Finance
Republican states file suit to stop Biden’s SAVE student loan repayment plan
Student loan relief is on the chopping block again as Republican-led states seek to halt income-driven repayment plans. (iStock)
The political tug of war over student loan forgiveness registered a new chapter as 11 Republican-led states filed suit against President Joe Biden and the U.S. Department of Education to stop the SAVE Plan.
The Biden Administration introduced the Saving on a Valuable Education (SAVE) plan after the Supreme Court struck down Biden’s student loan forgiveness plan. The White House said in a statement that the SAVE plan could lower borrowers’ monthly payments to zero dollars, reduce monthly costs in half and save those who make payments at least $1,000 a year. Additionally, borrowers with an original balance of $12,000 or less will receive forgiveness of any remaining balance after making 10 years of payments.
The Kansas-led lawsuit seeks to halt the SAVE plan immediately, arguing that the U.S. Department of Education has no authority to alter student loan repayment plans. This would essentially cancel more than $156 billion in student loan debt. The attorneys general from Alabama, Alaska, Idaho, Iowa, Louisiana, Montana, Nebraska, South Carolina, Texas and Utah joined the suit.
“Once again, the Biden administration has decided to steal from the poor and give to the rich,” Kansas Attorney General Kris Kobach said in a statement. “He is forcing people who did not go to college, or who worked their way through college, to pay for the loans of those who ran up exorbitant student debt. This coalition of Republican attorneys general will stand in the gap and stop Biden.”
If you hold private student loans, you won’t be enrolled in a federal income-driven repayment plan, but you could refinance your loans to a lower rate. Visit Credible to compare options from different lenders without affecting your credit score.
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Congress must authorize debt cancelation
The lawsuit also argues that the U.S. Supreme Court ruled that Biden’s original forgiveness program violated federal law and that only Congress can authorize the forgiveness of student loans, which requires spending taxpayer money.
However, a spokesperson from the Department of Education told Bloomberg News that Congress gave the department the authority to define the terms of income-driven repayment plans.
Nearly $138 billion has been forgiven for almost 3.9 million borrowers through more than two dozen executive actions. Student loan forgiveness has reached millions even as the Supreme Court blocked Biden’s original debt forgiveness plan last June. There are now 7.5 million borrowers enrolled in the SAVE Plan, and 4.3 million borrowers have a $0 monthly payment. Beginning in July, undergraduate loan payments will be halved, capping a borrower’s loan payment at 5% of their discretionary income.
“The Biden-Harris Administration won’t stop fighting to provide support and relief to borrowers across the country—no matter how many times Republican elected officials try to stop us,” the spokesperson told Bloomberg News.
Private student loan borrowers can’t benefit from federal loan relief. But you could lower your monthly payments by refinancing to a lower interest rate. Visit Credible to speak with an expert and get your questions answered.
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SAVE plan could help many more borrowers
Roughly three out of four borrowers who make $75,000 or less annually and would benefit from the SAVE plan are not currently enrolled in the plan, according to a recent Student Debt Crisis Center (SDCC) survey. Moreover, 38% of these borrowers are at risk of defaulting on their student loan payments six months from now and could be missing an opportunity to find debt relief in existing programs.
According to the SDCC survey, more than half of borrowers who contacted their student loan servicers with questions about resuming payments were left with unanswered questions.
Moreover, a quarter of borrowers don’t trust the information they get from their servicer, and 75% said the information they got was inaccurate or incomplete. Every student loan borrower is assigned a loan servicer to help them navigate repayment options, including income-driven repayment (IDR), which can make payments more affordable.
“These survey results are a reflection of what borrowers have experienced these past six months since repayment restarted,” SDCC President and Founder Natalia Abrams said. “We have come so far in advocating for necessary relief to millions of borrowers, and seeing the Biden Administration act is great.”
“However, communication of these vital resources is crucial so borrowers know help is available for them right now,” Abrams continued. “If borrowers do not know the available resources, they will miss relief that can lower their monthly payments, cancel their debt entirely, and so much more.”
If you’re having trouble making payments on your private student loans, you won’t benefit from federal relief. You could consider refinancing your loans for a lower interest rate to lower your monthly payments. Visit Credible to get your personalized rate in minutes.
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WASHINGTON – The Federal Reserve on Wednesday lowered its key interest rate by a quarter percentage point, the third consecutive reduction and one that came with a cautionary tone about additional reductions in coming years.
In a move widely anticipated by markets, the Federal Open Market Committee cut its overnight borrowing rate to a target range of 4.25%-4.5%, back to the level where it was in December 2022 when rates were on the move higher.
Though there was little intrigue over the decision itself, the main question had been over what the Fed would signal about its future intentions as inflation holds steadily above target and economic growth is fairly solid, conditions that don’t normally coincide with policy easing.
In delivering the 25 basis point cut, the Fed indicated that it probably would only lower twice more in 2025, according to the closely watched “dot plot” matrix of individual members’ future rate expectations. The two cuts indicated slice in half the committee’s intentions when the plot was last updated in September.
Assuming quarter-point increments, officials indicated two more cuts in 2026 and another in 2027. Over the longer term, the committee sees the “neutral” funds rate at 3%, 0.1 percentage point higher than the September update as the level has drifted gradually higher this year.
“With today’s action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive,” Chair Jerome Powell said at his post-meeting news conference. “We can therefore be more cautious as we consider further adjustments to our policy rate.”
“Today was a closer call but we decided it was the right call,” he added.
Stocks sold off following the Fed announcement while Treasury yields jumped. Futures pricing pared back the outlook for cuts in 2025 to one quarter point reduction, according to the CME Group’s FedWatch measure.
“We moved pretty quickly to get to here, and I think going forward obviously we’re moving slower,” Powell said.
For the second consecutive meeting, one FOMC member dissented: Cleveland Fed President Beth Hammack wanted the Fed to maintain the previous rate. Governor Michelle Bowman voted no in November, the first time a governor voted against a rate decision since 2005.
The fed funds rate sets what banks charge each other for overnight lending but also influences a variety of consumer debt such as auto loans, credit cards and mortgages.
The post-meeting statement changed little except for a tweak regarding the “extent and timing” of further rate changes, a slight language change from the November meeting.
Change in economic outlook
The cut came even though the committee jacked up its projection for full-year gross domestic product growth to 2.5%, half a percentage point higher than September. However, in the ensuing years the officials expect GDP to slow down to its long-term projection of 1.8%.
Other changes to the Summary of Economic Projections saw the committee lower its expected unemployment rate this year to 4.2% while headline and core inflation according to the Fed’s preferred gauge also were pushed higher to respective estimates of 2.4% and 2.8%, slightly higher than the September estimate and above the Fed’s 2% goal.
The committee’s decision comes with inflation not only holding above the central bank’s target but also while the economy is projected by the Atlanta Fed to grow at a 3.2% rate in the fourth quarter and the unemployment rate has hovered around 4%.
Though those conditions would be most consistent with the Fed hiking or holding rates in place, officials are wary of keeping rates too high and risking an unnecessary slowdown in the economy. Despite macro data to the contrary, a Fed report earlier this month noted that economic growth had only risen “slightly” in recent weeks, with signs of inflation waning and hiring slowing.
Moreover, the Fed will have to deal with the impact of fiscal policy under President-elect Donald Trump, who has indicated plans for tariffs, tax cuts and mass deportations that all could be inflationary and complicate the central bank’s job.
“We need to take our time, not rush and make a very careful assessment, but only when we’ve actually seen what the policies are and how they’ve been implemented,” Powell said of the Trump plans. “We’re just not at that stage.”
Normalizing policy
Powell has indicated that the rate cuts are an effort to recalibrate policy as it does not need to be as restrictive under the current conditions.
“We think the economy is in really good place. We think policy is in a really good place,” he said Wednesday.
With Wednesday’s move, the Fed will have cut benchmark rates by a full percentage point since September, a month during which it took the unusual step of lowering by a half point. The Fed generally likes to move up or down in smaller quarter-point increments as its weighs the impact of its actions.
Despite the aggressive moves lower, markets have taken the opposite tack.
Mortgage rates and Treasury yields both have risen sharply during the period, possibly indicating that markets do not believe the Fed will be able to cut much more. The policy-sensitive 2-year Treasury yield jumped to 4.3%, putting it above the range of the Fed’s rate.
In related action, the Fed adjusted the rate it pays on its overnight repo facility to the bottom end of the fed funds rate. The so-called ON RPP rate is used as a floor for the funds rate, which had been drifting toward the lower end of the target range.
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