The 8th U.S. Circuit Court of Appeals granted an emergency stay pending appeal of a lawsuit seeking to delay the planned rollout of the Biden administration’s pledge student debt relief.
In other words, borrowers who hope to see $10,000 or $20,000 cleared of their debts will have to wait while this lawsuit unfolds; hearings are already scheduled for next week. There is also four other lawsuits pending appeal or pending hearing.
Staying is no reason to panic, says Mike Pierce, director and co-founder of the Student Borrower Protection Center. It’s procedural. The court cannot make a decision, says Pierce, when it has not been fully informed. The suspension calls for a response from the Justice Department by Tuesday afternoon.
“There’s really nothing to see here,” says Pierce.
The temporary halt came just days before the first borrowers saw their balance reduced. The White House said earlier this month it would not provide relief until October 23.
On Oct. 21, Biden said 22 million borrowers had already submitted their applications since the form first went live in beta form a week ago. The White House said about 40 million borrowers would be eligible for cancellation. The request for debt relief is still open.
What is the lawsuit asking for?
Six states (Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina) jointly claim that Biden’s debt relief would hurt their states’ tax revenues and the finances of state-based lending agencies. All six states are led by Republicans.
These student loan managers and corporations service corporate-held FFELP loans, a former type of federal student loan originally funded by private corporations. They claim that let FFELP borrowers consolidating their loans to be eligible for cancellation would hurt their bottom line, as it would eliminate or reduce scheduled interest payments.
In response, the Biden administration in late September waived cancellation eligibility for borrowers with corporate-held FFELP loans.
A federal district judge dismissed the case on October 20; the plaintiffs immediately filed an emergency motion with the 8th US Circuit Court of Appeals for an administrative stay. They asked the court to suspend the planned rollout of debt cancellation by 9 a.m. CST on Saturday, October 22.
The court didn’t wait that long; he approved the administrative stay on Friday.
Where does that leave borrowers?
Borrowers who requested or were waiting for automatic relief are now in limbo. And federal student loan repayments are expected to resume in January 2023 after a nearly three-year pause due to the pandemic, unless the pause is extended again.
No further extensions have yet been announced. It is wiser to proceed as if payments would resume as scheduled on January 1.
If you qualify for debt relief and haven’t applied, apply. It can’t hurt and you’ll secure your place in the queue if the legal hurdles are removed.
If you planned to request a refund of payments made during the break, reconsider. You can still request a refund, but as before, the refunded amount will be added to your loan balance.
If you have already received a refund on payments made during the break, do not spend it. If one of the lawsuits is successful, you may want to put it back on your loan balance.