Student loan forgiveness: Applications on hold after court ruling

The application for federal student loan forgiveness is on hold as the Education Department appeals a federal district court judge’s ruling that the program is a violation of legislative power.

Borrowers who try to access the application on the website will get a message that the site is not accepting applications at this time and to check back for updates. The government will hold applications of borrowers who already applied.

The legal delay could hurt borrowers still struggling to recover from the pandemic and rising inflation, student advocates warned, with one requesting the Biden administration to extend the pandemic forbearance pause beyond its expiration at the end of the year until legal issues are resolved.

“The purpose of the President’s debt cancellation plan is to help middle- and working-class Americans heal from the harm caused by the pandemic [and] that starts right now, with an immediate extension of the federal student loan payment pause,” Natalia Abrams, president of the Student Debt Crisis Center (SDCC), said in a statement. “For three years, borrowers have been a political punching bag facing uncertainty about the future of their student loans. The judge’s decision makes the future even more worrisome.”

Student loan forgiveness on hold due to court battle
Credit: U.S. Education Department (Education Department)

The ruling in Texas follows several lawsuits that were filed against President Joe Biden's forgiveness program after the application was launched last month, but the Education Department ultimately prevailed in those instances.

"We are disappointed in the decision of the Texas court to block loan relief moving forward. Amidst efforts to block our debt relief program, we are not standing down,” Miguel Cardona, secretary of the Education Department, said in a statement via press release. “The Department of Justice has appealed today’s decision on our behalf, and we will continue to keep borrowers informed about our efforts to deliver targeted relief.”

Secretary Cardona noted that over 26 million borrowers have applied and 16 million applications have been approved and sent to loan servicers to be discharged when allowed by the courts. That includes the more than 8 million borrowers who applied during the beta launch of the site.

Student loan forgiveness form on a desk.
Credit: Getty Images (designer491 via Getty Images)

In August, the Biden administration announced $10,000 in student loan forgiveness along with an additional $10,000 in forgiveness for Pell Grant recipients. Single borrowers who make less than $125,000 in adjusted gross income (AGI) and heads of household or married filing jointly borrowers who earn less than $250,000 in AGI are eligible for loan forgiveness.

Borrowers have until the end of 2023 to apply, but were encouraged to get their applications in by mid-November to give loan servicers enough time to recalculate a borrower's monthly payment based on their new loan balances before payments resume in January 2023.

Until the court battle is resolved, borrowers should beware of scammers offering loan forgiveness. The application for forgiveness is only available on the federal student aid (FSA) website and there is no cost or fee to apply.

Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda

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