Biden administration halts student loan relief applications

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The Biden administration has stopped taking applications for its student debt forgiveness program, citing a Thursday ruling from a federal judge in Texas that declared the program “unlawful.”

On Friday, the Department of Education's student debt relief website displayed a message informing borrowers that “student loan debt relief is blocked.” It added, “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 Education Department said it will hold the applications for the roughly 26 million people who have already applied for forgiveness. 

The application's closure marks a departure from the Education Department's previous stance following an October court ruling that put a temporary stay on the program in response to an emergency motion brought by attorneys for several Republican-led states. After that ruling, the Biden administration continued to keep the application open because the stay only halted the discharge of debts. It had encouraged borrowers to apply nonetheless. 

The Texas ruling “vacates the entire program, so they can't have borrowers continue to apply,” noted higher education expert Mark Kantrowitz, who said he estimates there are about 38 million people eligible for the debt relief program. “For the 12 million who haven't yet submitted applications, they can't submit applications now.”

Judge: “Unlawful” 

The ruling from U.S. District Judge Mark Pittman, who was appointed by former President Donald Trump, was in response to a lawsuit from a conservative group called the Job Creators Network Foundation, which argued the Biden administration violated federal procedures by failing to seek public input on the program.

Pittman declared the program “unlawful,” citing the 2002 Higher Education Relief Opportunities For Students Act (HEROES), which gives the Education Department the ability to grant waivers to financial aid recipients. 

“Whether the program constitutes good public policy is not the role of this Court to determine,” Pittman wrote in his decision. “In this country, we are not ruled by an all-powerful executive with a pen and a phone.”

The Biden administration said it plans to appeal the ruling, but the legal process could take weeks to play out. The Fifth Circuit Court of Appeals will hear the case. That circuit has “arguably become one of the most conservative appeals courts in the country,” Height Securities noted in a Friday research report.

After the appeals court decision, either side is likely to appeal to the Supreme Court, where Justice Samuel A. Alito, a conservative, will first review the case, Height Securities said. 

Whatever the outcome, it could take time for the legal process to unfold, Kantrowitz noted. That could create a financial crunch for many borrowers because the student debt repayment hiatus expires in December, which means repayments will resume in January. 

If the case is resolved in favor of the Biden administration before year-end, it's possible some of the 26 million people who applied before the application was shut down could get their debt waived before January. But the 12 million people who haven't yet submitted applications could be on the hook for repayment in early 2023 because the Department of Education and loan servicers may not have enough time to process new applications before January, Kantrowitz added.

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