Student loans

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


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

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

While the Biden administration has faced multiple legal challenges to the student loan forgiveness program since it was announced in August, Thursday’s decision is the most significant setback yet – prompting the Department of Education to stop accepting requests for debt relief.

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

Under program rules, eligible low- and middle-income borrowers can receive up to $10,000 in federal student loan forgiveness and up to $20,000 in forgiveness if they also received a Pell Scholarship while he was enrolled in college.

The legal path forward is murky, but it could take several months for the issue to be resolved.

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

Borrowers will have to wait for the government’s appeal to the 5th Circuit Court to occur. Although it can be difficult to keep up with all the different legal challenges, borrowers can subscribe for updates from the Ministry of Education and check the Federal Student Aid website for more information.

It could take months for the court to issue a final decision. If he reverses the lower court’s decision in Texas, the Biden administration could then begin to write off student debt.

But the Justice Department could also seek an emergency stay of the Texas judge’s order. If granted — and if a different appeals court ends its temporary stay on the program in a separate pending case — then the administration would be allowed to write off the debt before a final decision is made by the 5th circuit.

Initially, the Biden administration said it would begin giving student loan forgiveness before payments resume in January after a years-long pandemic pause.

But Thursday’s decision in Texas puts that schedule in jeopardy.

“For the 26 million borrowers who have already provided the Ministry of Education with the information needed to be considered for debt relief – 16 million of whom have already been approved for debt relief – the Ministry will retain their information so that we can quickly process their relief 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 decision on our student debt relief program,” she said.

The Biden administration has argued that Congress granted the Secretary of Education the power to largely discharge student loan debt in a 2003 law known as the HEROES Act, which was passed following the September 11 terrorist attacks.

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

But the Texas federal judge ruled that the law did not provide the executive branch with clear authorization from Congress to create the student loan forgiveness program.

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

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

The lawsuit in Texas was filed by a conservative group, the Job Creators Network Foundation, in October on behalf of two borrowers who were ineligible for debt relief.

One complainant was ineligible for the student loan forgiveness program because her loans are not held by the federal government and the other complainant is only eligible for $10,000 in debt relief because he did not receive a Pell Fellowship.

They argued that they could not express their disagreement with the program’s rules because the administration had not put it through a formal notice-and-comment rule-making process under the Privacy Act. the administrative procedure.

“This ruling protects the rule of law that requires all Americans to have their voices 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 faces several other lawsuits over the student loan forgiveness program.

A lawsuit brought by six Republican-led states is pending in the 8th U.S. Circuit Court of Appeals. On October 21, this Court of Appeal placed administrative restraint program, prohibiting the administration from canceling any debt.

The states argued that the Biden administration does not have the legal authority to provide broad student loan forgiveness, as well as the program would hurt them financially for a variety of reasons. A lower court had dismissed the case, holding that the States lacked standing to bring an action. The states immediately appealed to the 8th Circuit.

The Biden administration has won several victories in court so far as plaintiffs have struggled to show they have standing to sue.

A lawsuit brought by a Wisconsin Taxpayers Group, was also dismissed by a federal trial judge, ruling that the group lacked standing to challenge. The plaintiffs had argued that the loan forgiveness program, estimated to cost around $400 billion, would hurt taxpayers and the US Treasury. Supreme Court Justice Amy Coney Barrett also rejected the request of the taxpayers group for the Supreme Court to intervene.

A separate case, which was also rejected by Barrett and dismissed by a lower court, was filed by a borrower who argued that the next loan forgiveness leave him with a bigger state tax bill. Some states may tax debt forgiveness, but it is not federally taxable.

The Biden administration also faces ongoing lawsuits from Arizona GOP Attorney General Mark Brnovich and the Cato Institute, a libertarian think tank. Both lawsuits argue that the president lacks the legal authority to write off student loan debt broadly.

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 as taxable income.

The Arizona complaint also argues that the pardon policy will hurt the attorney general’s office’s ability to recruit employees. Currently, its employees may qualify for the federal program Cancellation of civil service loans program, but some potential job applicants may not consider it a benefit if their student loan debt is already forgiven, according to the lawsuit.

The Cato Institute makes a similar argument about the pardon program making it more difficult to recruit employees.

If Biden’s program is allowed to go forward, individual borrowers who earned less than $125,000 in 2020 or 2021 and married couples or heads of households who earned less than $250,000 a year during those years could see up to $10,000 of their federal student loan debt forgiven.

If an eligible borrower also received a Federal Pell Grant while enrolled in college, the individual is eligible for debt forgiveness of up to $20,000.

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

But federal student loans guaranteed by the government but held by private lenders are not eligible unless the borrower has requested to consolidate those loans into a direct loan by Sept. 29.

This headline and story have been updated with additional information.