Student loan borrowers are now waiting indefinitely to see if they will receive debt relief under President Joe Biden’s student loan forgiveness program after a federal judge in Texas on Thursday declared the program illegal.
The Justice Department immediately appealed to the 5th US Circuit Court of Appeals. But the Biden administration will have to play out that case before canceling any federal student loan debt under the program.
While the Biden administration has faced several legal challenges since the student loan forgiveness program was announced in August, Thursday’s ruling was the most significant setback yet — prompting the Department of Education to stop accepting applications for debt relief.
Biden’s program has already been suspended due to a separate legal challenge, but the administration continues to receive the 26 million applications received so far.
Under the terms of the program, eligible low- and moderate-income borrowers can receive up to $10,000 in federal student loan forgiveness and up to $20,000 in cancellation if they receive a Pell Grant while enrolled in college.
The legal path forward is unclear, but the issue could take several months to resolve.
The Texas decision “raises the possibility that the issue will eventually go to the Supreme Court, although it’s too early to tell,” said Abby Schafroth, staff attorney at the National Consumer Law Center.
Creditors will have to wait to play the government’s appeal to the 5th Circuit Court. While all the various legal challenges can be tough to follow, borrowers can subscribe to updates from the Department of Education and check the Federal Student Aid website for more information.
It may take months for the court to issue a final ruling. If it overturns the Texas lower court ruling, the Biden administration could begin canceling student loans.
But the Justice Department could ask for an emergency stay of the Texas judge’s order. If granted — and a different appeals court ends the temporary stay on the program in a separate, pending case — then the administration would be allowed to cancel the loan before a final ruling by the 5th Circuit.
Initially, the Biden administration said it would begin offering student loan forgiveness before resuming payments in January after a years-long pandemic hiatus.
But Thursday’s ruling in Texas threatens that timeline.
“For the 26 million borrowers who have already provided the Department of Education with the necessary information to be considered for debt relief — 16 million of whom have already been approved for relief — the department is holding on to their information so it can quickly process their relief once we prevail in court,” White House Press Secretary Karine Jean-Pierre said in a statement Thursday.
“We strongly disagree with the district court’s ruling on our student loan relief program,” he said.
The Biden administration has argued that Congress gave the education secretary the authority to broadly discharge student loan debt in a 2003 law known as the Heroes Act, passed in the wake of the Sept. 11 terrorist attacks.
Government lawyers argue that the law allows the secretary to release the debt in the event of a national emergency, including the Covid-19 pandemic.
But a Texas federal judge found that the law did not provide the executive branch with clear congressional authority to create the student loan forgiveness program.
“The program is an unconstitutional exercise of Congress’s legislative power and must be vacated,” wrote Judge Mark Pittman, who was nominated by then-President Donald Trump.
“In this country, we cannot be ruled by an all-powerful executive with a pen and a phone,” he continued.
The Texas lawsuit was filed by a conservative group, the Job Creators Network Foundation, in October on behalf of two borrowers who did not qualify for debt relief.
One plaintiff did not qualify for the student loan forgiveness program because her loans were not covered by the federal government, and the other plaintiff was only eligible for $10,000 in loan relief because she did not receive a Pell grant.
They argued that they could not express their disagreement with the program’s rules because the administration had not put them through a formal notice and comment process under the Administrative Procedure Act.
“This ruling protects the rule of law, which requires all Americans to have their voices heard by their federal government,” Elaine Parker, president of the Job Creators Network Foundation, said in a statement Thursday.
Bernie Marcus, a major Trump donor and former Home Depot CEO, founded the advocacy group.
Beyond the Texas case, the Biden administration is facing several other lawsuits over the student loan forgiveness program.
The lawsuit, brought by six Republican-led states, is pending in the 8th US Circuit Court of Appeals. On October 21, that appeals court placed an administrative freeze on the program, prohibiting the administration from canceling any loans.
States argued that the Biden administration lacked the legal authority to grant broad student loan forgiveness, adding that the program would hurt them financially for a variety of reasons. A lower court dismissed the case, ruling that the states lacked legal standing to sue. The states immediately appealed to the 8th Circuit.
The Biden administration has won several wins in court so far, as plaintiffs have struggled to show they have standing to sue.
A lawsuit filed by a group of Wisconsin taxpayers was dismissed by a trial-level federal judge, ruling that the group lacked standing to bring the challenge. The plaintiffs had argued that the debt forgiveness program, estimated to cost about $400 billion, would harm taxpayers and the US Treasury. Supreme Court Justice Amy Coney Barrett rejected the taxpayer group’s request for the Supreme Court to intervene.
A separate case rejected by Barrett and dismissed by a lower court was filed by a borrower who argued that upcoming debt forgiveness would leave him with a large state tax bill. Some states may tax debt forgiveness, but it is not taxed at the federal level.
The Biden administration faces pending lawsuits from Arizona’s GOP Attorney General Mark Branovich and the libertarian think tank Cato Institute. Both lawsuits argue that the president lacks the legal authority to broadly cancel student loan debt.
Branovich argues that the state has standing to sue because the student loan forgiveness program could reduce Arizona’s tax revenue. State code does not treat debt forgiveness as taxable income.
The Arizona complaint argues that the amnesty policy harms the attorney general’s office’s ability to hire employees. Currently, its employees may be eligible for the federal Public Service Loan Forgiveness Program, but the lawsuit argues that some potential job candidates are not considered a benefit if they have already canceled their student loan debt.
The Cato Institute makes a similar argument about the amnesty program, which makes it harder to recruit employees.
If Biden’s program is allowed to continue, individual borrowers who earned less than $125,000 in 2020 or 2021 and married couples or heads of households who earned less than $250,000 annually in those years could have up to $10,000 of their federal student loan debt forgiven.
If an eligible borrower receives a federal Pell Grant while enrolled in college, the individual is eligible for loan forgiveness of up to $20,000.
There are different types of federal student loans and not all are eligible for relief. Federal Direct Loans are eligible, including subsidized loans, unsubsidized loans, parent PLUS loans and graduate PLUS loans.
But federal student loans that are guaranteed by the government but held by private lenders are not eligible unless the borrower applies for a direct loan before September 29 to consolidate those loans.
This headline and story have been updated with additional information.