Lawsuit Stalls Student Debt Relief: What Now?

Anna Helhoski

The U.S. Circuit 8th Court of Appeals has granted an emergency stay pending an appeal of a lawsuit seeking to delay the planned introduction of the Biden administration’s promised student debt cancellation.

In other words, borrowers hoping to see $ 10,000 or $ 20,000 written off of their debts will have to wait while this lawsuit proceeds; hearings are already scheduled for next week. There are also four other cases pending on appeal or awaiting a hearing.

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The stay isn’t a cause for panic, says Mike Pierce, director and co-founder of the Student Borrower Protection Center. It is procedural. The court can’t rule, Pierce says, when she hasn’t been fully informed. The stay requires a response from the Department of Justice by Tuesday afternoon.

“There’s really nothing to see here,” says Pierce.

The temporary shutdown came just days before the first borrowers were expected to see their balances reduced. The White House said earlier this month that it would not provide aid until October 23.

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On Oct. 21, Biden said 22 million borrowers had already submitted their applications since the form was first released in beta a week earlier. The White House said around 40 million borrowers would be eligible for cancellation. The application for debt relief is still open.

What does the cause claim?

Six states (Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina) jointly claim that Biden’s debt relief would hurt tax revenues in their states and the finances of state lending agencies. All six states are Republican-led.

These student loan providers and companies manage commercially held FFELP loans, an older type of federal student loan originally funded by private companies. They claim that letting FFELP borrowers consolidate their loans to qualify for cancellation would hurt their profits because it would eliminate or reduce upfront interest payments.

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In response, the Biden administration in late September revoked the cancellation eligibility for borrowers with commercially held FFELP loans.

A federal district judge dismissed the case on October 20; Plaintiffs immediately filed an emergency motion in the US 8th Circuit Court of Appeals for an administrative suspension. They asked the court to suspend the scheduled introduction of debt cancellation by 9:00 CST on Saturday 22 October.

The court didn’t wait that long; on Friday he approved the administrative suspension.

Where does it leave the borrowers?

Borrowers who have applied or were waiting for automatic relief are now in limbo. And federal student loan payments are expected to resume in January 2023 after a nearly three-year hiatus due to the pandemic, unless the hiatus is extended again.

No additional extension has yet been announced. It is wiser to proceed as if payments resume as scheduled on January 1st.

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If you are eligible for debt cancellation and have not applied, do so. It can’t hurt and you will secure your place online if the legal hurdles are removed.

If you have planned to reimburse payments made during the break, reconsider. You can still ask for the repayment, but as before, the repaid amount will be added to your loan balance.

If you’ve already received a refund on payments made during the break, don’t spend it. If one of the causes is successful, you may want to put it back on your loan balance.

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