After a Federal Court Invalidated Biden’s Loan-forgiveness Scheme, Here’s What Students Need to Know

Student loan borrowers will have to wait indefinitely to find out if President Joe Biden’s programme to forgive student loans will help them get out of debt. On Thursday, a federal judge in Texas ruled that the programme was illegal.

The Department of Justice went straight to the 5th US Circuit Court of Appeals to try to change the decision. But this case will have to play out before the Biden administration can cancel any federal student loan debt under the programme.

Since it was announced in August, the Biden administration’s programme to forgive student loans has been challenged in court several times. However, Thursday’s ruling is the biggest setback so far, and the Department of Education will no longer accept applications for debt relief.

Biden’s programme had already been put on hold because of a separate legal challenge, but the administration kept taking applications. So far, 26 million have been sent in.

Low- and middle-income borrowers who qualify for the programme can get up to $10,000 of their federal student loans cancelled, and up to $20,000 if they also got a Pell grant while they were in college. The legal path ahead is unclear, and it could take many months to find a solution.

“The Texas decision makes it more likely that the issue will end up in front of the Supreme Court,” said Abby Shafroth, a staff attorney at the National Consumer Law Center. However, it is still too early to say for sure.

What will happen to borrowers now?

Borrowers will have to wait until the 5th Circuit Court rules on the government’s appeal. Even though it can be hard to keep up with all the different legal challenges, borrowers can sign up for updates from the Department of Education and check the Federal Student Aid website for more information.

It could take the court months to make a final decision. If it overturns the lower court’s decision in Texas, the Biden administration could start getting rid of student loans.

But the Department of Justice could also ask for the Texas judge’s order to be put on hold because of an emergency. If the request is approved, and if a different appeals court ends its temporary hold on the programme in a separate case that is still going on, the administration would be able to cancel the debt before the 5th Circuit makes a final decision.

Do check:

At first, the Biden administration said it would start forgiving student loans before payments are due to start again in January, after being put on hold for years because of the pandemic. But a decision made in Texas on Thursday puts that schedule in danger.

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

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

What are the legal points of view?

In 2003, Congress passed a law called the HEROES Act in response to the September 11 terrorist attacks. The Biden administration has said that this law gave the secretary of education the power to wipe out most student loan debt.

Lawyers for the government say that the law lets the secretary get out of debt in a national emergency, such as the Covid-19 pandemic. But the federal judge in Texas said that the law does not give the executive branch clear permission from Congress to make the programme to forgive student loans.

“The programme is thus an unconstitutional exercise of Congress’s legislative power and must be vacated,” 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 continued. The conservative Job Creators Network Foundation filed the Texas lawsuit in October on behalf of two borrowers who didn’t qualify for debt relief.

One of the plaintiffs did not qualify for the student loan forgiveness programme because her loans are not held by the federal government. The other plaintiff is only eligible for $10,000 in debt relief because he did not get a Pell grant.

They said that they couldn’t say they didn’t agree with the program’s rules because the administration didn’t follow the Administrative Procedure Act’s formal notice-and-comment rule-making process.

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

Bernie Marcus, a big donor to Trump who used to run Home Depot, started the group to help people.

Where do the other lawsuits stand?

In addition to the case in Texas, the Biden administration is facing a number of other lawsuits because of the programme to forgive student loans.

At the moment, the 8th US Circuit Court of Appeals is considering a case brought by six Republican-led states. On October 21, the appeals court put a hold on the programme and said that the government couldn’t cancel any debt.

The states have said that the Biden administration doesn’t have the legal power to forgive a lot of student loans and that the programme would hurt their finances in a number of ways. A lower court had thrown out the case because it said the states didn’t have the right to sue. The states went straight to the 8th Circuit with their case.

So far, the Biden administration has won a few court cases. This is because plaintiffs have had a hard time showing that they have the right to sue.

A trial-level federal judge also threw out a lawsuit brought by a group of Wisconsin taxpayers because the group didn’t have the right to bring the case. The plaintiffs said that the loan forgiveness programme, which is expected to cost about $400 billion, would hurt taxpayers and the US Treasury. The taxpayers group also asked the Supreme Court to step in, but Supreme Court Justice Amy Coney Barrett said no.

A separate case was also turned down by Barrett and a lower court. It was brought by a borrower who said that when his loan was forgiven, he would have to pay more state taxes. Some states may charge taxes on debt forgiveness, but the federal government does not.

Mark Brnovich, the Republican Attorney General of Arizona, and the Cato Institute, a libertarian think tank, are also planning to sue the Biden administration. In both lawsuits, the plaintiffs say that the president doesn’t have the legal power to wipe out a lot of student loan debt.

Brnovich says that the state has a right to sue because the programme to forgive student loans could cut into Arizona’s tax income. The state law doesn’t count the loan forgiveness as income that needs to be taxed.

The Arizona complaint also says that the policy will make it harder for the attorney general’s office to hire people. At the moment, its employees may be eligible for the federal Public Service Loan Forgiveness programme, but the lawsuit says that some potential employees may not see that as a benefit if their student loan debt has already been forgiven.

The Cato Institute also says that the forgiveness programme makes it harder for it to find people to work there.

Who may be eligible for student loan forgiveness?

If Biden’s plan is allowed to go forward, federal student loan debt for single borrowers who made less than $125,000 in 2020 or 2021 and for married couples or heads of households who made less than $250,000 in those years could be forgiven up to $10,000.

If a borrower who meets the requirements also got a federal Pell grant while in college, that person could have up to $20,000 of debt forgiven.

There are different kinds of federal student loans, and not all of them can get help. Federal Direct Loans are eligible, including subsidised loans, unsubsidized loans, loans for parents, and loans for graduates.

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

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