Appeals court ruling keeps Biden student debt plan on hold

ST. LOUIS —  President Biden’s plan to forgive student loan debt for millions of borrowers was handed another legal loss Monday when a federal appeals court panel agreed to a preliminary injunction halting the program while an appeal plays out.

The ruling by the three-judge panel from the 8th U.S. Circuit Court of Appeals in St. Louis came days after a federal judge in Texas blocked the program, saying it usurped Congress’ power to make laws. The Texas case was appealed and the administration is likely to appeal the 8th Circuit ruling as well.

The plan would cancel $10,000 in student loan debt for those making less than $125,000 or households with less than $250,000 in income. Pell Grant recipients, who typically demonstrate more financial need, would get an additional $10,000 in debt forgiven. The cancellation applies to federal student loans used to attend undergraduate and graduate school, along with Parent Plus loans.

The Congressional Budget Office has said the program will cost about $400 billion over the next three decades.

California

Newsom urges California lawmakers not to tax forgiven federal student loans

Gov. Gavin Newsom said the Legislature should move quickly to prevent borrowers from paying state taxes on the student debt forgiven through a new Biden administration initiative.

Nov. 5, 2022

A federal judge on Oct. 20 allowed the program to proceed, but the 8th Circuit the next day temporarily put it on hold while it considered an effort by the states of Nebraska, Missouri, Iowa, Kansas, Arkansas and South Carolina to block the loan forgiveness plan.

The new ruling from the panel made up of three Republican appointees — one was appointed by President George W. Bush and two by President Trump — extends the hold until the issue is resolved in court.

Part of the states’ argument centered around the financial harm the debt cancellation would cause the Missouri Higher Education Loan Authority.

“This unanticipated financial downturn will prevent or delay Missouri from funding higher education at its public colleges and universities,” the 8th Circuit ruling stated.

Nebraska Atty. Gen. Doug Peterson, a Republican, said in a statement that the ruling “recognizes that this attempt to forgive over $400 billion in student loans threatens serious harm to the economy that cannot be undone. It is important to stop the Biden administration from such unlawful abuse of power.”

A message seeking comment from the White House wasn’t immediately returned.

Both federal cases centered around the Higher Education Relief Opportunities for Students Act of 2003, commonly known as the HEROES Act. It was enacted after the 9/11 terrorist attacks, allowing the secretary of education to waive or modify terms of federal loans in times of war or national emergency.

Lawyers for the administration contend the COVID-19 pandemic created a national emergency and that student loan defaults have skyrocketed over the last 2 1/2 years.

But in the Texas ruling on Thursday, U.S. District Judge Mark Pittman — an appointee of Trump based in Fort Worth — said the HEROES ACT did not provide the authorization that the Biden administration claimed it did.

White House Press Secretary Karine Jean-Pierre has said that so far, 26 million people had applied for debt relief, and 16 million people had already had their relief approved. The Department of Education would “quickly process their relief once we prevail in court,” she said after the ruling in Texas.

The legal challenges have created confusion about whether borrowers who expected to have debt canceled will have to resume making payments come Jan. 1, when a pause prompted by the pandemic is set to expire.

Economists worry that many people have yet to rebound financially from the pandemic, saying that if borrowers who were expecting debt cancellation are asked to make payments instead, many could fall behind on the bills and default.