WASHINGTON– The Biden administration on Thursday, the same day six Republican-led states sued President Joe Biden to prevent his student-loan forgiveness plan from taking effect, scaled back the authority for his student-loan forgiveness plan. CNN reported.
Borrowers whose federal student loans are guaranteed by the government but held by private lenders are now excluded from the deleveraging. Around 770,000 people will be affected by the change, according to an administration official.
The Department of Education first said these loans, many of which were made under the former Federal Family Education Loan program and the Federal Perkins Loan program, would be eligible for the one-time forgiveness action so long as the borrower consolidates his or her federal debt direct loan program.
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On Thursday, the department reversed course. According to its website, privately held federal student loans must have been consolidated before Sept. 29 to be eligible for debt relief.
Borrowers with federal private student loans who have yet to consolidate are out of luck at this time, although the Department of Education said it was “looking at whether there are alternative avenues” to provide relief.
Borrowers with federal private student loans make up a small portion of the 43 million federal student loan borrowers. There are about 4 million borrowers with Federal Family Education Loans, but not all of those individuals are likely to be eligible for the loan forgiveness plan, which also includes an income requirement.
“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, and this will allow us to achieve that goal as we continue to explore additional options available under legislation to help borrowers with FFEL loans and Perkins in Privately owned credit, including whether FFEL borrowers could receive one-time debt relief without having to consolidate,” the Department of Education said in an emailed statement.
“Borrowers on federal private student loans who applied to consolidate their loans into direct loans before September 29, 2022 will receive a one-time debt relief. The FFEL program is now discontinued and only a small percentage of borrowers have FFEL loans. This is a completely different program than Direct Loans,” the statement said.
Lawsuit argues forgiveness will hurt credit servicers
The lawsuit was filed in federal court in Missouri by attorneys general from Missouri, Arkansas, Kansas, Nebraska and South Carolina and attorneys from Iowa.
“The Biden administration’s mass debt forgiveness is not only economically unwise and inherently unfair, it is another example in a long line of unlawful regulation. No law allows President Biden to unilaterally relieve millions of people from their obligation to pay voluntary loans. ‘ said Nebraska Attorney General Doug Peterson’s office in a press release.
Plaintiffs argued that student loan providers — including Missouri’s Higher Education Loan Authority, known as MOHELA — would be harmed by Biden’s student loan forgiveness plan. It argues that the plan incentivizes borrowers to consolidate MOHELA-owned federal family education loans into government-owned direct loans, thereby “depriving them (MOHELA) of the ongoing revenue they derive from servicing those loans,” states it in suit.
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But the Department of Education’s move to exclude borrowers with privately held federal loans from the student loan forgiveness plan could weaken that legal argument, said Luke Herrine, an assistant professor of law at the University of Alabama, who previously worked on a legal strategy to encourage student debt cancellation .
The White House continues to argue that its student loan forgiveness plan is legal.
“Republican officials from these six states stand with special interests and are fighting to halt relief for borrowers buried under mountains of debt,” White House spokesman Abdullah Hasan said in an emailed statement.
“The President and his administration are legitimately giving working and middle-class families breathing room as they recover from the pandemic and prepare to resume loan payments in January,” he said.
Thanks to a pandemic-related benefit, federal student loan payments have been suspended since March 2020. The break ends on December 31st.
Earlier this week, a public interest attorney who is also a student loan borrower sued the Biden administration over the student loan forgiveness plan, arguing that the directive constituted an abuse of executive power and would burden him with a higher state tax bill.
The video from the player above is from a previous report.
How Biden’s plan will work
Under Biden’s plan, individual borrowers who made less than $125,000 in either 2020 or 2021, and married couples or heads of households who made less than $250,000 annually during those years, will have up to $10,000 of their federal student loan debt repaid enacted
If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 in debt relief. Pell Scholarships are awarded to millions of low-income students each year based on factors such as the size and income of their family and the fees charged by their college. These borrowers are also more likely to have difficulty paying off their student debt and default.
The administration is expected to introduce the first wave of student loan forgiveness in October.
The Congressional Budget Office this week estimated — before the government shut out FFEL borrowers — that Biden’s plan could cost the government $400 billion, but cautioned that the estimate is based on multiple assumptions and is “highly uncertain.”
Estimating the cost of student debt relief is complicated because loans are typically repaid over a number of years. The White House argues that the CBO’s estimate should be viewed over a 30-year period.
Unexamined legal waters
Biden announced the forgiveness plan in August after facing increasing pressure from Democrats to forgive some student loan debt. Senate Majority Leader Chuck Schumer and Massachusetts Senator Elizabeth Warren have repeatedly called on the President to forgive up to $50,000 in student loan debt per borrower.
But the sweeping cancellation of federal student loan debt is unprecedented and has yet to be tested in court. Biden first urged Congress to take action to forgive some student debt rather than put himself in a murky legal realm, but Democrats don’t have the votes to pass such legislation.
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In an Education Department memo released in August, the Biden administration argued that the Higher Education Relief Opportunities for Students Act of 2003 — or Heroes Act — gives the Secretary of Education the power to forgive student debt to repair the financial damage sustained to the Covid-19 19 pandemic.
The Heroes Act, enacted in the wake of the September 11 terrorist attacks, “gives the minister broad powers to grant student loan relief during specified periods, including war, other military operation or national emergency,” the memo said .
The lawsuit, filed Thursday, argues that the Heroes Act does not give the president that broad authority.
What happens next
More lawsuits against Biden’s student loan forgiveness plan could be forthcoming. Arizona Attorney General Mark Brnovich, a Republican, said he was working on developing the best legal theory to sue the government over the action.
A conservative advocacy group called Job Creators Network is also considering its legal options and plans to file a lawsuit once the Department of Education formalizes the student loan forgiveness plan next month.
However, some legal experts are skeptical that a legal challenge to Biden’s student loan forgiveness plan could succeed.
Abby Shafroth, attorney for the nonprofit National Consumer Law Center, previously told CNN that she believes the legal powers of the Biden administration are strong and that it is unclear who has legal authority to file a case and wants to do so. Standing is a procedural threshold that requires harm to be done to a plaintiff in order to justify a lawsuit.
Once the standing hurdle is cleared, a case would first be tried by a district court – which may or may not issue an injunction to prevent the annulment before a final decision on the merits of the hypothetical case.
Several recent U.S. Supreme Court decisions have touched on the executive branch and limited the federal government’s powers to implement new regulations. While the Supreme Court handles a small number of cases each year, lower courts may consider the testimonies of the judges in these cases when assessing the Department of Education’s authority.
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