Student loan forgiveness: Borrowers remain in limbo after US files brief to Supreme Court

Student loan borrowers still face a long road to find out if they will get federal debt cancellation after the Department of Justice (DOJ) filed its opening brief to the U.S. Supreme Court on Wednesday.

In it, the DOJ defended the legality of the Biden Administration’s student loan forgiveness program announced in August, arguing the plan is clearly within the education secretary's authority under a 2003 act. It also argued that a second lawsuit brought by Missouri lacks standing.

The brief is the latest development in a legal fight that started in November and has left nearly 40 million student loan borrowers uncertain about the future of their finances.

"As the brief makes clear, the debt relief plan is not only lawful, it is critical to millions of working- and middle- class Americans who are otherwise at risk of falling behind as they work to recover from the pandemic,” said Abby Shafroth, staff attorney at the National Consumer Law Center and director of the Student Loan Borrowers Assistance Project. “The plan is designed to give people burdened by student debt breathing room as they recover from the pandemic, and to avoid a projected wave of student loan delinquencies and defaults when the pause on payments ends."

‘Legal authority’

In November, the Education Department (ED) stopped taking applications for student loan forgiveness after a Texas federal district court judge ruled the program is a violation of legislative power and the St. Louis-based 8th Circuit Appellate Court imposed an injunction. Shortly after, the Biden Administration asked the U.S. Supreme Court to reinstate the program.

The brief this week addressed both of those cases.

In the Texas case, the DOJ argues that the HEROES Act expressly states that the Education Secretary has the authority to act in a national emergency — in this case, COVID-19 — to make sure borrowers are not left worse off with respect to their loans than they were before the emergency. According to the DOJ, the act allows the Secretary to move forward with the program without public comments.

The brief also noted the act was used by both the Biden Administration and the Trump Administration when they paused federal student loan payments during the pandemic.

In the 8th Circuit case, the DOJ brief 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, or MOHELA, a loan servicer in the state. The DOJ argues that MOHELA is a separate entity from the state and harm to MOHELA is not harm to the state. Further, any claimed harm to MOHELA is based on multiple levels of speculation the Supreme Court has long rejected as a basis for standing.

“We remain confident in our legal authority to adopt this program that will ensure the financial harms caused by the pandemic don’t drive borrowers into delinquency and default,” Education Secretary Miguel Cardona said in a press release.

Long road ahead still

The Biden Administration’s brief, though, is only the start.

There will likely be more legal filings before the Supreme Court hears oral arguments in late February and renders an opinion. Opponents in the Texas and 8th Circuit cases have until Jan. 27 to submit their brief, and DOJ has until Feb. 15 to respond.

“The arguments about the plaintiffs lacking legal standing seem strong. The arguments on the merits are somewhat weaker,” Mark Kantrowski, author and student loan expert, told Yahoo Finance. “During the hearings we may get a sense as to the direction the court will take based on the questions asked by the justices. A ruling could come as early as March or as late as June/July.”

In the meantime, borrowers should update their contact information with their loan servicer and on StudentAid.gov, and start saving an amount equal to their monthly payments to prepare for the restart of student loan repayment, Kantrowitz said.

President Biden last month extended the payment pause on federal student loans until June 30, 2023. If litigation has not been resolved by then, payments will begin 60 days after that.

For borrowers who are worried about restarting payments, Cody Hounanian, executive director of the Student Debt Crisis Center (SDCC), recommends they look into different student loan repayment options as well as updates to the Public Service Loan Forgiveness program.

"Being aware of your income-driven repayment plan options will help ensure payments are affordable for those that have current payments or will have their payments turned back on after pandemic relief," Hounanian said.

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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