Student loan forgiveness: Federal court strikes down Biden’s program


Student loan borrowers are now waiting indefinitely to see if they will receive debt relief under President Joe Biden’s student loan forgiveness program after a federal judge in Texas struck down the program on Thursday, declaring it illegal.

The Justice Department immediately appealed to the 5th US Circuit Court of Appeals. But that situation will have to play out before the Biden administration can cancel any federal student loan debt under the program.

While the Biden administration has faced several legal challenges to the student loan forgiveness program since it was announced in August, Thursday’s ruling is the most significant pushback to date — prompting the Department of Education to stop accepting applications for debt relief.

Biden’s program was already on hold due to a separate legal challenge, but the administration continued to accept applications, having received 26 million so far.

Under the program’s rules, eligible low- and moderate-income borrowers can receive up to $10,000 in federal student loan forgiveness and up to $20,000 in cancellation if they also received a Pell grant while enrolled in college.

The legal road ahead is murky, but it could take many months to resolve the issue.

The Texas decision “makes it more likely that the issue will eventually go to the Supreme Court, although it’s still too early to tell,” said Abby Shafroth, a staff attorney at the National Consumer Law Center.

Borrowers will have to wait for the government’s appeal to the 5th Circuit Court to play out. While it can be difficult to keep track of all the various legal challenges, borrowers can subscribe for updates from the Department of Education and check the Federal Student Aid website for more information.

It could take months for the court to issue a final ruling. If he overturns the Texas lower court’s ruling, then the Biden administration could begin canceling student debt.

But the Justice Department could also ask for an emergency stay on the Texas judge’s order. If granted – and another appeals court ends its temporary stay on the program in a separate pending case – then the administration would be allowed to cancel debt before the 5th Circuit makes a final ruling.

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Initially, the Biden administration said it would begin granting student loan forgiveness before payments resume in January after a one-year pandemic hiatus.

But Thursday’s ruling in Texas puts that timeline in jeopardy.

“For the 26 million borrowers who have already provided the Department of Education with the necessary information to be considered for debt relief – of which 16 million have already been approved for relief – the Department will retain their information so that it can relief to process quickly once. we prevail in court,” White House press secretary Karine Jean-Pierre said in a statement Thursday.

“We strongly disagree with the District Court’s ruling on our student debt relief program,” she said.

The Biden administration argued that Congress granted the education secretary the power to widely discharge student loan debt in a 2003 law known as the HEROES Act, which was passed after the Sept. 11 terrorist attacks.

Government lawyers argue that the law allows the secretary to release debt in the event of a national emergency, including the Covid-19 pandemic.

But the Texas federal judge found that the law does not give the executive branch clear congressional authorization to create the student loan forgiveness program.

“The program is therefore an unconstitutional exercise of Congress’ legislative power and must be struck down,” wrote Judge Mark Pittman, who was nominated by then-President Donald Trump.

“In this country, we are not ruled by an all-powerful executive with a pen and a phone,” he said.

A conservative group, the Job Creators Network Foundation, filed the lawsuit in Texas in October on behalf of two borrowers who did not qualify for debt relief.

One plaintiff did not qualify for the student loan forgiveness program because her loans are not held by the federal government and the other plaintiff is only eligible for $10,000 in debt relief because she did not receive a Pell grant.

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They argued that they were unable to express their disagreement with the rules of the program because the administration did not go through a formal notice and comment rulemaking process under the Administrative Procedure Act.

“This ruling protects the rule of law that requires all Americans to be heard by their federal government,” Elaine Parker, president of the Job Creators Network Foundation, said in a statement Thursday.

The advocacy group was founded by Bernie Marcus, a major Trump donor and former CEO of Home Depot.

Beyond the Texas case, the Biden administration is facing several other lawsuits over the student loan forgiveness program.

A lawsuit brought by six Republican-led states is pending in the 8th US Circuit Court of Appeals. On October 21, that appeals court placed an administrative hold on the program, preventing the administration from canceling any debt.

The states have argued that the Biden administration does not have the legal authority to grant broad student loan forgiveness, and that the program would harm them financially for a variety of reasons. A lower court dismissed the case, ruling that the states lacked legal standing to sue. The states immediately appealed to the 8th Circuit.

The Biden administration has had some victories in court so far, as plaintiffs have struggled to show they have standing to sue.

A federal trial-level judge also dismissed one lawsuit, filed by a group of Wisconsin taxpayers, ruling that the group lacked standing to challenge it. The plaintiffs argued that the loan forgiveness program, which is estimated to cost about $400 billion, would harm taxpayers and the United States Treasury. Supreme Court Justice Amy Coney Barrett also rejected the taxpayer group’s request for the Supreme Court to intervene.

Borrowers filed a separate case, which Barrett also rejected and dismissed in a lower court, which argued that the upcoming loan forgiveness would leave him with a larger state tax bill. Some states may tax the debt forgiveness, but it is not taxable at the federal level.

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The Biden administration is also facing pending lawsuits from Arizona GOP Attorney General Mark Brnovich and the Cato Institute, a Libertarian think tank. Both lawsuits argue that the president does not have the legal authority to cancel student loan debt in general.

Brnovich argues that the state has standing to sue because the student loan forgiveness program could reduce Arizona’s tax revenue. State code does not consider loan forgiveness taxable income.

Arizona’s complaint also argues that the amnesty policy will harm the attorney general’s office’s ability to recruit employees. Currently, its employees may be eligible for the federal Public Service Loan Forgiveness program, but some potential job seekers may not see that as a benefit if their student loan debt is already canceled, advocates argue law.

The Cato Institute makes a similar argument about the amnesty program making it harder to recruit employees.

If Biden’s program is allowed to move forward, individual borrowers who earned less than $125,000 in 2020 or 2021 and married couples or heads of households who made less than $250,000 annually in those years could have up to $10,000 of their federal student loan debt to be forgiven

If qualifying borrowers also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 in debt forgiveness.

There are a variety of federal student loans and not all are eligible for relief. Federal Direct Loans, including subsidized loans, unsubsidized loans, PLUS parent loans and PLUS graduate loans, are eligible.

But federal student loans guaranteed by the government but held by private lenders are not eligible unless the borrower applied to consolidate those loans into a Direct Loan before September 29.

The headline and story have been updated with additional information.


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