5 crucial points to remember after the court suspended student loan forgiveness
The court action has already begun to sow confusion and concern. Here’s what student borrowers need to know.
Legal action to block Biden’s student loan forgiveness plan brief and temporary – for now
The 8th Circuit Court of Appeals has blocked implementation of Biden’s student loan forgiveness plan at the emergency request of a coalition of Republican-led states. Those states had sued the Biden administration in Missouri federal district court, arguing that Biden’s plan would result in lost revenue and other financial harm to the states and their state-affiliated FFELP lenders and providers, such as than MOHELA. The federal district court judge dismissed the lawsuit, but the states then appealed to the 8th Circuit.
The 8th Circuit has granted the states’ request for an emergency temporary “stay” while the parties prepare their legal arguments regarding a potentially more serious stay, called an injunction. An injunction can block a contested rule, law, or program for the duration of a legal battle, which can last months or even years. An injunction poses a potential danger to Biden’s student loan forgiveness program, but the court won’t rule on that for at least several days.
In the meantime, this current program freeze is a temporary administrative break.
“The [8th Circuit’s] The order does not reverse the dismissal of the case by the trial court, nor does it suggest that the case has merit,” the White House said in a statement late Friday. “It just prevents [student] debt to be discharged until the court renders a decision” on the preliminary injunction.
Stay only affects Biden’s one-time student loan forgiveness initiative, not PSLF or other programs
Importantly, the 8th Circuit ruling only impacts Biden’s one-time student loan forgiveness plan, which can provide $10,000 or up to $20,000 in student loan forgiveness to eligible borrowers.
Temporary stay has no impact on other federal student loan forgiveness programs, including the Public Service Loan Forgiveness (PSLF) or the Limited PSLF Waiver initiative, due to end October 31.
Borrowers can still submit applications for student loan forgiveness
The application for Biden’s student loan forgiveness program, which posted last week, is still active and available, and the Education Department can still review applications. It simply cannot process applications or implement student loan forgiveness while the emergency stay remains in effect.
“Following a court order, we are temporarily prevented from processing debt discharges,” read a post on the student loan forgiveness application website. “We encourage you to apply if you are eligible. We will continue to review applications. We will promptly process dumps when we are able to do so.
Senior Education Department and White House officials are urging borrowers to keep applying.
The “temporary decision does not stop the Biden administration’s efforts to provide borrowers with the opportunity to apply for debt relief,” Education Secretary Miguel Cardona said in a statement. Tweeter late Friday. “Amid Republican efforts to block our debt relief program, we are moving full speed ahead to be ready to provide relief to borrowers who need help.”
Borrowers who have already submitted student loan forgiveness requests do not need to take any further action
The Biden administration reported yesterday that 22 million borrowers have already applied for student loan forgiveness. This represents more than half of the estimated eligible borrowers.
Secretary Cardona confirmed on Friday that those borrowers who have already applied need not worry. The action of the court “does not [not] prevent us from reviewing the millions of applications we have received,” he said.
“You won’t need to reapply” if you’ve already applied for student loan forgiveness, according to the Department of Education’s online application portal.
The exclusion of FFELP loans held by companies could be at the heart of the Court’s next decision on the student loan forgiveness plan
Three weeks ago, the Biden administration updated eligibility guidelines for the Student Loan Forgiveness Plan for exclude corporate-held FFELP loans from relief.
Originally, the Ministry of Education informed borrowers that these FFELP loans could be consolidated into a direct consolidation loan to receive loan forgiveness. But on September 29, the administration reverse course, indicating that FFELP loans held by companies and direct consolidation loans containing FFELP loans held by companies on the basis of an application submitted on or after September 29, 2022 would no longer be eligible. Other FFELP loans, including FFELP loans held by National Education, can still qualify.
This legal challenge was a key factor in the Department of Education’s decision to reverse the FFELP loans. A central argument of Republican-led states is that the Biden student loan cancellation plan starves those states, and their state-affiliated FFELP lenders, of revenue. But if FFELP loans held by individuals are not eligible for student loan forgiveness, it can undermine those legal arguments.
Ultimately, these are questions the 8th Circuit will consider in the coming days as it considers an injunction. And this decision will have wider implications for millions of student borrowers.
Further Reading on Student Loan Forgiveness