One-Time Student Loan Forgiveness Application & Legal Challenges Update
Last week, I wrote the first part of a series on budgeting, which you can read here. With apologies those that viewed that post, I’m going to detour away from the planned part two of my budgeting series. There are several updates in the fast-moving news surrounding the one-time student loan debt forgiveness. The government is moving quickly with the application process, while several lawsuits, questioning the legality of the forgiveness, move forward. And, as I’m writing this, one of the lawsuits has succeeded in getting a temporary stay (pause) on loan forgiveness while the case is heard.
First of all, the application for student loan forgiveness is out and can be found here. The application is VERY simple and will take about 1-2 minutes to complete. It does not require you to login to your account, as was previously discussed. The government recommends filling out the application prior to November 15 in order to receive forgiveness prior to January, when the hold on student loan payments ends. So, if you’re reading this post, and think you may be eligible to receive forgiveness, I recommend that you take the time to complete this application ASAP. There’s no harm in filling out the application if you’re unsure or don’t think you’re eligible for forgiveness. The rules have become complicated enough that it can be hard to know for sure.
Stepping back for a minute, the Biden Administration based the legality of the one-time Student Loan Debt Forgiveness Executive Order on the HEROES Act of 2003. That was a post-911 law that granted the Secretary of Education the power to “waive or modify any statutory or regulatory provision” to alleviate the suffering student loan borrowers may be experiencing because of a national emergency. When the law was passed, the emergency was 911 and the post 911 wars and was primarily aimed at members of the military that were called to serve, who also had student loans. In the current case, the national emergency is COVID. There are other technical definitions involved, but that’s the basics. Of course, it can be debated whether the COVID emergency equates to the post-911 emergency, and the letter of the HEROES Act, and that’s what some of the lawsuits are attempting to do.
On to the legal cases. I mentioned in my first post about student loans, which you can read here, that there was a Wisconsin case that had been dismissed. That has been subsequently appealed to the Supreme Court, where the court declined to hear it. So, that one’s done.
In the second case mentioned in my prior post, six Republican states filed suit together against the Executive Order. They were asking that the forgiveness be halted while the case was being argued. That case was subsequently dismissed by a federal judge based on “Lack of Standing”. In short, the states couldn’t show any harm to themselves, so they had no “standing” to file suit. The judge, as in the Wisconsin case, noted that there were perhaps legal issues that could legitimately be pursued. But neither of the two cases above passed the legal threshold to advance beyond the preliminary stage. I should note that the regulations of the student loan forgiveness were modified to exclude certain loans, commercially held Federal Student Loans, to essentially counter this legal argument. This change has the effect, to borrowers, of making some student loans, that were previously eligible, now ineligible for forgiveness.
Last Friday, the appeal that was filed, in the above case, led to a temporary stay (pause) to forgiveness. That doesn’t mean that the case will succeed, just that the appeals court agreed to hear their case & paused the debt forgiveness until there’s a ruling. Since it’s an emergency order, the next ruling will likely take place within the next couple of weeks. The case will either be dismissed, with the stay being removed, or the stay will remain in place & the court will hear the entire case. I expect we will see a lot of cases heard, dismissed, appealed, heard again, and possibly appealed to the Supreme Court.
And well, it seems like the lawyers are going to get rich on this topic as there are several other lawsuits in play:
The Arizona Attorney General filed suit arguing that it would make it harder to recruit attorneys to work for the state since attorneys often take public jobs to get debt forgiveness through the Public Service Loan Forgiveness (PSLF) plan. PSLF (technically) provides loan forgiveness after 10 years to borrowers that work for non-profits or for the government. The lawsuit also argued that the forgiveness plan will harm tax revenue and increase their costs of borrowing. A hearing on an injunction will be held soon, possibly this week, in federal court.
The Cato Institute, a non-profit libertarian think tank, filed suit claiming similar harm, as above, regarding the (PSLF). They also claimed that the Secretary of Education didn’t have the power to grant forgiveness without congressional approval.
The Pacific Legal Foundation, a non-profit legal organization, filed suit on behalf of one of its members in Indiana. The suit claimed that the member would be harmed because he would be taxed in the state of Indiana on his forgiveness, creating a burden on him. Like in the suit filed by the 6 Republican states, the regulations were then changed. This time the change allowed borrowers to opt-out of forgiveness, removing the potential harm to the litigant. Subsequently, the lawsuit was dismissed in federal court. The lawsuit was then amended seeking class-action status. That lawsuit was also dismissed. The plaintiffs are currently planning an appeal to the 7th Circuit Court of Appeals.
There’s no telling how long these suits will take to play out, but so far, decision have been rendered very quickly. Some legal pundits have suggested that it will be very hard to find anyone who’s been harmed by the debt forgiveness, making it very difficult to have legal standing to be successful in a lawsuit. Others note that there are real questions of legality of the debt forgiveness plan.
The bottom line is that everyone who thinks they might be eligible for the loan forgiveness, and wants to seek it, should fill out the application using the link at the top of this post. Unless something changes and a legal argument succeeds in slowing down the process, or stopping it entirely, debt forgiveness is planned to be executed by the end of the year.
Regardless of how this student loan debt forgiveness plays out, many borrowers have additional student loans, sometimes exceeding six figures. Student Loans burden both younger borrowers, and older borrowers, and require a lot of planning and resolve to pay them off. The alternative is that these loans stay around forever. They can’t be negotiated down & if they aren’t paid properly, they can actually grow larger.
So, if you’re tired of your student loans, or other accumulated debt, and want them gone so you can start living your life again, click here to setup a Complementary Consultation with me. We can get to know each other and find out if Financial Coaching is a fit. If so, we can work together to put together a plan to eliminate your debt so that you can live your life the way that you want.
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