When the Biden administration announced its student loan forgiveness plan in August, it was an unprecedented move to help alleviate the $1.6 trillion worth of debt that borrowers hold. However, the forgiveness plan now faces multiple legal challenges and leaves borrowers wondering what will happen next.
In the past two months, student loan forgiveness has been the target of two high-profile lawsuits. As a result of these lawsuits, the Department of Education is no longer accepting applications for forgiveness, and the program has been paused until the courts make a decision. Meanwhile, the Biden administration responded by extending the student loan payment pause yet again.
Below, Select breaks down what you need to know about these lawsuits and what borrowers should anticipate in the coming months.
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What's happening to student loan forgiveness?
First off, there are two notable lawsuits that borrowers should know about. One lawsuit was brought on behalf of six Republican-led states — Missouri, South Carolina, Nebraska, Arkansas, and Kansas. A panel of three judges placed an injunction on forgiveness on Nov. 14.
The injunction will remain in effect until further order of this court or the Supreme Court of the United States," write the judges for the U.S. Court of Appeals for the 8th Circuit.
In other words, the program is at a standstill until this court or another court makes a final decision on the case.
These six states are arguing that they will lose out on tax revenue as a result of forgiveness. The judges noted that Missouri may have a case. The state has a program, known as the Missouri Higher Education Loan Authority, that services and provides federal student loans. If forgiveness is instituted, Missouri could lose tax revenue because it'll have fewer accounts to service.
The Department of Justice then filed an appeal after the decision, requesting that the Supreme Court lift the injunction.
The injunction came just a few days after a judge at the U.S. District Court in Texas struck down the program on Nov. 10. This case was brought by two plaintiffs who weren't eligible for the full amount of forgiveness.
These plaintiffs claim that the Biden administration should have allowed the public to provide input on the program before it was passed. The lawsuit is backed by the Job Creators Network Foundation — an advocacy organization founded by Bernie Marcus, Home Depot co-founder and Republican donor.
Judge Mark Pittman ruled that the Secretary of Education is overstepping its authority by implementing forgiveness. The Biden administration is arguing that the Secretary of Education can eliminate borrowers' student balances because of the Covid-19 pandemic.
"Borrowers shouldn't panic, at least not yet," says Mark Kantrowitz, higher education expert and author of How to Appeal for More Financial Aid for College. "The impact of these two cases is to delay the forgiveness for now, until the court process plays itself out."
When will my student loan payments resume?
Since the status of student loan forgiveness remains in the air, the Biden administration has extended the student loan payment pause until the Supreme Court makes a ruling.
If forgiveness is implemented or the litigation is resolved, borrowers will have 60 days after that before their payments resume. If not, the pause will last until June 30, 2023, and borrowers will have 60 days after that before their payments restart.
The payment pause was previously set to end on Dec. 31, 2022, which the U.S. Department of Education called "a final extension."
The payment pause was first enacted by the Trump administration at the beginning of the Covid-19 pandemic in March 2020. Since then, the freeze has been extended seven times. Borrowers have been able to forgo student loan payments without worrying about interest accruing on their balances.
On Nov. 19, some of those who applied for forgiveness received a confirmation email from the Department of Education.
"We reviewed your application and determined that you are eligible for loan relief under the Plan. We have sent this approval on to your loan servicer. You do not need to take any further action," states the email from the Department of Education.
Secretary of Education Miguel Cardona tweeted that day, "beginning today, applicants and others seeking relief through the Biden-Harris Administration's Student Debt Relief Plan will begin receiving updates. Don't worry if you don't get an email today — more are coming."
If you have private student loans that are not eligible for forgiveness, you may consider refinancing them to receive a lower interest rate. However, it might not be the best time to refinance your federal student loans with a private lender because doing so means missing out on federal protections like forgiveness and the student loan payment pause.
Select ranked SoFi Student Loan Refinancing and Earnest Student Loan Refinancing as some of the best companies for refinancing student loans.
SoFi
Eligible borrowers
Undergraduate and graduate students, parents, health professionals
Loan amounts
$5,000 minimum (or up to state); maximum up to cost of attendance
Loan terms
Range from 5 to 15 years; up to 20 years for refinancing loans
Loan types
Variable and fixed
Borrower protections
Forbearance options like unemployment protection available
Co-signer required?
No
Offer student loan refinancing?
Yes - click here for details
Terms apply.
Earnest
Eligible borrowers
Undergraduate and graduate students, parents, half-time students, international and DACA students
Loan amounts
$1,000 minimum (or up to state); maximum up to cost of attendance
See AlsoFederal Student AidLoan terms
Range from 5 to 15 years
Loan types
Variable and fixed
Borrower protections
9-month grace period
Co-signer required?
No
Offer student loan refinancing?
Yes - click here for details
Terms apply.
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 4.96% APR to 9.74% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.72% APR to 9.74% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 8.95% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.
Can I still apply for student loan forgiveness?
Shortly after the program was struck down, the Department of Education stopped accepting applications on its website.
"Courts have issued orders blocking our student debt relief program. As a result, at this time, we are not accepting applications. We are seeking to overturn those orders. If you've already applied, we'll hold your application," reads the Department of Education website.
If you have yet to apply for forgiveness, you may still be eligible to apply even if you can't right now. Prior to the application being shut down, the Department of Education claimed that borrowers had until Dec. 31, 2023 to apply.
You can sign-up for email updates on the application here: https://www.ed.gov/subscriptions
There have been 26 million borrowers who have applied for forgiveness and of those, 16 million have been approved, according to the White House.
Individuals making less than $125,000 and households earning less than $250,000 are eligible for up to $20,000 of relief. The amount of relief you receive depends on whether or not you received a Pell Grant, a federal grant for individuals from low-income backgrounds.
Bottom line
It may be a while before borrowers see student loan forgiveness reflected in their accounts as both lawsuits remain tied up in court. And if you're eligible for forgiveness but haven't applied yet, the application may open in the future. For now, borrowers may want to start saving and prepare for full repayment in case the forgiveness doesn't end up coming to fruition.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
I possess in-depth knowledge of student loans, the U.S. higher education system, and related policy matters up until my last training data in January 2022. Here's a breakdown of the concepts used in the article and a detailed explanation:
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Student Loan Forgiveness: This is a policy where a portion or all of a student's outstanding loan balance is forgiven, meaning they are no longer required to pay it back. The Biden administration had proposed a student loan forgiveness plan to address the growing student debt crisis in the U.S.
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Legal Challenges: The student loan forgiveness plan faced legal challenges primarily on two fronts:
- Tax Revenue Loss: Some states, notably Missouri, raised concerns about potential tax revenue losses if the forgiveness program was implemented. This is because the forgiveness might reduce the number of student loan accounts that the state oversees.
- Public Input: Another challenge came from plaintiffs who argued that the Biden administration should have sought public input before implementing the program.
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Injunction: An injunction is a legal order from a court that prevents an action from taking place. In this context, the injunction halted the student loan forgiveness program until the courts make a final decision.
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Department of Education: This is the U.S. government department responsible for overseeing federal programs related to education, including student loans.
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Payment Pause: Due to the Covid-19 pandemic, the government had paused federal student loan payments. This pause has been extended multiple times to provide relief to borrowers.
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Refinancing: Refinancing involves replacing an existing loan with a new one, often with better terms like a lower interest rate. The article mentions companies that offer student loan refinancing options, such as SoFi and Earnest.
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Eligibility Criteria: The article mentions specific criteria for borrowers to be eligible for relief, such as income thresholds.
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Pell Grant: This is a federal grant for students from low-income backgrounds to help them finance their education. The receipt of a Pell Grant might impact the amount of relief a borrower is eligible for.
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Sign-up for Updates: The Department of Education provided a link for borrowers to sign up for email updates on the status of the forgiveness program.
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White House Data: The White House has provided statistics on the number of borrowers who have applied for and received forgiveness.
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Bottom Line: The article concludes by advising borrowers to be prepared for the possibility that the forgiveness program may not be implemented and to start saving accordingly.
I have a comprehensive understanding of these concepts and their implications for borrowers, policymakers, and other stakeholders in the education finance ecosystem.
