News About Legal Challenges to Biden Student Loan Cancellation
Federal Appeals Court Temporarily Blocks Student Loan Forgiveness Plan
This evening, the U.S. Eighth Circuit Court of Appeals issued a block to Biden’s student loan forgiveness plan. The court considered the motion filed by six GOP-led states: Arkansas, Kansas, Iowa, Missouri, Nebraska, and South Carolina.
A federal judge had dismissed the case several days ago, and the group filed an appeal which was upheld this evening.
Borrowers Should Continue to Apply
If you haven’t already completed your application, the Department of Education is encouraging you to apply. The application is still live here.
If you’re one of the 22 million people who have already applied, the Department of Education is moving forward with reviewing applications and preparing documents for servicers.
The appeals court hasn’t filed an injunction yet. We’re expecting a ruling early next week.
Public Policy Research Organization filed Suit in Kansas
The New Civil Liberties Alliance filed a lawsuit on October 18th on behalf of the Cato Institute, a public policy think tank, challenging the legality of the Biden Administration’s cancellation of student loan debt.
The lawsuit argues that the Biden Administration is undermining the Public Service Loan Forgiveness program and that it’s unconstitutional to allow the executive branch of the government to undermine the policy choices of the legislative brand, even under the HEROES Act.
The suit argues that Biden doesn’t have the power to unilaterally forgive student debt without Congressional approval. While many conservative legal experts agree, the Biden administration argues the president has the authority to alleviate hardship for borrowers due to the COVID-19 pandemic.
Six States Will Tax Forgiveness
Currently, six states plan to tax Biden’s one-time forgiveness: Arkansas, Indiana, Minnesota, Mississippi, North Carolina, and Wisconsin. The plaintiff in another lawsuit is currently pursuing Public Service Loan Forgiveness (PSLF), which is not subject to state taxes. If he receives the one-time forgiveness, he would pay taxes on loans that will eventually be forgiven under PSLF without any tax penalty.
However, borrowers seeking PSLF do not have to accept the one-time forgiveness. The Department of Education will allow individuals to opt-out of the debt relief for any reason, including concerns over state taxes.
Missouri and Other States File to Block Forgiveness
Another lawsuit filed on Thursday, September 29, by Missouri and five other GOP-led states cites violations in the separation of powers and administrative procedure acts.
The suit argues that the president does not have the authority to relieve individuals from the obligation to pay loans they voluntarily assumed.
Biden Administration Reverses Policy on FFEL Cancellation
As a result of the legal challenges, the Department of Education will no longer allow borrowers with privately held federal loans to receive forgiveness.
The Federal Family Education Loans (FFEL) and some Perkins Loans include federal student loans held by private entities. Borrowers with FFEL Program loans and Perkins Loans not held by ED who have applied to consolidate into the Direct Loan program prior to Sept. 29, 2022, are eligible for one-time debt relief through the Direct Loan program.
Less than a million Federal borrowers hold these types of loans.
IonTuition will continue to monitor and update on new developments.