Biden requests that the Supreme Court review the student debt plan
According to a legal document filed on Thursday, the Biden administration intends to ask the Supreme Court to reinstate the president’s plan to cancel student loan debt. The document also warns that if the plan isn’t reinstated, Americans will face financial hardship when loan payments resume in January.
After being blocked by two federal courts in recent weeks, the Justice Department is battling to keep Biden’s plan in place. While the case is being litigated in the nation’s courts, the agency is pleading for immediate action to overturn both judgments and enable the plan to go into force.
The administration revealed plans to appeal one of these decisions from a federal appeals court in St. Louis to the Supreme Court of the United States in a legal filing on Thursday. It also states that it is ready to appeal the second case if necessary.
The White House has stated that the plan will succeed, but even some of its supporters are sceptical of its prospects in front of a conservative Supreme Court that has curbed Biden’s authority in other ways, including in a June decision that limited the EPA’s ability to regulate power plant emissions.
According to Biden’s proposal, individuals or households making less than $125,000 annually or $250,000 overall will be granted a $10,000 federal student loan forgiveness. The additional $10,000 in aid is available to Pell Grant winners, who often exhibit greater financial need.
The government would be forced to make a “unnecessarily risky option” if the debt relief was put on hold, the administration claimed in its brief. Millions of Americans will be charged for debt that was supposed to be eliminated if student loan payments resume as scheduled on January 1. However, the government will lose billions of dollars in revenue if the payment pause is prolonged.
It expands on the points the administration made in other filings this week, saying that if the cancellation plan is not reinstated, many Americans won’t be able to make their student loan payments in January.
According to the Education Department, monthly payments for typical borrowers would increase by $200 to $300 under Biden’s proposal. Rising default rates, which have climbed by an average of twentyfold in the wake of prior natural disasters, could result from the strain.
Education Undersecretary James Kvaal stated in a document on Tuesday that the COVID-19 pandemic “may result in a historically substantial increase in the amount of federal student loan delinquencies and defaults.” This might lead to one of the negative effects that the one-time student loan debt relief programme was designed to prevent.
The Justice Department has submitted a new document asking an appeals court to overturn a ruling by U.S. District Court Judge Mark Pittman that rejected Biden’s proposal. Biden’s plan exceeds his presidential authority and usurps Congress’ legislative authority, according to Pittman, a Fort Worth, Texas-based judge who was appointed by former President Donald Trump.
It was a result of a lawsuit filed by two borrowers who are not qualified for assistance under the terms of Biden’s scheme. After six Republican-led states claimed the programme would harm financial institutions, it was separately stopped by a St. Louis court.
The Education Department halted collecting and processing applications last week after the plan was determined to be illegal. Nearly 26 million people have previously filed for the relief, with 16 million being granted.
The legal challenges to Biden’s scheme have been many and have had varying degrees of success. Debt forgiveness opponents have petitioned the Supreme Court to get involved at least twice after their cases in lower courts were rejected. Both appeals were turned down by the Supreme Court.
Biden’s strategy, which was supposed to fulfil a significant campaign promise, is now in risk due to the onslaught of litigation. Whether 40 million borrowers who were promised debt relief will need to begin making payments on that debt in January is now questionable.
The 18 million borrowers who were informed their full loan sum would be cancelled are at the greatest risk. The Education Department has cautioned that even if payments resume, such debtors might believe they are no longer in default and disregard the bills.
If a borrower is late on a payment, severe repercussions may follow, such as harm to their credit scores and the withholding of salaries and tax returns.
Despite his previous guarantee that the payment freeze will cease after December 31, advocates and several Democrats in Congress are urging Biden to extend the payment hold until all legal challenges are settled.
The Education Department stated in a filing on Tuesday that it is “considering all available options.” The government may lose “several billion dollars a month in unrecovered loan revenue” if the suspension was extended, the document warned.
According to a report released in July by the Government Accountability Office, the freeze has already cost the federal government more than $100 billion in revenue. Critics warn that a further extension may exacerbate inflation and raise the likelihood of a recession.
The departments of Education and Justice jointly unveiled a new policy to make it simpler for borrowers to have student debts discharged in bankruptcy court as part of a separate effort to address student debt.
Government lawyers usually intervene to prevent federal student loan cancellation requests made by bankrupt debtors.
Advocates have long complained that few borrowers who file for bankruptcy are successful in having their student loans discharged, and many attorneys would not even consider those cases. Biden pledged to address the issue as a contender for the presidency.
On Thursday, the Justice Department provided fresh instructions to its lawyers that made it clearer when they may support a borrower’s request for student loan forgiveness. The department stated that its recommendations will produce “fairer, more consistent decisions,” although judges will still have the final word.
Separately, a federal judge on Wednesday approved a settlement between the Education Department and debtors who contend that for-profit colleges defrauded them of $6 billion in student loans. The agreement was put forth in June but was postponed due to opposition from many schools.
According to a federal judge in San Francisco, the compensation is just. While supporters and the Biden administration cheered the approval, a group representing the for-profit college business vowed to challenge the ruling.
As part of the deal, the Education Department agreed to cancel loans for nearly 200,000 students who attended one of more than 150 for-profit colleges and then requested cancellation due to misbehaviour by their institutions.
It’s a result of a lawsuit filed in 2019 accusing the Trump administration of purposefully delaying the loan relief programme while it revised the regulations.