Much has happened in the last two weeks, as federal courts have upended President Biden’s plans to provide billions of dollars in student loan forgiveness.
Results of the legal battle over Biden’s signature one-time debt cancellation initiative now suddenly look like the ongoing pause on student loan payments could get extended again, on top of additional student loan relief that will roll out next year.
Here’s what borrowers should know.
1. Federal courts blocked Biden’s student loan forgiveness plan 2. Biden administration may extend student loan payment pause in response to cancellation setbacks 3. Other federal student loan forgiveness and relief initiatives coming in 2023
Federal courts blocked Biden’s student loan forgiveness plan
In August 2022, Biden announced that he would implement wide-scale student loan forgiveness. Under his unprecedented initiative, 40 million borrowers with federally-administered student loans would receive one-time cancellation of $10,000 or more (borrowers who had received a Pell Grant could be eligible for up to $20,000 in loan forgiveness).
After the Biden administration released an online application in October, 26 million borrowers rushed to apply. The Education Department subsequently approved 16 million of these borrowers for loan forgiveness.
But legal challenges have derailed Biden’s plans. Although federal court judges dismissed several lawsuits brought by conservative-leaning groups, two have stuck.
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Texas court declares Biden’s student loan forgiveness illegal
In one case, a conservative legal organization filed a lawsuit in a Texas federal court, arguing that the Biden administration violated the Administrative Procedures Act (APA) to establish the new program, and improperly relied on the HEROES Act of 2003 to justify emergency regulations creating the initiative.
The court declared Biden’s student loan forgiveness program unconstitutional and illegal, and ordered it vacated.
Biden’s student loan forgiveness is suspended indefinitely
In another case, a coalition of Republican-led states sued the Biden administration, arguing that the loan forgiveness program would deprive states of revenue by encouraging FFELP borrowers to consolidate into the Direct Consolidation Loan program.
The lawsuit was dismissed at the federal district court level, but the coalition appealed to the 8th Circuit Court of Appeals. In a 3-0 decision earlier this week, that court issued a preliminary injunction. That preliminary injunction replaces the earlier temporary stay that was in effect since October 2022 and suspends the program indefinitely while the litigation continues.
Biden’s one-time loan forgiveness program is in serious danger
Both court decisions are significant legal setbacks for the Biden administration. Biden’s one-time loan forgiveness program is now in serious danger.
The administration is appealing the adverse rulings, but the legal battle may ultimately end up before the U.S. Supreme Court. The conservative majority on the nation’s highest court has expressed skepticism of broad federal authority in other recent cases, suggesting that Biden’s program may not be viewed favorably.
For the millions of federal student loan borrowers who have already applied for student loan forgiveness under the one-time Biden initiative, uncertainty is the only sure thing.
Related: When Will Student Loan Forgiveness Get Unblocked? It’s Unclear
Biden administration may extend student loan payment pause in response to cancellation setbacks
The legal setbacks related to Biden’s one-time student loan forgiveness initiative have prompted top administration officials to consider extending the ongoing student loan payment pause. That pause — which has stopped payments, frozen interest, and suspended collections efforts since March 2020 due to the pandemic — is set to end on December 31, 2022, following Biden’s last extension.
Biden announced the current extension in August in conjunction with the rollout of the one-time cancellation program. The Biden administration had linked the two initiatives, arguing that returning borrowers to repayment would offset the cost of the one-time cancellation program. And millions of borrowers with relatively smaller loan balances could receive complete loan forgiveness, making any return to repayment moot for a significant subset of borrowers.
With the future of the one-time student loan forgiveness program now in doubt, however, officials are contemplating yet another extension of the ongoing federal student loan payment pause. While the pause would not be indefinitely extended, an extension into 2023 would give the administration more time to appeal the adverse court decisions while continuing to get the student loan system ready for borrowers to resume payments.
But another extension of the student loan payment pause would almost certainly face pushback from Republicans. And the future of the official emergency related to the COVID-19 pandemic, which is the legal basis for the payment pause and associated extensions, also is somewhat in doubt. Biden previously declared that the pandemic is over, and a growing contingent in Congress is trying to pass legislation officially ending the pandemic emergency.
Other federal student loan forgiveness and relief initiatives coming in 2023
While the future of Biden’s one-time debt cancellation initiative is in doubt, other critical student loan forgiveness programs remain in place. This includes Public Service Loan Forgiveness (PSLF) broadly, as well as the Limited PSLF Waiver — a temporary initiative that ended on October 31, 2022. The Education Department and its contracted PSLF servicer, MOHELA, are still processing applications.
Another temporary initiative, the IDR Account Adjustment — which provides retroactive credit for borrowers toward PSLF as well as a borrower’s 20- or 25-year loan forgiveness term under income-driven repayment plans — is on track for implementation by July 2023, according to the Education Department.
The Education Department also rolled out final regulatory updates governing PSLF, the Total and Permanent Disability (TPD) discharge program, and Borrower Defense to Repayment, all of which are expected to be in place next summer. These regulatory changes will streamline and enhance these loan forgiveness programs by expanding eligibility and making the application processes easier and more borrower-friendly.
The Biden administration is also expected to roll out a new income-driven repayment plan in the coming months. While many details have yet to be released, the plan is expected to provide lower payments for many borrowers, as well as an interest subsidy that may eliminate negative amortization — balance growth during periods of low or $0/month payments.
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