Student rates

Biden administrator to ask Supreme Court to take over student debt plan

The Biden administration plans to ask the Supreme Court to reinstate the president’s student debt forgiveness plan, according to a legal filing Thursday warning that Americans will face financial hardship if the plan remains stuck in court when Loan repayments are expected to resume in January.

The Justice Department is fighting to keep Biden’s plan alive after it was halted by two federal courts in recent weeks. The agency is calling for swift action to block both rulings and allow the plan to take effect even as it plays out in courts across the country.

In a legal filing Thursday, the administration announced its intention to appeal one of those rulings, made by a federal appeals court in St. Louis, to the nation’s highest court. And he says he is ready to appeal the other case if necessary.

The White House has said he will prevail, but even some supporters of the plan worry about his chances before a conservative Supreme Court that has curtailed Biden’s authority in other ways, including in a June ruling limiting the ability of the Environmental Protection Agency to limit the power plan. emissions.

Biden’s plan promises $10,000 in federal student debt forgiveness to those with incomes below $125,000 or households earning less than $250,000. Pell Grant recipients, who typically demonstrate more financial need, are eligible for additional assistance of $10,000.

Maintaining pending debt relief would leave the government facing an “unnecessarily perilous choice,” the administration argued in its filing. If he restarts student loan repayments as scheduled on Jan. 1, millions of Americans will be billed for debt promised to be forgiven. But if the government extends the payment pause, it will cost billions of dollars in lost revenue.

It builds on arguments made by the administration in other filings this week, warning that many Americans will not be able to pay their student debts in January if the cancellation plan remains halted.

For typical borrowers, monthly payments would be $200 to $300 higher than they would be if Biden’s plan went ahead, the Education Department said. The pressure could lead to soaring default rates, which have increased twentyfold on average following other natural disasters.

“We anticipate that there could be a historically significant increase in the amount of delinquencies and defaults on federal student loans as a result of the COVID-19 pandemic,” said Under Secretary of Education James Kvaal in a filing on Tuesday. “This could lead to one of the harms that the one-time student debt relief program was meant to prevent.”

In its latest filing, the Justice Department is asking an appeals court to overturn a ruling by U.S. District Court Judge Mark Pittman reversing Biden’s plan. Pittman, who was nominated by former President Donald Trump and is based in Fort Worth, Texas, ruled last week that Biden’s plan overstepped his presidential authority and usurped the powers of Congress to make laws.

It stems from a lawsuit filed by two borrowers who are not eligible for relief under the parameters of Biden’s plan. The program was separately shut down by a St. Louis court after six Republican-run states said it would harm financial institutions.

Nearly 26 million people have already applied for the aid, 16 million of whom have been approved, but the Department of Education stopped accepting and processing applications last week after the plan was ruled illegal.

Biden’s plan has sparked a wave of legal challenges, which have had mixed results. Opponents of debt cancellation have asked the Supreme Court to intervene at least twice after their cases failed in the lower courts. The Supreme Court denied both claims.

The deluge of lawsuits has jeopardized Biden’s plan, which was meant to deliver on a major campaign promise. It is now uncertain whether the 40 million borrowers promised debt relief will have to start repaying that debt in January.

The biggest risk is for 18 million borrowers who have been told their entire loan balance will be forgiven. Even if payments resume, these borrowers might think they are safe and ignore bills, the Department for Education has warned.

Borrowers who fall behind in payments can face serious consequences, including damage to their credit ratings and withholding of wages and tax refunds.

Lawyers and some congressional Democrats are pressuring Biden to extend the payment break until all legal challenges are resolved, despite his previous assurance that the freeze would end after Dec. 31.

In a filing on Tuesday, the Department for Education said it was “considering all available options”. But he warned that extending the pause could cost the federal government “several billion dollars a month in unrecovered loan revenue.”

The freeze has already cost the federal government more than $100 billion in revenue, according to a July report from the Government Accountability Office. Critics warn that another extension could worsen inflation and increase the risk of economic recession.

In a separate action targeting student debt, the Education and Justice Departments announced a new policy to make it easier for borrowers to forgive student loans in bankruptcy court.

When bankrupt borrowers try to have their federal student loans forgiven, government lawyers have usually taken steps to block it.

Advocates have long complained that only a tiny fraction of bankrupt borrowers succeed in having their student loans forgiven, and many lawyers don’t even take on these cases. As a presidential candidate, Biden promised to fix the problem.

The Justice Department on Thursday sent new guidelines to its attorneys outlining when they can support a borrower’s request for student debt forgiveness. Judges always have the final say, but the department said its advice will lead to “fairer and more consistent results.”

Separately, a federal judge on Wednesday approved a Department of Education settlement that will forgive $6 billion in student debt for borrowers who say they were defrauded by for-profit colleges. The deal was proposed in June but was delayed due to a challenge from several schools.

A federal judge in San Francisco ruled that the settlement was fair. Lawyers and the Biden administration cheered the endorsement, while a for-profit academic industry group vowed to appeal the decision.

As part of the settlement, the Department of Education agreed to cancel the loans of approximately 200,000 borrowers who went to one of more than 150 for-profit colleges and then applied for cancellation due misbehavior of their schools.

It stems from a 2019 lawsuit accusing the Trump administration of intentionally blocking the loan relief program while it rewrote the rules.

Collin Binkley is an AP Education writer.

The Associated Press education team receives support from the Carnegie Corporation of New York. The AP is solely responsible for all content.