A handful of legal challenges to the student loan administration’s cancellation plan have left borrowers spooked and wondering if the relief they were counting on will survive the courts.
Last week, two separate courts controlled by conservative judges ruled against the Biden administration’s plan to forgive millions of borrowers tens of thousands of dollars in federal student loan debt, jeopardizing that relief.
Last week, a federal district court in Texas issued a ruling calling the plan “unconstitutional.” And in a separate lawsuit Monday, the 8th Circuit Court of Appeals issued a statewide injunction temporarily suspending the utility.
Biden’s plan, which he implemented via executive order in August, called for $10,000 in debt relief for those who went to college in 2020 or 2021 and earned less than $125,000 (or $250,000 for a married couple). It also asked for $20,000 in debt relief if you went to college, received Pell Grants (a form of government financial aid for undergraduate students), and met the income limit. For borrowers who had less than $10,000 in debt left, the balance would be wiped out. As part of his plan, he also extended the payment pause on federal student loans through the end of 2022.
Student debt relief applications were made in October, and millions of borrowers applied for debt relief. Debt relief is now on hold.
Two plaintiffs are involved in the Texas lawsuit, backed by conservative organization Job Creators Network Foundation, and claim the termination plan “wrongly” excludes them and therefore should not be allowed. US District Judge Mark Pittman — an appointee of former President Donald Trump — also ruled that the program usurped Congress’ power to pass legislation.
The other lawsuit involves six states with Republican attorneys general: Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina. The lawsuit alleges that debt relief would cost these states tax revenues by depriving them of student loan debt that they could tax in the future.
The decision in this case came from a panel composed of three Republican appointments, one appointed by former President George W. Bush and two appointed by Trump, according to the Associated Press.
Despite the legal setbacks, the Biden administration is not giving up on its plan. In a statement released last Friday, Education Minister Miguel Cardona said the government firmly believes the plan is “legal and necessary to give borrowers and working families breathing room while they recover from the pandemic and to ensure that they will be successful when repayment resumes”. He also said that the Justice Department had appealed the Texas verdict on behalf of the Biden administration.
White House press secretary Karine Jean-Pierre also said that the Biden administration has confidence in its legal authority and will not stop fighting to “help working Americans and the middle class get back on their feet.” “.
According to Cardona, 26 million borrowers have provided the information needed to process their requests for relief, and 16 million requests have been approved and sent to credit servicers to discharge them if approved by the courts.
Both the Texas case and the lawsuit filed by the six states, known as Nebraska vs. Biden, are probably on their way to the US Supreme Court. But before it reaches that level, both the 5th and 8th Circuit Courts will have to decide separately in each case. Both courts are headed by conservative judges.
So where is the borrower?
While the Biden administration has insisted it will prevail on both counts, the millions of borrowers eligible for the program are terrified as student loan payments are expected to start again on Jan. 1, 2023. Because of this, the administration is under pressure to extend the payment pause again until the legal challenges are resolved.
Currently, the Biden administration is no longer accepting requests for student loan cancellations, and payments are scheduled to resume in the new year.