Student loan borrowers using Income-Contingent Repayment (ICR) and Pay As You Earn (PAYE) plans are concerned about the future. When the 8th Circuit Court of Appeals issued a decision halting the Department of Education’s SAVE plan, it also expanded the injunction to prevent the Department from forgiving loans under ICR and PAYE.

The ruling stems from the ongoing legal battle over the SAVE Plan. Although the lawsuit challenges multiple aspects of SAVE, the court zeroed in on forgiveness through ICR as a likely overreach of statutory authority. As a result, ICR and PAYE forgiveness (which is based on the same statute as SAVE) has also been paused.

The injunction doesn’t cancel forgiveness for Income-Based Repayment (IBR) or Public Service Loan Forgiveness (PSLF), which are both backed by more specific legal text. Instead, it targets forgiveness that arises from a less direct interpretation of the law.

What Does The ICR Statute Say?

At the heart of the court’s decision is the wording of 20 U.S.C. § 1087e(d)(1)(D), which authorizes ICR. The statute says the Secretary of Education shall offer a repayment plan “with varying annual repayment amounts based on the income of the borrower, paid over an extended period of time prescribed by the Secretary, not to exceed 25 years.”

For years, the Department interpreted that to mean borrowers could receive forgiveness on any remaining balance at the end of the term. The 8th Circuit rejected that view.

According to the justices’ opinion, the law outlines how to calculate payments, not how to forgive debt. Unlike other plans, ICR does not include clear language requiring the Secretary to cancel remaining balances. The court held that unless Congress explicitly authorizes forgiveness, the assumption must be that full repayment is expected, even if income-based.

In short, the court determined that ICR should be structured to lead to full loan repayment by the end of the term, not automatic cancellation of whatever remains.

How Does PAYE Forgiveness Work?

While PAYE operates under its own regulations, it shares a common foundation with ICR: 20 U.S.C. § 1087e(d)(1)(D). PAYE was established through regulatory action during the Obama administration and mirrors ICR in many respects, including income-driven payment caps and forgiveness after 20 years.

Because the legal authority for PAYE forgiveness is rooted in the same provision the court just called into question, the Department of Education paused PAYE forgiveness as well. This impacts borrowers who have been in PAYE for over 20 years and were expecting cancellation of their remaining debt.

The court’s view is that forgiveness must be clearly spelled out by Congress—not inferred. In the absence of that clarity, the Department’s authority to forgive under PAYE is now in serious doubt, at least until the courts resolve the case or Congress updates the law.

Contrast With IBR And PSLF Loan Forgiveness

Where ICR and PAYE rely on broad language about income-based repayment over time, IBR is grounded in a different statute: 20 U.S.C. § 1098e. There, Congress clearly stated that after a borrower makes 20 or 25 years of qualifying payments, “the Secretary shall repay or cancel any outstanding balance of principal and interest.”

Similar clarity appears in other programs as well:

• 20 U.S.C. § 1087e(m)(1): Establishes PSLF forgiveness after 10 years of qualifying work and payments.
• 20 U.S.C. §§ 1078-10(b), 1078-11(a)(1): Authorize forgiveness for certain federal consolidation loans and teacher loan forgiveness.
• 20 U.S.C. § 1087j(b): Authorizes Perkins Loan cancellation for public service.
• 20 U.S.C. § 1087ee: Establishes authority for additional discharge programs under specific conditions.

By contrast, the ICR statute lacks the words “cancel,” “discharge,” or “forgive.” That omission is what the court focused on.

The Issue With The Textual Approach

It’s clear that the court is using a textual interpretation of the rules, but in that case, it also doesn’t say “ballon payment” or “repayment in full” at the end of the repayment term.

There really are three different approaches being argued or inferred:

• Loan Forgiveness: This is what existed prior to the injunction. It argues that the loan should be forgiven at the end of the repayment term.
• Balloon Payment: This is what the court inferred in their argument. It argues that the payments should be structured such that the loan is fully paid off over the repayment term, whether via monthly payments or a balloon payment.

The third approach, which I’m dubbing the ironic approach, is that if you really do take a textual approach to the language in the statute, the loan is NOT forgiven. However, the loan also is not collectible. No more payments can be required after the 25 year mark of ICR, and 20 year mark for PAYE.

So, what would that look like? Well, you could argue that the loan just exists and sits there. It’s not forgiven, but no payments are required. It just “is” – sitting on your personal balance sheet, but that’s it. While weird to think about, it is a possibility.

This effectively makes it forgiven. As a borrower, you don’t pay on it anymore. But you could argue it might impact your credit score for a few years, but who knows. It’s odd. 

So What Happens Next?

For borrowers in ICR or PAYE expecting forgiveness in 2025 or beyond, the outcome of this case is critical. Without resolution, those balances will not be canceled, even after decades of payments.

However, for borrowers leveraging PAYE or ICR for PSLF, those borrowers can still expect forgiveness since PSLF is clearly defined. 

The pause on forgiveness also does not affect borrowers making payments under these plans today. What’s suspended is the act of forgiveness, not enrollment or using these income-based plans.

What the final verdict will be is unknown, but hopefully borrowers will have clarity this year.

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