The Student Loan Forgiveness Plan Is In Legal Limbo. But Don’t Panic Just Yet

An Eight Circuit Court of Appeals recently placed an injunction on the Biden Administration’s student debt forgiveness plan, effectively roadblocking the program for the foreseeable future. The decision comes as quite a blow, as at least 26 million people out of the around 43 million eligible borrowers had already applied for forgiveness, and as the Biden administration said that it was ready to start cancelling debt for those who had applied.

As a result of the injunction, Biden’s Department of Education shut down its application for borrowers to apply to get their debt cancelled, effectively throwing the plan in limbo and leading those who hadn’t yet applied for forgiveness to worry if they might never be able to. But big decisions like these get held up in court all of the time. So what does the lawsuit mean? Will debt still be cancelled, or is the program dead in the water? Is there anything borrowers can do in the meantime? Can borrowers still apply while the plan is stuck in legal limbo?

Here’s what to know.

Biden’s Student Debt Plan, Explained

In August 2022, President Biden announced his sweeping debt cancellation plan that could impact 43 million eligible borrowers. The plan would cancel up to $10,000 per borrower or $20,000 for borrower who received a Pell Grant, for those who make under a certain income threshold.

The Department of Education launched an easy-to-use student debt application tool online in October 2022, Since the launch, more than half of qualified borrowers have applied for the debt cancellation.

Republican lawmakers and a handful of Democrats, however, were not so keen on the idea and have filed numerous lawsuits in attempts to halt the program. One recent lawsuit stuck.

What’s happening in the courts?

The Supreme Court has overthrown some of the lawsuits challenging Biden’s plan, but in the week of November 7th, one Texas judge struck down the program, resulting in the closing of program applications.

Then, on Monday, Nov. 14, the Eighth Circuit Court of Appeals in St. Louis issued an injunction that blocks the program entirely, not only preventing new applications but also stymying the Biden Administration’s attempts to cancel the debt of the millions of borrowers who were already approved.

The content of the lawsuits varies, but the crux is that Republican lawmakers believe the President overstepped his authority and that the debt forgiveness program will prevent states from capitalizing on student loan debt, therefore leading to lose revenue.

Experts believe the decision will ultimately be left in the hands of the Supreme Court as the Biden Administration intends to fight the injunction.

“The Administration will continue to fight these baseless lawsuits by Republican officials and special interests and will never stop fighting to support working and middle-class Americans,” said White House Press Secretary Karine Jean-Pierre.

NPR suggests the process to appeal the court’s decision could take weeks. In the meantime, borrowers remain in limbo, and the application to get your student debt cancelled is offline.

I haven’t yet applied for my loan to be cancelled. Am I screwed?

Unfortunately, the Biden administration is not accepting applications for student loan cancellation at this time. Borrowers who haven’t yet applied for forgiveness should sign up for updates — including if or when applications open again — at studentaid.gov.

The Student Aid website reads: “Courts have issued orders blocking our student debt relief program. As a result, at this time, we are not accepting applications. We are seeking to overturn those orders.”

The deadline to apply for student loan forgiveness remains, for now, Dec. 31, 2023.

I already applied months ago. Will I get a payout still?

As for the millions of people who have already applied to have their student loans forgiven, your information is on file with the Department of Education and will be processed if the court order is vacated or if the court process vindicates the Biden plan to cancel student loans.

“For the 26 million borrowers who have already given the Department of Education the necessary information to be considered for debt relief — 16 million of whom have already been approved for relief — the Department will hold onto their information so it can quickly process their relief once we prevail in court,” said White House Press Secretary Karine Jean-Pierre, according to the Washington Post.

In other words: It depends on how the court battle goes; and in the meantime, the program is paused.

“Now, the department cannot cancel those loans without a reversal of fortune in the courts,” NPR says.

Well, crap. Is there any other way to get my loans forgiven?

In terms of outright, one-time blanket forgiveness, the Biden plan that is held up in courts is the only way to go.

Thankfully, the forgiveness program is only one prong of the President’s plan to reform the student loan industry. In recent weeks, a number of initiatives that will simplify and repair the industry have been made official.

There are plans to do almost completely away with capitalized interest, a practice in which accrued interest is rolled into the principal balance of the loan, increasing the loan amount and essentially charging interest on interest.

Also, the Education Department has made progress in streamlining and repairing the Public Service Loan Forgiveness program, a beleaguered program geared toward forgiving loan debt for those in public service or the non-profit sector, which helps people become debt-free faster after working in the public sector.

Disabled borrowers won't have to face income evaluations for three years after claiming debt relief starting July 1, 2023, and many who attended predatory for-profit schools will have their debt erased entirely. Similarly, borrowers who attended schools that closed with no warning will have their debt forgiven after one year.

Biden also tweaked the Income-Driven Repayment program for student loans, decreasing the minimum payment to 5% of a borrower's discretionary income as opposed to the current rate of 10%. The rule would also raise the amount of income considered nondiscretionary, and help protect that income from repayment requirements — which could guarantee, according to some estimates, that no borrower making less than 225% of the federal poverty level will have to make a monthly payment.

Some borrowers could see their balances outright cancelled after 10 years of repayments, if their original loan balances were $12,000 or less. The plan would also cover the borrower’s unpaid monthly interest so that loan balances won’t grow as long as borrowers make consistent monthly payments. This is perhaps one of the more quietly important aspects of Biden’s debt plan — and one that hasn’t been challenged by lawsuits — and can still help people become debt-free much, much faster.

So, when will I have to start paying back my loans? Can I wait all this drama out?

Most pressingly, some analysts believe that President Biden will announce an extension to the COVID-19 era pandemic student loan payment pause, which began in March 2020 and was extended multiple times. When Biden announced his student loan forgiveness plan, he stated that he would extend the pandemic payment pause one final time, until Dec. 31, 2022. Now, experts think Biden might extend the payment pause again — a move that could give borrowers time to hold onto their money while this problem gets sorted out in courts.

So, although the lawsuit isn’t great for student loan borrowers, there are still plans in the works that offer a glimmer of hope and that shouldn’t get roadblocked in court. As for the broader student loan fight, the White House is seeking to overturn the court’s decision, but the process could take some time, even weeks, one NPR estimate suggested.