On February 18, 2025, the U.S. Court of Appeals for the Eighth Circuit—following up on its August 2024 unsigned order—resolved an expedited appeal concerning a district court injunction preventing the U.S. Department of Education from proceeding with implementation of its much-debated SAVE repayment plan. The opinion, which affirms the district court, calls into question the legality of not only the SAVE plan itself, but also existing income-contingent repayment (“ICR”) plans such as PAYE and REPAYE.

In a case filed by Republican state officials (the “States”), a federal judge in Missouri had previously concluded that the States were likely to prevail on their claim that the Department of Education exceeded its authority in creating the SAVE plan, and that the prospect of irreparable harm warranted an injunction prohibiting the Department from forgiving loans under the SAVE plan while the case was litigated. The Eighth Circuit entered an order continuing that stay pending appeal.

In addressing the States’ request for a more expansive injunction, the Eighth Circuit concluded that for the reasons set forth by the Supreme Court last year in Biden v. Nebraska, 600 U.S. —-, 143 S. Ct. 2355 (2023), at least the State of Missouri had standing to sue.

On the merits, the panel concluded in forceful terms that the States were likely to prevail, because “the Secretary [of Education] must design ICR plans leading to actual repayment of the loans,” but “has gone well beyond this authority by designing a plan where loans are largely forgiven rather than repaid.” More specifically, the statute authorizing ICR plans, 20 U.S.C. § 1087e(d)(1)(D)—unlike the provision authorizing income-based repayment (“IBR”)—does not overtly reference the availability of loan forgiveness, and thus “[a]s enacted by Congress, it is not a program that allows a borrower to evade full repayment because of his income.” The court opined: “We are hard-pressed to conclude that Congress, by directing the Secretary to enact a repayment plan with varying payments based on income over a period not

exceeding twenty-five years, believed it authorized the Secretary to wipe out any remaining principal or interest of any borrower in as few as ten years of low or no payments.” And citing the “major questions” doctrine, the panel observed that the Secretary’s position would “establish ICR plans as a nearly limitless power to transform federal loans into grants by virtue of modifying payment thresholds and forgiveness timelines,” carrying “an even greater economic impact than the sweeping loan forgiveness program attempted through the HEROES Act[.]”

Finding that other key factors—irreparable harm, balance of the equities, and public interest—also favored an injunction, the court concluded that the SAVE plan’s loan forgiveness provisions cannot be readily severed from the rule as a whole because “there is strong evidence the regulation would not have been promulgated in the absence of a forgiveness provision.” The panel thus expanded the district court’s injunction to enjoin the entire proposed rule (essentially pausing implementation of any element of the SAVE plan). Further, although the Biden Administration had previously “resuscitated” a preceding ICR plan, REPAYE, for purposes of gap-filling while the SAVE plan was under legal consideration, the Eighth Circuit found that REPAYE, too, “suffers from the same legal errors” as the SAVE plan, and thus enjoined loan forgiveness (not repayment) under REPAYE as well.

Where this leaves federal student borrowers with prior eligibility for income-contingent repayment is unclear. The Trump Administration’s pick for Secretary of Education, Linda McMahon, is expected to receive a vote before the Senate this week, at which point the Department may begin reassessing its portfolio of repayment options, including REPAYE and its predecessor, PAYE. To the extent the Trump Administration continues to offer REPAYE—itself no sure thing—that might be subject to challenge on grounds that the potentially unlawful forgiveness portions of REPAYE, like SAVE, cannot be severed from its repayment provisions, which would render that plan unavailable as well. For now, this case will return to the district court for further proceedings.