Personal finance

Could student loan forgiveness still happen this year? It’s possible

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When President Joe Biden announced over the summer a sweeping plan to forgive student debt, millions of Americans celebrated the fact their financial situation looked like it would soon improve.

But now the Biden administration finds itself unable to start delivering its relief because of a court-ordered stay of its policy.

Here’s where forgiveness stands, and what might happen next.

How we got here

On Aug. 24, Biden announced that tens of millions of Americans would be eligible for student loan forgiveness: up to $20,000 if they received a Pell Grant, which is a type of aid available to low-income families, and as much as $10,000 if they didn’t.

Long before Biden — acting on pressure from consumer advocates and other Democrats — made his move, Republicans had criticized student loan forgiveness as a handout to well-off college graduates. They also argued the president didn’t have the power to forgive consumer debt on his own without Congress.

Unsurprisingly, the legal challenges poured in.

So far, at least six lawsuits have been brought against the president’s plan. A few of these suits have already been rejected for lack of so-called legal standing, a wonky term that means a plaintiff must prove student loan forgiveness would harm them to successfully bring a challenge.

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That’s what initially happened to the legal challenge brought by six Republican-led states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina, which accused the president of overstepping his authority. U.S. District Judge Henry Autrey in St. Louis ruled that while the states had raised “important and significant challenges to the debt relief plan,” they ultimately lacked legal standing to pursue the case.

The GOP-led states didn’t give up after their lawsuit was thrown out, however. They filed an appeal, and asked the court to stay the president’s plan, which was supposed to start unfolding in October, while their request is considered.

The 8th U.S. Circuit Court of Appeals granted the states’ emergency petition, leaving the Biden administration unable to start forgiving any student debt for now.

What could come next?

If the 8th U.S. Circuit Court of Appeals dismisses the six GOP-led states’ request to halt forgiveness, they’ll likely appeal to the U.S. Supreme Court, said higher education expert Mark Kantrowitz said. The highest federal court is likely to refuse to take the case, however, Kantrowitz added. (It has already rejected two other requests to stay the president’s plan.)

If the appeals court finds that the states do have legal standing, the case could drag on for months, experts say. If the U.S. Department of Education loses, it will likely to appeal to the Supreme Court.

Originally, the Education Department had said that borrowers would receive forgiveness within six weeks after they applied. The full application launched Oct. 17, and within three weeks, some 26 million people had requested the relief. Loan servicers were given 15 days to apply the forgiveness to a borrowers’ account after they were notified, Kantrowitz said.

Of course, that timeline is now disrupted by the legal stay.

If the temporary pause is lifted within the next few days, borrowers who’ve already applied for forgiveness or those who do so by Nov. 15 could still receive the relief before federal student loan payments resume in January. The payments have been paused by a Covid pandemic-era relief policy since March 2020.

“If the forgiveness is still paused by the end of the year, the Biden administration is likely to further extend the payment pause,” Kantrowitz said.

The outcome of the midterm election may also impact what happens next.

If Democrats retain control of the House and pick up seats in the Senate, they could pass legislation forgiving student debt. However, it’s looking more likely that Republicans will control the House and Democrats take majority in the Senate, Kantrowitz said.

“This will prevent Democrats from passing legislation to implement loan forgiveness if the courts permanently block the president’s plan,” he said.

For now, the Education Department is encouraging borrowers to continue to apply for forgiveness, although it notes that, “we are temporarily blocked from processing debt discharges.”

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