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When Will Student Loan Forgiveness Get Unblocked? It’s Unclear

Over 26 million borrowers have applied for President Biden’s broad one-time student loan forgiveness plan since the online application became available in October 2022. But no one has received any student loan forgiveness yet under the program due to ongoing legal challenges.

Under the Biden initiative, most federal student loan borrowers may receive up to $20,000 in one-time student debt cancellation. Only federally-held student loans (such as Direct loans and government-owned FFELP loans) are eligible under the current program rules, and borrowers must have earned within the established income guidelines in either 2020 or 2021 to qualify.

The administration has defeated several legal challenges to the program, but one lawsuit, in particular, has been causing an ongoing delay. That and other challenges are brewing. 

Here's where things stand.

Editor's note: On Thursday, November 10, 2022, U.S. District Court Judge Mark Pittman in Texas struck down Biden's forgiveness plan, calling it unlawful. The White House has already appealed the decision, according to an article in NRP. The 5th Circuit Court of Appeals will hear the appeal, which has a reputation as the most conservative appeals court in the federal system. In response to the decision, the Biden Administration shut down the application to apply for forgiveness indefinitely. This is bad news for borrowers who are still in limbo and won't likely have a final answer on debt relief for weeks.

Federal appeals court block on student loan forgiveness remains in place

Last month, the 8th Circuit Court of Appeals issued a temporary administrative stay of Biden’s signature student loan cancellation program. Under the stay, the Education Department can still accept and process student loan forgiveness applications, but it cannot award any loan forgiveness to borrowers.

The original lawsuit that ended up at the 8th Circuit was brought by a coalition of Republican-led states. These states sued the Biden administration, arguing that the one-time debt cancellation plan exceeded the scope of authority allowed under federal statute. 

Related: Legal Challenges Mount for Biden’s Student Loan Forgiveness Plan

The states also argued that they would suffer financially as a result of the initiative because state-affiliated FFELP loan holders would lose revenue as a result of borrowers consolidating privately-owned FFELP loans into a government Direct consolidation loan

The states’ arguments were rejected at the trial court level, and the case was dismissed on the basis of standing — the requirement that a party bringing the suit is able to demonstrate a concrete injury sufficiently related to the challenged policy. Notably, commercially-held FFELP loans no longer qualify for Biden’s student loan forgiveness initiative as of September 29, 2022, following an abrupt policy reversal by the administration in response to legal challenges. 

But the coalition appealed the trial court’s decision to the 8th Circuit, which then imposed the ongoing administrative stay as it considers whether to impose a longer-lasting preliminary injunction. 

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For several reasons, the battle over Biden’s student loan forgiveness plan may not end at the 8th Circuit.

If the 8th Circuit rules in favor of the Biden administration, the administrative stay would end, the request for a preliminary injunction would be denied, and the Education Department could immediately move forward in processing student loan forgiveness applications. 

However, the coalition of Republican-led states would almost certainly appeal that decision to the U.S. Supreme Court. While the nation’s highest court has so far rejected other appeals from similarly-dismissed challenges to Biden’s student loan forgiveness program, there are no guarantees it would do so again for this case.

On the other hand, if the 8th Circuit rules against the Biden administration, it could impose preliminary injunction, which would be a far more serious block on implementation than the current administrative stay. A preliminary injunction could freeze the program for the entirety of the ongoing legal dispute, which could take months or even years to play out. The 8th Circuit would likely remand the case to the lower-level federal district court, where the parties could proceed with a protracted litigation process. 

Of course, the Biden administration could appeal an adverse 8th Circuit ruling to the U.S. Supreme Court, as well. But borrowers would be dealing with similar uncertainties about the Supreme Court’s disposition towards the case as they would if the challengers appeal. 

Related: Advocacy groups urge Supreme Court to uphold Biden’s student loan forgiveness plan

New lawsuit could also be a problem for Biden's student loan forgiveness program

The Biden administration's potential problems don't end with the case currently before the 8th Circuit. Another new lawsuit may threaten the student loan forgiveness plan, as well.

That lawsuit, filed in Texas by a conservative-leaning organization, attacks the initiative on the basis that the administration did not follow the appropriate procedures under the Administrative Procedures Act (APA, a sprawling federal statute that governs the process of enacting new policies through regulations. 

The Biden administration's counter-argument is that the APA is irrelevant, as the HEROES Act of 2003 provides the Education Department with emergency authority to substantially modify existing federal student aid programs without needing to go through the procedures set forth in the APA. Both the Trump administration and the Biden administration relied on the HEROES Act to make major changes to the federal student loan system, including implementing — and subsequently extending, several times — the national pause on most federal student loan payments and interest in response to the Covid-19 pandemic.

The judge presiding over this latest legal challenge — a Trump appointee — has signaled that he intends to potentially rule on the merits of the case, rather than issuing an initial determination on the standing of the parties to sue, as has been the case in several other lawsuits challenging Biden's plan, including the one before the 8th Circuit. Some experts have expressed concern about what this could mean for the initiative.

What’s next for Biden's student loan forgiveness?

As with any other case, the losing party can appeal any adverse ruling at the district court level to a federal appeals court. But, as borrowers are already seeing, the appeal process can also tie up the program. And any of these cases can still end up at the Supreme Court.

Bottom line? Borrowers hoping to benefit from Biden’s student loan forgiveness program may be in for an ongoing period of uncertainty. 

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