack of adversity between the parties, which has existed for many months, and their ability to mutually achieve the relief originally sought without further intervention from the Court, it appears that there is no longer a live case or controversy sufficient to authorize the Court to enter a judgment on the merits.”
The court concluded that since there is no controversy between the parties any longer, there is simply nothing for the court to rule on. Instead, it simply dismissed the legal challenge altogether.
“Article III allows federal courts to exercise jurisdiction only over cases or controversies,” reads the decision. “What the parties seek is a ruling on the merits as to the validity of a rule no party intends to continue to defend, and which has effectively ended via congressional action. Such a ruling is not permitted by Article III.”
This ruling effectively means that student loans in the SAVE plan remain in the SAVE plan, at least for now.
Major Uncertainty Now For Student Loans In SAVE Plan
Advocacy groups for student loan borrowers praised the ruling, hailing it as a win and arguing that with the dismissal of the case, there is nothing legally preventing the Education Department from implementing the provisions of the SAVE plan regulations, including student loan forgiveness.
“For almost two years, borrowers in the SAVE plan have been denied their legal rights to lower payments and to debt cancellation,” said Protect Borrowers Legal Director Winston Berkman-Breen in a statement on Friday. “As of today, not only is there no legal barrier to delivering those rights through the SAVE plan, but the Secretary has a legal obligation to do so. The U.S. Department of Education must immediately identify borrowers who are eligible to have their loans cancelled under SAVE and instruct their student loan servicers to cancel those loans.”
But it is far from clear that the Education Department will agree with this position. The One Big, Beautiful Bill Act, which Congress enacted with President Trump’s signature last year, phases out the SAVE plan by July 2028. But the department may have several potential legal tools to try to block or end the SAVE plan much sooner than that. A separate nationwide injunction blocking SAVE involving a different legal challenge brought by the state of Kansas remains stayed (or paused) for now, but the department could try to revive that injunction. The department could also try to appeal the district court’s dismissal of the Missouri-led case to the Eighth Circuit Court of Appeals, which is the same court that issued a broader injunction blocking the SAVE plan. And finally, the department could initiate a rulemaking process to formally rescind the SAVE plan regulations to implement the settlement agreement with the state of Missouri, something contemplated by the agreement itself.
“Defendants will pursue negotiated rulemaking to effectuate this settlement,” reads the agreement. “As part of that negotiated rulemaking, the Department of Education will consider: (a) a formal and complete repeal of the SAVE Plan Final Rule.”
The district court that issued the dismissal ruling on Friday acknowledged that the decision will lead to new uncertainty for borrowers with student loans enrolled in the SAVE plan.
“It is not lost on the Court that millions of borrowers who enrolled in the SAVE plan have patiently awaited clarity while this litigation has proceeded,” said the court in a footnote. “However, that clarity must come from the Department of Education, and not from this Court, which is no longer empowered to weigh the merits of a case that is now moot.”
The Education Department has not issued a formal comment on the court’s ruling, and has not indicated how this will impact federal student loans. But for the moment, the SAVE plan remains intact. And student loan borrowers may be entering yet another period of significant uncertainty and legal upheaval.
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