Student loan forgiveness: Borrowers might not see debt relief right away even if Biden wins lawsuits

Even if the Supreme Court rules in favor of Biden’s student loan forgiveness, borrowers may not see immediate relief depending on what action the court orders.

The court has two options if it doesn’t overturn loan forgiveness. One would require continued proceedings in lower courts, delaying relief to borrowers, while the second option would provide immediate forgiveness.

That adds another layer of uncertainty for the millions of borrowers who may be confused about what to do with their student loans. Further complicating matters is that, although the court could issue a decision as early as March, experts don’t expect a ruling until late May or June.

“If the Court finds plaintiffs have no standing, then they would vacate the injunction in the Texas case and lift the stay in the 8th Circuit case, and remand for further proceedings. This was just at the preliminary injunction stage, so there will potentially be further stages and further arguments,” Jeffrey Dubner, the deputy legal director at Democracy Forward, said in a media scrum after oral arguments on Tuesday.

“Or, the Court could direct the courts below to dismiss the case altogether.”

If plaintiffs have no standing

One issue before the court is if the parties challenging the debt relief plan lack standing, or the right to have their grievances heard.

In the 8th Circuit case, Biden v. Nebraska, the Department of Justice argues that the state of Missouri lacks standing to sue based on potential harm the forgiveness program may bring to the Missouri Higher Education Loan Authority (MOHELA), a loan servicer in the state, because MOHELA is a separate entity from the state and harm to MOHELA is not harm to the state of Missouri.

The Texas case, Department of Education v. Brown, was filed by two student loan debtors — one who doesn't qualify for forgiveness and another who qualifies for partial cancellation. They argued that the Education Department needed Congressional approval to adopt its plan and that they were improperly denied the opportunity to comment on its provisions. But to have standing, they need to show a specific harm if forgiveness is granted and they get no or partial relief.

If the justices rule these cases lack standing and remand for further proceedings as Dubner said, debt relief won't be automatic and borrowers would have to wait for the cases to go through the lower courts for fact discovery.

Advocates previously brought up how these cases rushed through the judicial process to the Supreme Court without fact-finding in the lower courts.

“We’ve skipped through every step of the normal judicial process — no finding of fact by a trial court — to a rapid and hasty rush to get this policy in front of a conservative Supreme Court,” Mike Pierce, a former senior regulator, attorney, and executive director of Student Borrowers Protection Center (SBPC), said at a town hall.

However, experts say that it is unlikely for the case to be remanded.

"It is possible, but very unlikely, that the Court could remand the case for further proceedings if it found that there were factual questions key to whether the plaintiffs have standing, that the district court had not addressed," Abby Shafroth, a staff attorney at the National Consumer Law Center (NCLC), told Yahoo Finance. "That would be pretty unusual generally, and particularly here where everyone wants a final resolution."

If the Supreme Court dismisses the cases

The court has an alternative option that would have an immediate impact on borrowers if it rules in favor of loan forgiveness. If the court dismisses both cases, then the Education Department can proceed to process approved applications and reopen the loan forgiveness application website portal.

In October, the Education Department previously said that borrowers should receive debt relief "in a matter of weeks" after completing the form, and expected to process the majority of claims by mid-November.

More than 26 million people applied for cancellation in the few weeks the loan forgiveness application was available. Over 16 million of those applications were fully approved by the Education Department before it stopped accepting applications in the wake of the lawsuits.

More than 40 million borrowers are eligible for its student debt relief plan, according to White House projections.

What borrowers should do now

As a result of the litigation, President Biden extended the payment pause on federal student loans until June 30. If litigation has not been resolved by then, payments will begin 60 days after that.

In the meantime, borrowers should go to the Federal Student Aid’s (FSA) website to make sure their accounts have updated contact information and to find out who their loan service provider is. Their servicer may have changed since the beginning of the pandemic when forbearance was enacted.

Borrowers should also beware of scammers. The only portal to apply for student loan forgiveness is on the FSA website, which is currently not accepting applications. If you receive an email claiming to be your new loan servicer, verify that information on the FSA website before providing any information.

Borrowers should also hold off on consolidating to private loans, which would make them ineligible for Biden's student loan forgiveness if upheld and the one-time adjustments to account payment histories to help borrowers get closer to qualifying for forgiveness under income-driven repayment plans. That rolls out over the spring and summer.

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

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