A federal appeals court has upheld the dismissal of a legal challenge to a key Biden administration student loan forgiveness initiative. The decision leaves intact more than $51 billion in debt relief already granted, and paves the way for more after the Biden administration recently extended a key deadline associated with the program.
“WIN! The 6th Circuit Court of Appeals rejected another right-wing attack on student debt relief,” said the Student Borrower Protection Center in a statement on X last week, shortly after the decision was announced.
Here’s what happened, and what borrowers should expect as the Biden administration continues to roll out loan forgiveness under the program.
Student Loan Forgiveness Through One-Time Adjustment Faced Challenge
The legal challenge focused on the IDR Account Adjustment, an initiative first announced by President Joe Biden in the spring of 2022. Designed to provide a retroactive “fix” to longstanding problems associated with income-driven repayment plans and Public Service Loan Forgiveness that had often blocked borrowers from receiving relief (or prolonged their time in repayment), the temporary initiative can be transformative.
The one-time account adjustment credits borrowers with time toward student loan forgiveness under IDR plans and PSLF for past periods that may not have otherwise counted. This includes time spent in non-qualifying repayment plans or in certain deferment and forbearance periods, as well as qualifying periods prior to consolidation. Borrowers can qualify for student loan forgiveness after 20 or 25 years in repayment under IDR plans, or in as little as 10 years for those working in nonprofit or government jobs and pursuing PSLF.
The Biden administration started implementing relief under the program last year, with the first batch of loan forgiveness approved in the summer of 2023. But a group of conservative-leaning groups then filed a legal challenge, alleging that the program was an unconstitutional exercise of executive authority. The groups argued that they would be harmed by the debt relief associated with the one-time account adjustment because it would negatively impact their ability to recruit and retain employees, as faster loan forgiveness would allegedly dilute the benefits of programs like PSLF.
In August, a federal district court in Michigan dismissed the lawsuit due to lack of standing, concluding that the groups were not able to demonstrate a cognizable injury sufficiently linked to the challenged program. The groups then appealed to the Sixth Circuit Court of Appeals.
Appeals Court Rejects Student Loan Forgiveness Challenge
On May 17, the Sixth Circuit issued its long- awaited decision, upholding the district court’s dismissal of the challenge and paving the way for student loan forgiveness to continue under the IDR Account Adjustment.
“Many people consider a college education the ticket to the American dream. Some take out student loans to get the ticket. Paying back those loans can turn into a nightmare. Congress and the U.S. Department of Education stepped in to help by creating income-driven student-loan repayment plans and the Public Service Loan Forgiveness program,” wrote the court in its ruling. “Various problems arose with these plans, including student-loan servicers steering borrowers into postponing or reducing their student-loan payments for extended periods of time. In response, the Department of Education announced, in April 2022 and July 2023, a one-time account adjustment that would count months or years that borrowers spent in excessive forbearance status toward debt forgiveness.”
The Court noted that the main question presented on appeal was whether the challengers — The Mackinac Center for Public Policy and the Cato Institute — had standing to challenge this program. The Court held that they do not. “At bottom, how the adjustment impacts Plaintiffs is up to individuals who are not parties to this lawsuit,” the court wrote. The Plaintiffs, the Court ruled, were not able to demonstrate that student loan forgiveness under the IDR Account Adjustment would directly harm them.
Following the ruling, the challengers issued a formal statement. “The executive branch cannot be allowed to legislate through press releases,” said Patrick J. Wright, vice president for legal affairs at the Mackinac Center, in a statement. “The Biden administration’s workarounds to forgive certain student loan debts are costing taxpayers hundreds of billions of dollars and completely ignores the importance of the separation of powers. Americans are being forced to pay for things not appropriated by their elected representatives and the court should hear this constitutional challenge.”
The statement indicated that the organizations are “reviewing their legal options.” The next step may be to appeal to the U.S. Supreme Court, although it is unclear if they will do so.
Student Loan Forgiveness Continues Under Adjustment As Biden Extends Key Deadline
So far, the Biden administration has approved more than $51 billion in student loan forgiveness for at least a million borrowers under the IDR Account Adjustment, according to recent data released by the Education Department. Hundreds of thousands of additional borrowers have received loan forgiveness through PSLF as a result of the adjustment, as well. And more relief is coming.
Some borrowers — particularly those with commercially-held FFEL loans — may need to consolidate their loans through the federal Direct consolidation program in order to qualify for relief under the account adjustment. The consolidation deadline had been April 30. But earlier this month, the Biden administration extended this deadline to June 30, giving borrowers who need to consolidate more time to do so. In the meantime, the Education Department is continuing to roll out loan forgiveness under the program every two months, and is expected to complete implementation of most of the relief later this fall.
“The Biden-Harris Administration remains persistent about our efforts to bring student debt relief to millions more across the country,” said U.S. Secretary of Education Miguel Cardona in a statement last week.
New Student Loan Forgiveness Plan Coming Soon
Separately, the Biden administration is also working to put the finishing touches on an entirely new student loan forgiveness plan. This initiative — designed as a replacement for the broad-based mass debt cancellation plan struck down by the Supreme Court last year — will provide targeted relief to five groups of borrowers. This includes those who have experienced interest accrual and capitalization, as well as borrowers facing significant hardships.
Up to 25 million borrowers could benefit from the new plan. The Education Department is expected to publish final regulations governing the program in the coming months. After that, implementation is expected sometime this fall. However, most observers expect the new loan forgiveness plan to face court challenges.
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