Student Loan Writ: Biden plans Supreme Court appeal

WASHINGTON – The Biden administration plans to seek reinstatement from the Supreme Court President’s Student Debt Repayment Planaccording to a warning filed Thursday that Americans will be financially drained if the plan remains stalled in court in loan payments scheduled to resume in January.

The Justice Department is struggling to keep Biden’s plan alive after it was stopped by two federal courts in recent weeks. The agency is calling for swift action to block both rulings and allow the plan to go into effect, even if it is fought in the country’s courts.

In a lawsuit filed Thursday, the administration announced plans to appeal one of those rulings by a federal appeals court in St. Louis to the nation’s highest court. And it says it’s ready to challenge the other case if necessary.

The White House has said it will prevail, but even some supporters of the plan worry about its chances in front of a conservative Supreme Court, which has otherwise limited Biden’s authority, including a June decision that limited the ability of the Environmental Protection Agency restricts the energy plan to curb emissions.

Biden’s plan promises $10,000 in debt relief for students earning less than $125,000 or households earning less than $250,000. Pell Grant recipients, who typically demonstrate greater financial need, are eligible for an additional $10,000 relief.

Putting debt relief on hold would present the government with an “unnecessarily dangerous choice,” the administration argued in its filing. If student loan payments resume as planned on Jan. 1, millions of Americans will be billed for debt that was promised to be eliminated. But if the government extends the payment pause, it will cost billions in revenue.

It builds on arguments the government made in other filings this week, warning that many Americans will not be able to pay their student debt bills in January if the cancellation plan is halted.

For typical borrowers, monthly payments would be $200 to $300 more than if Biden’s plan were implemented, the Department of Education said. The stress could lead to rising default rates, which have averaged twenty times higher since other natural disasters.

“We anticipate that there could be a historic surge in federal student loan arrears and defaults as a result of the COVID-19 pandemic,” Secretary of State for Education James Kvaal said in a filing Tuesday. “This could result in some of the damage that the one-time student loan debt relief program was designed to avoid.”

In its latest filing, the Justice Department is asking an appellate court to overturn a decision by US District Judge Mark Pittman Knock down Biden’s plan. Pittman, who was appointed by former President Donald Trump and is based in Fort Worth, Texas, ruled last week that Biden’s plan exceeded his presidential authority and usurped Congress’ powers to legislate.

It stemmed from a lawsuit by two borrowers who are not eligible for relief under the parameters of Biden’s plan. The program was stopped separately by a court in St. Louis after six Republican-run states said it would harm financial institutions.

Almost 26 million people have already applied for relief, but the Ministry of Education has approved 16 million stopped accepting and processing applications last week after the plan was declared illegal.

Biden’s plan has sparked a series of legal challenges that have led to mixed results. Debt relief opponents have asked the Supreme Court on at least two occasions to intervene after their cases failed in lower courts. The Supreme Court denied both requests.

The spate of lawsuits has jeopardized Biden’s plan, which was intended to deliver on a major campaign promise. It is now uncertain whether 40 million borrowers who were promised debt relief will have to start paying down those debts in January.

The greatest risk is for 18 million borrowers who have been told their entire loan balance would be forfeited. Even if payments resume, those borrowers could think they’re in the know and ignore the bills, the Department of Education has warned.

Borrowers who default on payments can face serious consequences, including damage to their creditworthiness and withholding of wages and tax refunds.

Supporters and some Democrats in Congress are Pressure Biden to extend payment pause until all legal challenges are resolved, despite his prior assurances that the freeze would end after December 31.

In a Tuesday filing, the Department of Education said it was reviewing “all available options.” But it warned that extending the pause could cost the federal government “several billion dollars a month in unrecovered loan revenue.”

The freeze has already cost the federal government more than $100 billion in revenue, according to a July report by the Government Accountability Office. Critics warn that further extension could worsen inflation and increase the risk of an economic recession.

In a separate action against student debt, the education and justice ministries announced new guidance that would make it easier for borrowers to foreclose on student loans in bankruptcy court.

When bankrupt borrowers try to foreclose on their government student loans, government attorneys have typically tried to block them.

Advocates have long complained that only a tiny fraction of bankrupt borrowers manage to clear their student loans, and many attorneys don’t even take on these cases. As a presidential candidate, Biden promised to solve the problem.

The Justice Department on Thursday sent new guidance to its attorneys clarifying when they can support a borrower’s application for student debt forgiveness. Judges still have the final say, but the department said its guidance will produce “fairer, more consistent outcomes.”

Separately, a federal judge on Wednesday approved a settlement by the Department of Education that will do so $6 billion in student debt forgiveness for borrowers who say they have been scammed by for-profit colleges. The deal was proposed in June but was delayed due to a challenge from multiple schools.

A federal judge in San Francisco concluded that the settlement was fair. Advocates and the Biden administration welcomed the approval, while a for-profit college industry group vowed to appeal the decision.

As part of the settlement, the Department of Education agreed to cancel loans for about 200,000 borrowers who attended one of more than 150 for-profit colleges and later filed for termination because of their schools’ misconduct.

It stems from a 2019 lawsuit accusing the Trump administration of deliberately delaying the credit-facilitation program while it was rewriting the rules.

The Associated Press education team is supported by the Carnegie Corporation of New York. The AP is solely responsible for all content.