A federal appeals court threw the program into limbo with an administrative stay that, for now, prevents the administration from actually dispensing with the loans. The U.S. Court of Appeals for the Eighth Circuit issued the pause Friday night as it considers a request from six Republican-led states to block the program permanently.
President Joe Biden on Friday offered an update on the launch of his administration’s student loan forgiveness efforts, announcing that in just under a week, nearly 22 million people applied online.
The ruling also “does not prevent us from reviewing these applications and preparing them for transmission to loan servicers,” she added.
But with legal wrangling over the program now expected to spill into next week, the White House quickly asserted that borrowers will continue to be able to at least apply for relief.
“[W]e encourage eligible borrowers to join the nearly 22 million Americans whose information the Department of Education already has,” Press Secretary Karine Jean-Pierre said in a statement.
Nevertheless, the program and whether the approved applications will ever be completed is now up in the air a week after the program first went live. The beta version of the application for up to $20,000 in loan forgiveness launched on Oct. 15 followed by the president’s formal unveiling on Monday of the sign-up process.
Nebraska Attorney General Doug Peterson — one of the state officials who is suing to stop the program — praised the ruling in a statement, saying: “It’s very important that the legal issues involving presidential power be analyzed by the court before transferring over $400 billion in debt to American taxpayers.”
A focus on 40 million borrowers
Biden and his top aides including Education Secretary Miguel Cardona have been persistently prodding Americans to sign up. The online form has been noted for its simplicity: asking borrowers for nothing beyond their name, Social Security number, date of birth, phone number, and email. Some documents may be required later in the process, according to the form.
“It is so encouraging to see so many borrowers apply so quickly,” Persis Yu of the Student Borrower Protection Center told Yahoo Finance Friday before the ruling. “I think it speaks to the need for this relief and how desperate borrowers really are to get this cancellation.”
Prior to Friday’s ruling, the soonest debt was expected to be erased was mid-November.
In August, the Biden administration announced a debt forgiveness plan that would forgive $10,000 of debt for people making less than $125,000 and an additional $10,000 for those who received Pell Grants, which go to borrowers with extreme financial need.
Some critics argue the plan doesn’t address the root problems that make college so expensive, while others claim the plan overstepped the executive branch’s constitutional authority. Many have also noted the high cost of the program, which budget experts say could be as high as half a trillion dollars depending on how many people sign up.
The White House has said that around 40 million Americans may eventually be eligible for forgiveness and 60% of them are Pell Grant recipients, who are eligible for extra relief.
The question, for Kyra Taylor, a staff attorney focused on student loans at the National Consumer Law Center, is this: “Do they all know that they need to apply, that they need to raise their hand and I think that will be an open question and that will really turn on outreach as we move forward.”
The forgiveness process going forward
If the administration is able to get the forgiveness process back on track, the Department of Education will review and approve applications on a rolling basis. Loan servicers are the ones who would then actually execute the forgiveness if that final step in the process is reinstated.
Administration officials chose Delaware State University as the site for Biden’s Friday’s speech because the historically Black university includes a student body where over 75% of students receive a Pell Grant — and would therefore be eligible for increased forgiveness.
“There is no better example of a university that has changed so many lives,” Biden said on Friday.
Biden also lit into the critics of his student loan efforts, singling out Republicans who criticized the program after benefiting from forgivable loans from the Paycheck Protection Program for small businesses.”Who the hell do they think they are?” Biden asked.
The administration’s forgiveness plan had gained two significant victories on Thursday when a federal judge in Missouri ruled that the six states lacked standing to block the program and the Supreme Court also made a similar ruling in reference to a different case.
“A state court and the Supreme Court said no ‘we’re on Biden’s side,'” the president said on Friday.
On Friday, the U.S. Court of Appeals for the Eighth Circuit granted a temporary win for officials seeking to block the program from six states: Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina. Those states argue that Biden’s plan oversteps its spending authority as the executive branch and threatens the states’ future tax revenues.
A federal judge dismissed the case on Thursday, finding the states lacked standing to sue — meaning they failed to show that they would be hurt by the debt relief program. The Eighth Circuit Court of Appeals will now decide whether to affirm that decision.