Several months ago, the Biden administration introduced a student loan forgiveness plan. This new initiative, referred to as “Plan B,” emerged after the original plan was overturned by the Supreme Court. As the second broad forgiveness strategy has been moving through the regulatory process, it has been legally challenged prior to implementation.
While legal challenges of the plan were expected, they weren't expected before the publishing of the final regulations. However, the plan has been blocked before the final rules were issued, and the case has created quite the whirlwind.
Biden Student Loan Forgiveness
The second mass student loan forgiveness plan proposed by the Biden administration is currently navigating the negotiated rulemaking process, which establishes regulations for federal student aid programs. While the final rules have yet to be published, the plan is already facing a significant legal challenge from the Attorneys General of seven states.
These states initially filed a lawsuit claiming they had evidence that the U.S. Department of Education intended to implement the plan prematurely before the final regulations were released. Moreover, they argue that this initiative represents another attempt at mass student loan forgiveness, a measure previously struck down by the U.S. Supreme Court. They contend that President Biden has exceeded his authority by introducing such a plan.
The Legal Decisions on Biden’s Student Loan Forgiveness
In early September, a challenge was filed in a federal court in Georgia, where a judge initially issued a temporary two-week restraining order. This order was subsequently extended for another two weeks. However, last week, the Georgia judge allowed the restraining order to expire, enabling the plan to proceed. The judge ruled that the case lacked legal standing to contest the student loan relief plan and suggested that it should be transferred to Missouri, as the states filing the claim argued that the harm primarily impacts Missouri.
On Thursday, the states filed a motion for a preliminary injunction with the U.S. District Court for the Eastern District of Missouri. U.S. District Judge Matthew Schlep granted this injunction, placing the forgiveness plan on hold until the court reaches a decision.
Borrower Impacts
The forgiveness plan was never enacted, so borrowers will not experience a direct impact. However, those who had hoped for forgiveness are concerned about the plan's future viability. Relying on mass student loan forgiveness is not advisable. We anticipate that this hold on the forgiveness plan will persist for several months, and further litigation is expected regardless of the outcome.
In addition to this legal challenge, the Biden administration has struggled to advance new initiatives aimed at providing relief to student loan borrowers. The SAVE Plan, the latest income-driven repayment option, has been entangled in legal disputes for several months. As a result, the plan is currently on hold, along with the accounts of the 8 million borrowers enrolled in it. If permitted to proceed, the SAVE Plan offers most student loan borrowers the lowest monthly payment option available, eliminates negative amortization, and presents generous forgiveness opportunities compared to existing plans.
Borrowers need to familiarize themselves with their repayment options. Ongoing litigation does not affect existing student loan forgiveness programs, such as Public Service Loan Forgiveness, nor does it impact forgiveness available after years of payments under other eligible income-driven repayment plans, like Income-Based Repayment (IBR). However, those relying on mass student loan forgiveness as a repayment strategy may not be preparing for a very real possibility that it may never happen. Borrowers should actively explore the existing avenues for student loan forgiveness instead of relying on plans that are at substantial risk of being eliminated.
It is prudent to evaluate all scenarios and determine the best course of action for every outcome. Tools such as the student loan simulator provided by the U.S. Department of Education can offer insights into various repayment options. While these programs face uncertainty, they may continue after months of legal challenges. However, not all borrowers will qualify for immediate forgiveness. Current estimates suggest that 25 million borrowers may receive full or partial student loan forgiveness totaling $75 billion. Nevertheless, with the federal student loan portfolio standing at $1.6 trillion, it is evident that many borrowers will still be required to repay their debts.
It’s wise to look at all scenarios and determine the best course of action for all outcomes. Tools like the student loan simulator offered by the U.S. Department of Education can provide personalized estimates of all federal student loan repayment options.
Even if these programs are not eliminated, the truth is, not all borrowers will qualify for immediate or full forgiveness of their federal student loans. The legal challenges have estimated that 25 million borrowers will experience full or partial student loan forgiveness totaling $75 billion under Plan B. However, with the federal student loan portfolio of $1.6 trillion, it’s clear that many borrowers will still be required to repay their debt.