Here are the most recent developments related to the Biden Administration's broad-based student loan forgiveness plan.
Supreme Court Will Hear Case
The Supreme Court agreed to hear (December 1) oral arguments on a lawsuit pending before an Appeals Court (8th Circuit) against the forgiveness program. The Appeals Court issued an injunction preventing implementation of the program pending its review and decision, but now the Supreme Court has decided to weigh in on this matter.
As consequence, the program will remain on hold until the Supreme Court can hear arguments and issue a decision. The outcome of any and all pending lawsuits against the program around the country will likely be guided by any future Supreme Court decision.
The Supreme Court says it will hear oral arguments on the Appeals Court case during February oral argument sessions, which currently include February 21-22 and February 27-March 1. A specific oral arguments date will become known closer to February. It is not known how long the Supreme Court will take to issue any final decision after the oral arguments.
The Supreme Court's decision to hear the case comes after the Solicitor General of the Justice Department filed a request with the Supreme Court (November 18) that it rule on the program, arguing that it has statutory authority to undertake the program despite the Appeals Court lawsuit. The Solicitor General asked that the Supreme Court immediately vacate an injunction that stopped the program–it did not.
The lawsuit was brought by six states attorneys general from Missouri, Arkansas, Kansas, Iowa, Nebraska and South Carolina, which claimed likely injury as result of the loan forgiveness program. Prior to being elevated to the Appeals Court, however, a District Court had ruled against these states. The Appeals Court subsequently determined that one of the six states–Missouri–has legal standing on the lawsuit, which led to the injunction against the entire program.
The Administration suspended new applications for debt relief pending resolution of the Supreme Court's case. About 26 million persons applied for relief, with16 million persons tentatively approved so far.
Another Appeal Lost, For Now
The forgiveness plan suffered separate setback when a Federal Appeals Court (5th Circuit) declined to temporarily block a decision (November 30) of a Texas District Court that ruled (November 10) the program unconstitutional, and therefore illegal. The Texas District Court judge argued that current law does not authorize the Executive Branch to grant such broad-based relief in the absence of an action by the Congress providing explicit authority. The outcome of this case will likely be guided by the Supreme Court's review and decision on the Appeals Court (8th Circuit) case.
Debt Repayment - Another Extension
The Biden Administration announced (November 22) that it will be extending the deferral of student loan debt repayment to as late as June 30, 2023, with the first payments due two months after that date.
In tandem with the broad-based debt relief plan announced in August, the Administration extended the deferral of student loan debt repayment through December 31 via a deferral process originally implemented as part of the COVID-19 pandemic response. The Administration had claimed that the extension was the "final" extension and that borrowers should be prepared to begin restart payments starting in January 2023. Collections on delinquencies were also to restart in January. Relief was originally implemented on March 27, 2020 by the Trump Administration with the onset of the COVID-19 pandemic, and has been extended several times by the Biden Administration.
The Administration decided on this latest extension because of the success of lawsuits moving through the courts by opponent's of the broad-based student loan debt relief plan. That being the case, the prior extension was justified on the basis of the continuation of a COVID-19 emergency. While that emergency no longer exists in practice, it does at least officially. A Public Health Emergency (PHE) designation was extended in October through mid-January 2023.
Ultimately, however, the length of this extension will largely be guided by the time it takes for the Supreme Court to review and decide on the lawsuit it accepted on December 1, where arguments will not be heard until later in February, at the earliest. _______________
Program Background & Details
Implementation Guidance
ED released updated program implementation guidance (September 29). One key change from the original guidance: while the Department had previously said that borrowers who had student loan debt held outside of the Federal Government (i.e., private debt) could consolidate the debt to Federally-held Direct Loans so as to be able to qualify for relief, the guidance now stipulates that if a person had not already consolidated debt by September 29, then they could no longer qualify for relief under this initiative. This exclusion could affect about 770K debtors.
The Department formally launched its online application on October 17.
Fraud Concerns
The Federal Trade Commission (FTC) issued a warning (August 26) to student loan borrowers about scammers looking for persons to share their financial aid ID or asking for payment to help them get student loan relief. Similar to other scams against the Federal Government, some scammers will call persons claiming to be from the Department of Education when, of course, the Department generally does not call its borrowers.
Updated Cost Estimate
Finally, the Congressional Budget Office (CBO) released an updated cost estimate of this forgiveness program, saying that the program could cost more than $425 billion over a 30-year period, or about $13 billion annually spreading the cost out evenly over this period. ED itself estimates that the cost of the program will be $30 billion per year over the next ten years, encompassing the bulk of the cost.
These are certainly big numbers, but relative to the total Federal spending–this year about $5.4 trillion–it is a relatively small cost. On the flip side, the Federal Government is already borrowing huge amounts to support the Federal budget every year–about $1 trillion this year alone–which means the cost of any new loan forgiveness is tied to more Federal borrowing and the accumulation of debt that now exceeds $31 trillion.
Targeted Forgiveness Actions
The Administration has been regularly cancelling student loan debt through target measures since the beginning of its term, apart of its recent efforts to provide broad-based relief. The most significant focus area of targeted relief has related to borrower defense and school closures, with debt cancellation totaling an estimated $32 billion covering 1.6 million persons.
Most recently, ED announced the discharge (August 16) of $3.9 billion worth of student loans for 208K students who attended ITT Technical Institute between 2005 and 2016. The Department claimed that “ITT engaged in widespread and pervasive misrepresentations related to the ability of students to get a job or transfer credits, and lying about the programmatic accreditation of ITT's associate degree in nursing.”
ED also recently settled a lawsuit (June 22) by about 200,000 borrowers who claimed that they were defrauded by their educational institutions, but had not received relief from the Department. ED is separately deciding this year on the individual cases of another 68,000 borrowers tied to the issues raised by the lawsuit. The fully-discharged loan amount agreed to under the settlement is estimated to total about $6 billion.
Earlier in the summer, ED announced (June 1) that it was discharging all remaining federal student loans borrowed to attend any campus owned or operated by Corinthian Colleges Inc. This will result in 560,000 borrowers receiving $5.8 billion in full loan discharges. ED determined in 2015 that Corinthian engaged in widespread and pervasive misrepresentations related to a borrower's employment prospects, including guarantees they would find a job. Corinthian also made pervasive misstatements to prospective students about the ability to transfer credits and falsified their public job placement rates.
Two other types of loan discharge areas of focus by the Administration include an estimated $10 billion for over 175,000 borrowers through the Public Service Loan Forgiveness Program, and $9 billion in total and permanent disability discharges for more than 425,000 borrowers.
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