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Biden student debt forgiveness blocked: What’s next for borrowers?


After seemingly overcoming a number of other regulatory hurdles, President Joe Biden’s plan to clear student debt has been blocked.

Last week, a federation The district court in Texas has ruled called the plan “unconstitutional,” which the Justice Department appealed on Biden’s behalf. And on Monday, settling a separate lawsuit, The 8th Circuit Court of Appeal continues the current pause on relief while it considers the plaintiff’s argument.

Bottom line for borrowers: You probably won’t see your balance drop as soon as the president speaks. The government maintains its legal authority and says it is continue to fight for borrowersBut there are still many questions about what will happen next.

What are the lawsuits about?

The plaintiffs in the Texas case are two individuals – backed by conservatives Job Creators Network Foundation — which argues that the forgiveness plan unfairly excludes them and should therefore not be allowed.

The other lawsuit, officially known as Nebraska v. Biden, comes from a group of six states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina — alleging that forgiveness would harm them in the form of loss of revenue. tax.

Despite the superficial differences, both lawsuits are essentially arguing about the same thing, said Abby Shafroth, an attorney at the National Consumer Law Center. “They are effectively challenging that the Biden administration has exceeded the authority that Congress gave them in the HEROES Act,” she told CNBC Make It.

What does this mean for borrowers asking for forgiveness?

Basically, wait more. The the authorities say they are holding 26 million applications it received a pardon, adding that 16 million of those were approved and forwarded to loan servicers.

Borrowers can do nothing but wait for the final decision. Many believe that the Supreme Court will eventually have to step in. That outcome would be less likely if both circuit courts would agree.

If the president’s appeal in Texas is successful, it is likely that the plaintiffs will move the case to the Supreme Court or vice versa.

Persis Yu, a student loan expert and deputy executive director of the nonprofit advocacy group Student Borrower Protection: “It’s really hard to say at this point what the trajectory will be. , from time to time, but we are encouraged that the authorities have appealed.” Center, told CNBC Make It.

“We think there are other steps the administration needs to take to protect borrowers and to protect this write-off, but it’s a good move.”

Can legal battles be avoided?

Some debt forgiveness advocates argue that Biden could have chosen a different method or legal justification for providing relief to borrowers who would not have faced such fierce legal challenges. .

However, many lawyers and legal experts expressed skepticism about the judges’ ruling, arguing that their interpretation of the law was wrong.

The plaintiffs in both lawsuits have struggled to win the support of lower courts that have challenged their positions. And Yu adds it is not a “free court” that could otherwise be accused of sectarianism for siding with the president.

“I think it’s quite remarkable that every other court that has looked at this has reached a different conclusion,” Yu said of the Texas ruling. “I think that says more to the judge than the legitimacy of the matter, but this is in a broader context where we’ve seen politicized court systems.”

While student debt affects people from both sides of the political aisle, support government action to ease the burden on borrowers who frequently fall into the party line, with Democrats are twice as likely to support debt forgiveness than Republicans.

The courts are said to be nonpartisan. However, federal judges are appointed by elected officials, and it may be the case that judges rejecting debt relief for Biden are nominated by Republican presidents. Many commentators believe that forgiveness has become less of a legal issue and more of a political debate.

“Most legal experts who have looked at the matter think that none of the parties that have filed the lawsuit so far have really stood,” Shafroth said. “So none of these cases should proceed. They should all be reasonably dismissed if we just view this as a black and white matter of law.”

How has the Biden administration responded to the blocking?

Aside from the appeal in Texas, the president has yet to announce next steps for a debt relief plan or other relief measures for borrowers.

The administration maintains it has legal authority and says it “will never stop fighting for the most industrious Americans – no matter how many hurdles our adversaries and special interests try.” hinder us.” according to a statement from White House Press Secretary Karine Jean-Pierre.

The administration has not announced the continuation of the payment pause effective as of March 2020. Currently, it will expire on December 31 of this year.

Unnamed officials in the administration are considering extending the payment pause, The Washington Post reported. However, the discussions are preliminary and do not focus on an indefinite pause but another pause.

Yu says:

“The whole premise of this write-off, as they presented in the briefing, is that this forgiveness program is designed to ease the burden of starting over on a repayment plan,” she said. “It looks like you’re going to have to extend the payment pause so the authorities can find a way to bring this relief to borrowers.”

When asked for comment, the Department of Education referred CNBC Make It to a statement by US Secretary of Education Miguel Cardona, not to mention pausing payments. The Department of Education declined to comment on whether the payment pause will continue.

What if the pause is not extended?

Federal loan borrowers will see their student debt drop by up to $20,000 under Biden’s plan. But this move is also possible reduce their monthly payments. The administration “has produced important economic analyzes to show that restarting repayments will lead to higher rates of delinquency and default,” Yu said.

With just over a month before payments are expected to resume, borrowers struggling financially could be forced to scramble to make room for student loans within budget. their.

“We think there will be a lot of borrowers defaulting and then, with the consequences, I think we will see a huge impact for many people on their ability to meet their economic needs,” Yu said. their basic economy”.

Advocacy groups, including Yu’s, have called on Biden to extend the payment moratorium at least while the legal challenges unfold. Some say Congress could also step in to help borrowers.

“If you look at the comments in both Texas and the 8th Circuit, they are looking for … a clear mandate from Congress that the Department of Education will be allowed to forgive these loans,” said Rebecca Natow. , a higher education policy said. expert and assistant professor of educational leadership and policy at Hofstra University.

Obtaining congressional approval will not be an easy task. However, it will be easier with the House and Senate controlled by Democrats, since both houses At least until the end of this year.

“I think it’s possible that Congress could act to empower the Biden administration,” Natow said.

Will the problem make it to the Supreme Court?

It is certainly possible. If both circuit courts agree on the legality of the pardon plan, Shafroth said it is unlikely the Supreme Court will consider it unless the Justice Department appeals those findings.

In addition, if one court finds the plan illegal but the other disagrees, the highest court may have to resolve the dispute.

“They want to resolve that contradiction to have a clear rule for the whole country,” Shafroth said. The 8th Circuit Court’s decision to keep the write-off block in place so far raises the possibility of a Supreme Court case, she said.

“The fact that these cases are off-limits certainly makes it more likely that at least one case will eventually make it to the Supreme Court, but it’s still too early to tell,” Shafroth said.

So far, the Supreme Court has refused to hear other lawsuits related to debt forgiveness for Biden, but it has yet to scrutinize the plan for its legal merits.

What if I have not applied for forgiveness?

How this 32-year-old man went from prison to make $150,000 in Orlando

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