The State of Student Debt Relief – Here’s what you should know

Applicants who filled out the Biden Administration’s debt relief application in early October have now begun receiving emails confirming their eligibility status. The intention behind the debt relief plan was to provide aid to offset student debt. Since 1980, the cost of four-year public and private college has tripled, making it harder than ever before for students to become financially stable. Under the student debt forgiveness plan, borrowers with an income less than $125,000 or under $250,000 would qualify for up to $10,000 of aid. Pell grant recipients that have an under than $125,000 or less than $250,000 were eligible to receive up to $20,000 of aid. There are over 26 million loan forgiveness applications currently waiting to be processed for relief, and 16 million applications have been approved and sent to loan servicers to be allocated when allowed by courts.

Since 1980, the cost of four-year public and private college has tripled, making it harder than ever before for students to become financially stable.

What’s the holdup? When will I get my aid?

The Biden Administration’s student loan debt forgiveness application is currently on hold by a federal appeals court and is no longer taking applications. This news comes amid many lawsuits that halted the disbursement of debt relief funds to applicants. Below is a summary of two noteworthy lawsuits.

Six State Lawsuit

Six states filed a lawsuit on the debt relief plan arguing that it would harm tax revenue and finances of loan agencies housed in-state: Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina. The lawsuit also argued that “Mass Debt Cancellation”[1] will cost $519 billion over ten years, increasing the overall cost to more than $1 trillion when factoring other components of the U.S. Department of Education’s announcement. The case was initially overturned by Missouri District Judge Henry Autrey and was then moved up to the 8th Circuit Court of Appeals.

Texas Lawsuit

In Texas, the Job Creators Network Foundation Legal Action Fund filed a lawsuit on November 10th on behalf of two plaintiffs. In the lawsuit, the organization argued that Biden’s debt relief plan would violate the Administrative Procedure Act. This policy requires agencies to provide notice with the intention of allowing public feedback to a proposed rule. The case also challenged the Biden Administration’s authority in invoking the HEROES Act of 2003 to modify or waive student loan balances. Presiding Judge Mark T. Pittman wrote that “In this country, we are not ruled by an all-powerful executive with a pen and a phone.”

The Biden Administration announced on November 22nd that the payment pause on federal student loans would be extended to June 30th.

Supreme Court Injunction  

This Thursday, the Supreme Court voted to hear arguments for the Biden Administration’s debt relief plan. Oral arguments will be set for February. In the meantime, the Supreme Court instituted an injunction that would block the debt relief program. This decision occurred after the Justice Department filed an emergency application to lift the injunction. Lawyers from the six-state lawsuit responded to the emergency application arguing that the coronavirus pandemic was not a legitimate reason for the debt relief plan to be administered. The brief by the six state lawyers also criticized Biden for publicly declaring the pandemic to be over, while also using the pandemic as justification for debt relief. 

So, what now?

As of December 1st, there is no set timeline for debt relief because of the court order. This news isn’t all doom and gloom though. The Biden Administration announced on November 22nd that the payment pause on federal student loans would be extended to June 30th. The payment pause was previously set to expire in January; however, the deadline was extended due to the court order against the loan forgiveness plan. If the litigations are not resolved by June 30th, payments will resume 60 days after the deadline.

White House press secretary Karine Jean-Pierre previously stated that the lawsuits against debt relief “Does not prevent us from reviewing these applications and preparing them for transmission to loan servicers,” Therefore, borrowers need not worry, because there is still opportunity to receive debt relief. The order by the federal appeals court just impedes the allocation of debt relief until the court has finalized its decision.

Borrowers should sign up for updates and check their service agreements

For now, many borrowers can signing up for Federal Loan updates and stay informed on program deadlines for applications and payment periods. Borrowers should also stay up to date with changes in loan servicers like the Pennsylvania Higher Education Assistance Agency (PHEAA) which announced last year that it would stop servicing student loans by December 2022. The PHEAA (FedLoan) portfolio consisted of 8.5 million loans, which would be split between four other loan servicers: Navient, Nelnet, Edfinancial Services, and Mohela. For more information on navigating loan repayment under new loan servicers, check the link here..

 

[1] Mass Debt Cancellation is referred to as an unlawful regulatory action taken by the Biden Administration that will accrue debt to borrowers in the top 60 percent of the income distribution.