US President Joe Biden waves after his commencement speech through the Morehouse College graduation ceremony. … [+]
A federal appeals court has affirmed the dismissal of a lawsuit difficult a key Biden administration student loan forgiveness initiative. The decision leaves greater than $51 billion in debt relief already granted intact and paves the way in which for more after the Biden administration recently prolonged a key deadline for this system.
“WIN! The 6th Circuit Court of Appeals has rejected yet another right-wing attack on student debt forgiveness,” the Student Borrower Protection Center said in an announcement on X last week, shortly after the choice was announced.
Here’s what happened and what borrowers can expect because the Biden administration continues debt forgiveness under this system.
Student loan forgiveness through one-time adjustment faced challenges
The legal challenge focused on the IDR account adjustment, an initiative that President Joe Biden first announced in spring 2022. The temporary initiative is meant to offer a retroactive “fix” to long-standing problems related to income-driven repayment plans and Public Service Loan forgiveness that had often prevented borrowers from receiving relief (or prolonged their repayment period), so it has the potential to have a transformative impact.
The one-time account adjustment credits borrowers with time toward student loan forgiveness under IDR plans and PSLF for past periods that may not have otherwise been considered. This includes time spent in nonqualifying repayment plans or in certain forbearance and forbearance periods, in addition to qualifying periods before consolidation. Borrowers can qualify for student loan forgiveness after 20 or 25 years of repayment under IDR plans, or in as few as 10 years for those working in nonprofit or government jobs and pursuing PSLF.
The Biden administration began implementing aid under this system last 12 months, with the primary tranche of debt relief approved in the summertime of 2023. But a bunch of conservative-leaning groups subsequently filed suit, claiming this system was an unconstitutional use of executive power. The groups argued that the debt relief related to the one-time account adjustment would harm them because it could negatively impact their ability to recruit and retain employees, as faster debt relief would allegedly dilute the advantages of programs like PSLF.
In August, a federal district court in Michigan dismissed the lawsuit for lack of standing, concluding that the groups failed to point out cognizable harm sufficiently related to the disputed program. The groups then appealed to the Sixth Circuit Court of Appeals.
Appeal court rejects challenge to forgiveness of student loans
On May 17, the Sixth Circuit issued its long-awaited decision affirming the district court’s dismissal of the case and paving the way in which for the continuation of student loan forgiveness under the IDR account adjustment.
“Many people view a college education as a ticket to the American dream. Some take out student loans to pursue that dream. Repaying those loans can turn into a nightmare. Congress and the U.S. Department of Education stepped in to help by creating income-based student loan repayment plans and the Public Service Loan Forgiveness program,” the court wrote in its Verdict. “Several problems arose with these plans, including student loan servicers pushing borrowers to defer or reduce their student loan payments for extended periods of time. In response, the Department of Education announced a one-time account adjustment in April 2022 and July 2023 that would count months or years borrowers spent in excessive forbearance status toward debt forgiveness.”
The court noted that the fundamental issue on appeal was whether the plaintiffs – the Mackinac Center for Public Policy and the Cato Institute – had standing to challenge this program. The court ruled that they didn’t. “How the adjustment affects plaintiffs ultimately depends on individuals who are not parties to this litigation,” the court wrote. The plaintiffs, the court said, failed to point out that student loan forgiveness under the IDR account adjustment would directly harm them.
Following the ruling, the plaintiffs issued a proper statement. “The executive branch must not be allowed to legislate through press releases,” said Patrick J. Wright, vp of legal affairs on the Mackinac Center, in an announcement. “The Biden administration’s workarounds to forgive certain student loan debt cost taxpayers hundreds of billions of dollars and completely ignore the importance of the separation of powers. Americans are being forced to pay for things that were not approved by their elected representatives, and the court should hear this constitutional challenge.”
The statement said the organizations are “exploring their legal options.” The next step might be an appeal to the U.S. Supreme Court, even though it is unclear whether they may achieve this.
Student loan forgiveness continues to regulate as Biden extends key deadline
To date, the Biden administration has approved over $51 billion in student loan forgiveness for no less than a million borrowers under the IDR account adjustment. Current data published by the Department of Education. Hundreds of 1000’s of other borrowers have also received debt relief through PSLF because of this of the adjustment. And there may be more relief to return.
Some borrowers — particularly those with commercially held FFEL loans — might have to consolidate their loans through the federal Direct Consolidation Program to qualify for relief under Account Adjustment. The consolidation deadline was April 30, but earlier this month, the Biden administration prolonged that deadline to June 30 to provide borrowers who have to consolidate more time to achieve this. In the meantime, the Department of Education continues to roll out debt relief every two months under this system and is predicted to complete implementing many of the relief later this fall.
“The Biden-Harris administration remains steadfast in its efforts to provide student debt relief to millions more across the country,” U.S. Education Secretary Miguel Cardona said in an announcement last week.
New student loan forgiveness plan coming soon
Separately, the Biden administration can be working to place the ending touches on a wholly recent student loan forgiveness plan. This initiative – designed to switch the broad mass debt forgiveness plan that was struck down by the Supreme Court last 12 months – is designed to offer targeted relief to 5 groups of borrowers. These include those that have experienced interest accrual and capitalization, in addition to borrowers facing significant hardship.
Up to 25 million borrowers may benefit from the brand new plan. The Department of Education is predicted to release final regulations for this system in the approaching months, after which implementation is predicted sometime in the autumn. However, most observers expect the brand new debt relief to be challenged in court.
