A federal court unexpectedly dismissed a major legal challenge to the SAVE student loan repayment plan on Friday, creating significant uncertainty for millions of borrowers enrolled in the program. The ruling leaves the SAVE plan intact for now, despite a proposed settlement agreement between Republican-led states and the Education Department that would have formally ended the popular income-driven repayment option. The decision represents a surprising turn in the ongoing legal battle over student loan repayment programs.
The case was originally brought by Missouri and several other Republican-led states seeking to block the SAVE plan, which offered borrowers historically low monthly payments and faster pathways to loan forgiveness. A federal appeals court had previously issued an injunction blocking the program in summer 2024, placing millions of borrowers into an involuntary forbearance status that paused their payments but also halted progress toward forgiveness.
Settlement Agreement Sought to End SAVE Plan for Student Loan Borrowers
In December, Missouri and the Trump administration Education Department reached a settlement agreement that would have rescinded most regulations establishing the SAVE plan. According to the settlement document, the department agreed not to implement SAVE plan provisions, forgive loans under the program, or enroll new borrowers. The agreement also stipulated that existing enrollees would be moved to other available repayment plans.
Additionally, the settlement specified that the Education Department would deny pending SAVE plan enrollment applications. The only exception involved counting periods of deferment or forbearance toward eligibility for loan forgiveness under income-driven repayment programs. The parties requested that a federal district court approve the settlement and strike down SAVE plan regulations.
Court Finds No Legal Controversy Remains
However, the federal district court declined to endorse the proposed settlement agreement. The court determined it lacked authority to rule on the matter because the states and Education Department no longer had any dispute, as both parties agreed the SAVE plan should end. The court noted that Congress had already passed legislation phasing out the program through the One Big Beautiful Bill Act signed by President Trump.
In its decision, the court stated that Article III of the Constitution only permits federal courts to exercise jurisdiction over actual cases or controversies. Since the parties jointly sought the same relief and no party intended to defend the SAVE plan regulations, the court concluded no live controversy existed. Therefore, the court simply dismissed the legal challenge altogether rather than issuing a ruling on the merits.
The ruling effectively means that student loan borrowers enrolled in the SAVE plan remain in the program, at least temporarily. The court acknowledged this would create uncertainty for millions of borrowers who have awaited clarity during the litigation. However, the court noted that future direction must come from the Education Department rather than judicial intervention.
Advocacy Groups Claim Victory for Student Loan Relief
Student loan borrower advocacy organizations praised Friday’s ruling as a significant win. Protect Borrowers Legal Director Winston Berkman-Breen argued that with the case dismissed, no legal barrier prevents the Education Department from implementing SAVE plan provisions, including student loan forgiveness. The organization called on the department to immediately identify borrowers eligible for loan cancellation under the program and instruct servicers to cancel those debts.
Meanwhile, the advocacy groups contended that borrowers in the SAVE plan have been denied their legal rights to lower payments and debt cancellation for nearly two years. They assert that the Education Department now has a legal obligation to deliver those benefits following the dismissal of the lawsuit.
Education Department Has Multiple Options to Block SAVE Plan
Despite the dismissal, the Education Department has several potential legal tools to try ending the SAVE plan sooner than the July 2028 phase-out date established by Congress. A separate nationwide injunction involving a legal challenge from Kansas remains stayed but could potentially be revived by the department. The department could also appeal the district court’s dismissal to the Eighth Circuit Court of Appeals, which previously issued a broader injunction blocking SAVE plan implementation.
Furthermore, the settlement agreement itself contemplated that the Education Department would pursue negotiated rulemaking to effectuate the settlement terms. This process could involve a formal and complete repeal of the SAVE plan regulations through administrative procedures. The department has initiated other rulemaking processes to overhaul various student loan programs in recent months.
In contrast to the advocacy groups’ position, it remains unclear whether the Education Department will agree that it must now implement the SAVE plan. The department has not issued formal comments on the court’s ruling or indicated how the decision will impact federal student loans going forward. The Trump administration has consistently opposed the SAVE plan and aligned itself with the Republican-led states challenging the program.
The Education Department has not announced its next steps following Friday’s dismissal, and borrowers enrolled in the SAVE plan face continued uncertainty about their repayment status. Whether the department will attempt to appeal the ruling, revive other injunctions, or pursue alternative legal strategies to end the program remains to be seen in the coming weeks.
