Personal Finance

Biden Administration Reveals Potential Start Date For Student Loan Forgiveness, But There’s A Catch

The Biden administration has revealed the earliest date that student loan forgiveness will begin under a new initiative. But those plans may be threatened by mounting legal challenges.

Biden Plan Would Provide $10,000 or $20,000 in Student Loan Forgiveness Starting This Month

Under President Biden’s new one-time student loan forgiveness plan, 40 million federal student loan borrowers will receive up to $20,000 in federal student loan forgiveness. Borrowers who previously received Pell Grants would be eligible for up to $20,000 in student loan forgiveness, while borrowers who did not receive Pell Grants could get up to $10,000, as long as they made less than $125,000 (or less than $250,000 if they are married) in either 2020 or 2021.

All government-held federal student loans, including undergraduate, graduate, and Parent PLUS loans, are potentially eligible for relief. This would include Direct federal student loans, as well as FFELP loans that are in default or already administered by the Education Department. Private student loans and — following an abrupt policy change last week — most commercially-held FFELP loans do not currently qualify.

According to a recent court filing by the Biden administration, the Education Department may start awarding student loan forgiveness as soon as October 17, 2022, but not prior to that.

Mounting Legal Troubles for Biden’s Student Loan Forgiveness Plan

The Biden administration revealed the October 17 potential start-date for student loan forgiveness in a court filing for a case involving a legal challenge to the plan. Six Republican-led states have filed a lawsuit against the administration, arguing that Biden exceeded his authority granted by Congress to implement the new initiative, and these states may incur financial harm as a result.

A preliminary hearing on the suit, and whether there should be some form of injunction to stop the program while the litigation continues, has been rescheduled for October 12. There is a possibility that court action, including an injunction, could interfere with the Education Department’s plans to roll out a student loan forgiveness application this month.

And this is not the only legal challenge the administration is facing. A conservative legal organization filed a lawsuit last week arguing that some borrowers may incur state tax liability as a result of the loan forgiveness plan, although a federal court declined to impose an injunction after the Biden administration argued that borrowers could opt out of loan forgiveness if they wanted to. The state of Arizona filed its own lawsuit against the Biden administration last week, arguing that Biden’s plan will interfere with the state’s ability to recruit employees, and will harm the state’s tax revenue and economy.

Yet another lawsuit filed this week by a conservative Wisconsin organization claims that the Biden student loan forgiveness plan would violate the Equal Protection clause of the U.S. constitution, because the administration has argued that the initiative would help narrow the racial wealth gap.

What Should Borrowers Expect Regarding Biden’s Student Loan Forgiveness Plan?

To prevail in a lawsuit, the party bringing the suit most have “standing” and show that there’s a valid legal basis for them to be seeking recourse in federal court. The party bringing the suit would have to show that Biden’s policy results in cognizable injury.

The first test as to whether any of these parties have standing is coming up at next week’s hearing on the lawsuit brought by six Republican-led states. If the court concludes that these states may have standing and could incur injury, it could order a preliminary injunction, suspending the student loan forgiveness program indefinitely while the lawsuit continues.

For now, the Education Department is planning to make a student loan forgiveness application available any day. But plans can change quickly, as evidenced by last week’s abrupt reversal of FFELP loan eligibility, which resulted directly from threats of litigation.

Further Student Loan Reading

Student Loan Forgiveness Application Goes Live Any Day, As Biden Administration Releases New Updates

In Reversal, Biden Administration Announces New Eligibility Limits On Student Loan Forgiveness

5 Key Takeaways From The Sudden Change To Student Loan Forgiveness Eligibility

Biden’s Student Loan Forgiveness Could Be Taxable In Some States


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