The Biden administration reduced eligibility for its student loan cancellation plan on Thursday, the same day six Republican-led states sued President Joe Biden in a bid to prevent his student loan cancellation plan to come into force.
Borrowers whose federal student loans are government guaranteed but held by private lenders will now be excluded from debt relief. About 770,000 people will be affected by the change, according to an administration official.
The Department of Education initially said these loans, many of which were made under the former Federal Family Education Loan Program and the Federal Perkins Loan Program, would be eligible for the Forgiveness Action. only as long as the borrower consolidated its debt in the federal direct lending program.
On Thursday, the department backtracked. According to its website, private federal student loans must have been consolidated by Sept. 29 to be eligible for debt relief.
Borrowers with private federal student loans who have not yet consolidated are currently out of luck, although the Department of Education has said it is “evaluating whether there are alternative avenues” to provide relief. .
Borrowers with private federal student loans represent a small portion of the 43 million federal borrowers. There are about 4 million borrowers with federal home education loans, but not all of those people likely qualify for the loan forgiveness plan, which also includes an income requirement.
“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, which will enable us to achieve this goal while continuing to explore other legally available options to provide relief to borrowers with private FFEL loans. and Perkins. loans, including whether FFEL borrowers could qualify for one-time debt relief without the need to consolidate,” the Department of Education said in an emailed statement.
“Borrowers with private federal student loans who applied to consolidate their loans into direct loans before September 29, 2022 will get one-time debt relief. The FFEL program no longer exists and only a small percentage of borrowers have FFEL loans. This is a completely different program from direct loans,” the statement said.
The lawsuit was filed in federal court in Missouri by state attorneys general from Missouri, Arkansas, Kansas, Nebraska and South Carolina, as well as legal representatives from Iowa.
“In addition to being economically reckless and inherently unjust, the Biden administration’s massive debt cancellation is another example of a long line of illegal regulatory actions. No law authorizes President Biden to unilaterally release millions of individuals from their obligation to repay loans they voluntarily took out,” Nebraska Attorney General Doug Peterson’s office said in a press release.
Plaintiffs have argued that student loan servicers — including the state of Missouri’s Higher Education Loan Authority, known as MOHELA — are being harmed by Biden’s student loan forgiveness plan. He argues that the plan incentivizes borrowers to consolidate federal home education loans held by MOHELA into direct loans held by the government, “depriving them (MOHELA) of the ongoing income it derives from servicing those loans,” according to the trial.
But the Department of Education’s decision to exclude borrowers with private federal loans from the student loan forgiveness plan could weaken that legal argument, said Luke Herrine, an assistant professor of law at the University of Alabama. who previously worked on a legal strategy pushing student debt. cancelation.
The White House continues to argue that its student loan forgiveness plan is legal.
“Republican officials in these six states are defending vested interests and fighting to stop aid to borrowers buried under mountains of debt,” White House spokesman Abdullah Hasan said in a mailed statement. electronic.
“The president and his administration are legally giving working and middle-class families a break as they recover from the pandemic and prepare to resume loan repayments in January,” he said.
Federal student loan repayments have been suspended since March 2020, thanks to a pandemic-related benefit. The break expires on December 31.
Earlier this week, a public interest lawyer who is also a student loan borrower, sued the Biden administration over the student loan cancellation plan, arguing that the policy is an abuse of executive power and that she would stick him with a bigger tax bill.
Under Biden’s plan, 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 a year in those years will see up to $10,000 of their canceled federal student loan debt.
If an eligible borrower also received a Federal Pell Grant while enrolled in college, they are eligible for debt forgiveness of up to $20,000. Pell grants are awarded to millions of low-income students each year, based on factors such as their family size and income and the cost charged by their college. These borrowers are also more likely to struggle to repay their student debt and to end up in default.
The administration is expected to roll out the first wave of student loan cancellations in October.
The Congressional Budget Office estimated this week — before the administration ruled out FFEL borrowers — that Biden’s plan could cost the government $400 billion, but cautioned that the estimate relies on multiple assumptions and is “very uncertain”.
Estimating the cost of canceling student debt is complicated because loans are usually repaid over several years. The White House argues that the CBO estimate should be reviewed over a 30-year period.
Biden announced the forgiveness plan in August, after facing growing pressure from Democrats to write off some student loan debt. Senate Majority Leader Chuck Schumer and Massachusetts Sen. Elizabeth Warren have repeatedly called on the president to forgive up to $50,000 in student loan debt per borrower.
But such a broad forgiveness of federal student loan debt is unprecedented and, so far, has yet to be tested in court. Biden initially urged Congress to take action to forgive some student debt, rather than step into a murky legal realm himself, but Democrats lack the votes to pass such legislation.
In an Education Department memo released in August, the Biden administration argued that the Higher Education Student Aid Opportunity Act of 2003 — or the Heroes Act — grants the secretary to the education the power to cancel student debt to help address financial harm suffered due to the covid19 pandemic.
The Heroes Act, which was enacted in the wake of the 9/11 terrorist attacks, “gives the Secretary broad authority to grant relief from student loan requirements during specific periods of time,” including war, another military operation or a national emergency, according to the memo. .
The lawsuit filed Thursday argues that the Heroes Act does not grant the president such broad authority.
More lawsuits challenging Biden’s student loan forgiveness plan may be forthcoming. Arizona Attorney General Mark Brnovich, a Republican, said he was working on the best legal theory to sue the administration over the action.
A Conservative advocacy group called Job Creators Network is also weighing its legal options, planning to take legal action once the Department for Education formalizes the student loan forgiveness plan next month.
But some legal experts are skeptical of the success of a legal challenge to Biden’s student loan forgiveness plan.
Abby Shafroth, an attorney with the nonprofit National Consumer Law Center, previously told CNN she thought the merits of the Biden administration’s legal statutory authority were strong and it was unclear who would have the legal status to bring an action and would like to do so. Standing to sue is a procedural threshold requiring that an injury be inflicted on a plaintiff to justify a legal action.
If the permanent hurdle is removed, a case will first be heard in a district court – which may or may not issue a preliminary injunction to prevent the reversal from occurring before a final decision is made on the merits of the case. the hypothetical case.
Several recent U.S. Supreme Court decisions have touched on the executive branch, limiting the federal government’s power to implement new rules. While the Supreme Court hears a small number of cases each year, lower courts can look at what judges said in those cases when assessing the authority of the Department of Education.
This story has been updated with additional information.