The court’s action has already started to sow confusion and concern. Here’s what student loan borrowers need to know.
Court Action to Block Biden’s Student Loan Forgiveness Plan is Brief and Temporary — For Now
The 8th Circuit Court of Appeals blocked implementation of Biden’s student loan forgiveness plan upon the emergency request of a coalition of Republican-led states. These states had sued the Biden administration in federal district court in Missouri, arguing that Biden’s plan would lead to lost revenue and other financial harms for states and their state-affiliated FFELP lenders and servicers, such as MOHELA. The federal district court judge dismissed the lawsuit, but the states then appealed to the 8th Circuit.
The 8th Circuit granted the states’ request for an emergency temporary “stay” while the parties prepare their legal arguments regarding a potentially more serious stay, called an injunction. An injunction can block a challenged rule, law, or program for the duration of a legal battle, which can last months or even years. An injunction poses a potential danger to Biden’s student loan forgiveness program, but the court won’t rule on that for at least several more days.
In the meantime, this current block on the program is a temporary, administrative pause.
“The [8th Circuit’s] order does not reverse the trial court’s dismissal of the case, or suggest that the case has merit,” said the White House in a statement on Friday night. “It merely prevents [student] debt from being discharged until the court makes a decision” on the preliminary injunction.
The Stay Only Impacts Biden’s One-Time Student Loan Forgiveness Initiative, Not PSLF or Other Programs
Importantly, the 8th Circuit’s decision only impacts Biden’s one-time student loan forgiveness plan, which can provide $10,000 or up to $20,000 in student loan forgiveness for eligible borrowers.
The temporary stay has no impact on other federal student loan forgiveness programs, including Public Service Loan Forgiveness (PSLF) or the Limited PSLF Waiver initiative, which is set to end on October 31.
Borrowers Can Still Submit Student Loan Forgiveness Applications
The application for Biden’s student loan forgiveness program, which went live last week, is still active and available, and the Education Department can still review applications. It just cannot process applications or implement any student loan forgiveness while the emergency stay remains in force.
“As a result of a court order, we are temporarily blocked from processing debt discharges,” reads a message on the student loan forgiveness application website. “We encourage you to apply if you are eligible. We will continue to review applications. We will quickly process discharges when we are able to do so.”
Top Education Department and White House officials are urging borrowers to still apply.
The “temporary decision does not stop the Biden Administration’s efforts to provide borrowers the opportunity to apply for debt relief,” said Education Secretary Miguel Cardona in a tweet late Friday. “Amidst Republicans’ efforts to block our debt relief program, we are moving full speed ahead to be ready to deliver relief to borrowers who need the help.”
Borrowers Who Have Already Submitted Student Loan Forgiveness Applications Do Not Need to Take Further Action
The Biden administration indicated yesterday that 22 million borrowers have already submitted the student loan forgiveness application. This is more than half of estimated eligible borrowers.
Secretary Cardona confirmed on Friday that these borrowers who have already applied need not worry. The court’s action “does [not] prevent us from reviewing the millions of applications we have received,” he said.
“You will not need to reapply” if you have already submitted a student loan forgiveness application, according to the Education Department’s online application portal.
Exclusion of Commercially-Held FFELP Loans May Be Central To The Court’s Next Decision on Student Loan Forgiveness Plan
Three weeks ago, the Biden administration updated the eligibility guidance for the student loan forgiveness plan to exclude commercially-held FFELP loans from relief.
Originally, the Education Department had advised borrowers that these FFELP loans could be consolidated into a Direct consolidation loan to qualify for loan forgiveness. But on September 29, the administration reversed course, saying that commercially-held FFELP loans, and Direct consolidation loans that contain commercially-held FFELP loans based on an application submitted on or after September 29, 2022, would no longer qualify. Other FFELP loans, including FFELP loans held by the Education Department, may still qualify.
This legal challenge was a key factor in the Education Department’s decision to reverse course on FFELP loans. A central argument of the Republican-led states is that the Biden student loan forgiveness plan deprives these states, and their state-affiliated FFELP lenders, of revenue. But if privately-held FFELP loans do not qualify for student loan forgiveness relief, it may undercut those legal arguments.
Ultimately, these are questions that the 8th Circuit will be considering in the coming days as it considers an injunction. And that decision will have more significant implications for millions of student loan borrowers.