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After a federal court revoked Biden’s forgiveness plan, here are some things student loan borrowers should know

After Thursday’s decision by a Texas federal judge to declare the program illegal, student loan borrowers now have indefinitely to wait to see if they will be eligible for debt relief under President Joe Biden’s student loan forgiveness program.

The Department of Justice appealed immediately to the 5th US Circuit Court of Appeals. However, that case will need to be resolved before the Biden administration can cancel federal student loans under the program.

Although the Biden administration has been challenged in court over the student loan forgiveness program announced in August, Thursday’s ruling is the biggest setback. The Department of Education will no longer accept applications for debt relief.

Biden’s program was already in jeopardy due to a separate legal challenge by the 8th US Circuit Court of Appeals. However, the administration continued to accept applications and had received 26 million so far.

The program’s rules allow eligible low- or middle-income borrowers to receive federal student loan forgiveness up to $10,000 and cancellation up to $20,000 if they have received a Pell Grant while in college.

Although the legal path ahead is unclear, it could take several months to resolve the issue.

According to Abby Shafroth (staff attorney at the National Consumer Law Center), “the Texas decision makes it more likely that this issue will eventually go to the Supreme Court though it is still too soon to say.”

The 8th US Circuit Court of Appeals ruled in favor of Biden’s program four days after the Texas ruling. It granted a request for a preliminary order to plaintiffs in a separate case. Since the program had been halted, the November 14 ruling doesn’t change the status quo.

What now for borrowers?

Borrowers will need to wait for the outcome of the appeal by the government to the 5th Circuit Court. It can be difficult to keep up with all the legal issues, but borrowers can sign up for updates from the Department of Education or visit the Federal Student Aid website for more information.

The court could take several months to issue its final ruling. If the Texas lower court’s decision is overturned, the Biden administration can cancel student debt.

Initial statements by the Biden administration stated that they would begin to forgive student loans before payments resumed in January following a long period of the pandemic.

However, Thursday’s Texas ruling puts this timeline in danger.

“For the 26,000,000 borrowers who have already provided the Department of Education with the information necessary to be considered for credit relief – 16million of whom have been approved for relief – The Department will retain their information so that it can speedily process their relief once our court victory,” stated Karine Jean-Pierre, White House press secretary.

She stated that she strongly disagreed with the District Court’s decision on student debt relief programs.

What legal arguments are there?

Biden’s administration argues that Congress gave the secretary of education broad authority to discharge student loan debts in a 2003 law, the HEROESAct. It was passed after the September 11 terrorist attacks.

Lawyers for the government argue that the law permits the secretary to discharge any debt during a national emergency. This includes the Covid-19 pandemic.

The Texas federal judge ruled that the law did not give the executive branch the authority to create student loan forgiveness programs.

Judge Mark Pittman was appointed by Donald Trump to replace him.

He continued, “In this country, we are not ruled over by an all-powerful executive with pen and phone.”

A conservative group, The Job Creators Network Foundation filed the Texas lawsuit in October for two borrowers who were not eligible for debt relief.

One plaintiff was not eligible for the student loan forgiveness program as her federal loans were not held by her. The other plaintiff is only eligible to receive $10,000 in debt relief since he didn’t receive a Pell grant.

They claimed that they couldn’t voice their disapproval of the program’s rules, as the administration didn’t put it through a formal notice and comment rule-making process under the Administrative Procedure Act.

Elaine Parker, President of the Job Creators Network Foundation said Thursday that “this ruling protects the Rule of Law which requires all Americans have their voices heard”

Bernie Marcus, a former CEO of Home Depot and a major Trump donor, founded the advocacy group.

What about the other lawsuits?

The Texas case is not the only one facing the Biden administration. There are also several lawsuits against them regarding the student loan forgiveness program.

Six Republican-led states are currently suing the 8th US Circuit Court of Appeals. The appeals court placed an administrative stop to the program on October 21. This prevented the administration from canceling any debts. On November 14, the appeals court granted a request for a preliminary injunction from the States. According to the order, the injunction “will remain in effect until further orders of this court or the Supreme Court of the United States.”

The states argued that the Biden administration doesn’t have the legal authority for broad student loan forgiveness and that the program would be detrimental to their financial situation for many reasons. The case was dismissed by a lower court, which ruled that the states didn’t have the legal standing to sue. The 8th Circuit was immediately appealed by the states.

Biden’s administration has won several victories in court so far as plaintiffs have struggled with showing they are entitled to sue.

A lawsuit filed by a Wisconsin taxpayer’s group was also dismissed by a federal trial judge. He ruled that the group did not have the standing to challenge the decision. Plaintiffs argued that the US Treasury and taxpayers would be hurt by the loan forgiveness program. It is estimated to have a cost of $400 billion. Supreme Court Justice Amy Coney Barrett rejected the taxpayers’ request to the Supreme Court to intervene.

Barrett rejected a separate case filed by a borrower, who claimed that his future loan forgiveness would result in a higher state tax bill. Although debt forgiveness may be taxed in some states, it is not taxable at the federal level.

In Arizona, GOP Attorney General Mark Brnovich is suing the Biden administration. The Cato Institute, an independent think tank, is also suing the Biden administration. Both lawsuits claim that the president doesn’t have the legal authority for student loan debt to be canceled broadly.

Brnovich claims that the state can sue Arizona because the student loan forgiveness program could lower Arizona’s tax revenue. The state code does not consider loan forgiveness to be taxable income.

Arizona also claims that the forgiveness policy will hinder the ability of the attorney general to recruit

employees. The lawsuit claims that while employees of the company may be eligible for the federal Public Service Loan Forgiveness Program, some job applicants may not see this as a benefit if they have already paid off their student loans.

Similar arguments are made by the Cato Institute about how the forgiveness program makes it more difficult to hire employees.

Who might be eligible to receive student loan forgiveness?

Biden’s program could be allowed to proceed if individual borrowers earning less than $125,000 in 2020 or 2021, married couples, and heads of households making less than $250,000 each year in those years can have up to $10,000 forgiven of federal student loan debt.

A qualified borrower who also received a federal Pell Grant while in college is eligible to receive up to $20,000 in debt forgiveness.

Federal student loans come in many forms and some are not eligible for relief. Federal Direct Loans are eligible, including unsubsidized loans or subsidized loans.

Federal student loans guaranteed by the government, but not held by private lenders, are not eligible unless the borrower applies to consolidate the loans into a Direct loan.

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