A gaggle of Republican-led states has thrown one other wrench within the Biden administration’s attempts to reform the federal student loan system.
On Thursday, a federal court in Georgia temporarily blocked President Biden’s latest effort to broadly forgive student loans, which was slated to cancel an estimated $150 billion of student loan debt starting as early as this fall.
Seven Republican-led states requested the injunction in a lawsuit filed Tuesday. The event marks the newest in a flurry of legal challenges, rulings and administrative policy changes which have left tens of millions of borrowers within the lurch.
“Borrowers are rightfully confused by the abrupt changes to their student loan options, and have limited access to quality assistance in navigating the changes,” student debt advocates wrote to the Department of Education in a recent letter.
The majority of the recent changes affect two major Biden administration programs: Biden’s $150 billion “Plan B” student loan forgiveness program and an overhauled income-driven repayment plan called Saving on a Invaluable Education, or SAVE. Each are actually on hold.
Despite conservative efforts to limit executive motion on debt relief, the Biden administration has already canceled about $170 billion of student debt for over 4.5 million borrowers through quite a lot of existing policies and latest relief efforts.
Here’s a take a look at where measures to supply additional student debt relief stand after a tumultuous summer.
Broad forgiveness faces fresh legal challenge
The federal court injunction issued Thursday temporarily halts the Biden administration’s latest relief program before it even got up and running. Dubbed “Plan B,” it was the administration’s second — though much narrower — attempt at broad student loan forgiveness, after the primary attempt was struck down by the U.S. Supreme Court last June.
The brand new plan, which underwent an official rulemaking process and uses separate legal justification from the failed forgiveness attempt, goals to wipe out $150 billion of student loans for tens of millions of borrowers with specific situations like runaway interest, financial hardship or remaining loan balances after paying down their student loans for greater than twenty years.
The department continues to be nailing down the main points, with plans to issue a final rule in the approaching weeks. Within the meantime, the Education Department already began emailing borrowers in August to spotlight the upcoming forgiveness efforts, which were expected to start as early as this fall. The temporary injunction bars any forgiveness or interest waivers under the plan from going into effect for no less than 14 days, and a hearing is scheduled for Sept. 18.
The seven states suing to stop the relief include Missouri, Georgia, Alabama, Arkansas, Florida, North Dakota and Ohio.
Supreme Court weighs in on SAVE repayment plan (kind of)
The Supreme Court is not going to clear (or block) the trail for the Biden administration to totally roll out its latest SAVE plan advantages — no less than for now.
As background, Biden introduced the plan last fall, when borrowers were returning to repayment after a three-and-half-year-long pause. With lower monthly payments and a shorter repayment timeline, the brand new income-driven repayment (IDR) plan is way more generous than every other IDR plan before it.
About 8 million borrowers are enrolled in SAVE. Greater than half of them have had their monthly payments set to $0 and over 400,000 other borrowers have had their loans completely forgiven under the brand new repayment timeline, which calls for canceling debt after making no less than 10 years of qualifying payments.
In June, two separate federal judges in Kansas and Missouri issued injunctions that halted key parts of the SAVE plan while the challenges play out in court. The 2 lawsuits filed in June eventually led to a latest injunction that temporarily blocked all the SAVE plan during litigation.
The Biden administration then appealed the newly expanded injunction to the Supreme Court. Last week, the court weighed in by declining to lift the injunction, meaning the SAVE plan will stay on ice because the plan’s fate gets determined by the lower courts.
After the lower courts rule, it’s possible the case could return before the Supreme Court if the choice is appealed.
Education Department renews forbearance for borrowers already in SAVE
Greater than 8 million borrowers enrolled in SAVE are still in forbearance, with paused payments and no interest accruing, because the litigation continues. The Biden administration initially put those borrowers in forbearance back in June, because of uncertainty across the legal challenges.
Unfortunately for borrowers, time spent on this general forbearance won’t count toward borrowers’ payment history for Public Service Loan Forgiveness or forgiveness on any income-driven repayment plan, the department says.
Moreover, the court injunction froze online applications for all IDR plans, not only SAVE, in addition to for federal loan consolidation. Now, borrowers can only apply by submitting a PDF application and sending it to the corresponding servicer.
Although borrowers can apply via PDF, no latest applicants will likely be enrolled. Currently, servicers have paused processing applications and should place latest applicants into an administrative forbearance for as much as 60 days. During this sort of forbearance, interest does accrue on the loans. Nevertheless, if application processing takes longer than 60 days, the applicant moves to general forbearance, where interest will then stop accruing.
“Borrowers should expect a lengthy delay in processing,” the Education Department said.
Harsh consequences of missed payments slated to return
Protections geared toward easing borrowers back into repayment over the past 12 months are about to run out.
The scholar loan “on ramp,” which the Biden administration put into place last October, blunts the worst financial consequences of missing a loan payment. Throughout the on ramp, the Education Department hasn’t been placing the loans of borrowers who missed payments into default or delinquent status. The department also hasn’t reported missed payments to credit bureaus or debt collection agencies. In effect, missing a payment through the on ramp has little to no effect on a borrowers’ funds, other than accrued interest.
That leniency is ending on Sept. 30. After which, “the hammer really comes down,” on borrowers who miss payments, Abby Shafroth, director of the National Consumer Law Center’s student loan borrower assistance project, previously told Money.
The NCLC and other advocate groups have asked the department to elongate the on ramp until all the dust settles from the legal battles.
“To guard borrowers, the Department should, at minimum, extend the present ‘on-ramp’ protections to carry student loan borrowers harmless for missed payments so long as the litigation stays lively,” the letter, sent at the top of August, states.
The department has yet to release latest guidance in regards to the end of the on-ramp.
The timeline for legal fight extends past election
When all the legal challenges to the Biden administration’s student loan relief plans might conclude is anyone’s guess. Federal court cases can take anywhere from several months to potentially years.
For instance, Biden’s initial forgiveness plan was first challenged in September 2022 in federal court before being taken up by the Supreme Court. The death blow didn’t come until June 2023.
If SAVE or Biden’s second forgiveness plan, or each, are appealed to the Supreme Court, the earliest the court would likely release its opinion ruling can be next June or July, when the nation’s top court customarily releases decisions on high-profile cases under its purview. The cases even reaching that time highly depend upon the end result of the presidential election.
While the timeline is difficult to predict, it’s unlikely the legal challenges will likely be resolved before November, as Republicans against student loan relief are poised for a fight.
“We successfully halted their first two illegal student loan cancellation schemes,” Missouri Attorney General Andrew Bailey said Tuesday. His state is among the many ones suing to stop Biden’s latest broad forgiveness plan.
“I actually have little doubt we’ll secure yet one more win to dam the third one,” he added.
More from Money:
Tips on how to Pay Off Student Loans Fast
Nearly 60% of College Students Have Considered Dropping Out Due to Money
An ‘Inexpensive’ College Degree Now Means Not Going Into Debt, In keeping with Parents