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Student-loan borrowers keep running into hurdles as Biden's debt relief promises are piling up in court

Aug 13, 2023, 18:04 IST
Business Insider
U.S. President Joe Biden.Kevin Dietsch/Getty Images
  • Despite SCOTUS striking down his broad plan to cancel student-debt, Biden has attempted to target certain groups for relief.
  • However, conservative-backed lawsuits are challenging his attempts at every turn.
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It's not an easy time for student-loan borrowers.

After three years without having to make federal student-loan payments, borrowers are less than a month away from seeing their balances start to grow again when interest begins to accrue again in September and bills come due one month later.

On top of that, borrowers are still reeling from the June Supreme Court decision that struck down President Joe Biden's plan to cancel up to $20,000 in student debt for federal borrowers. While the Education Department is trying again using a different law to enact relief, it will take time — and borrowers are still set to resume payments without a reduction to their balances.

If that wasn't enough, even relief for targeted groups of borrowers is facing challenges. Two recent lawsuits were filed against the Education Department in an attempt to block student-loan forgiveness for borrowers who said they were defrauded by the schools they attended, along with borrowers who are eligible for forgiveness after making qualified payments under income-driven repayment plans.

While the legal challenges are each targeting different policies, it's leaving many impacted borrowers confused as to where relief stands, and whether they will have to continue paying off their loans despite the promise of forgiveness. Insider previously spoke to Jason Harmon, a 54-year-old student-loan borrowers who has been paying off his $47,000 balance for nearly three decades. He recently got an email from the Education Department that he qualifies to have his loans forgiven since he has paid more than required under the income-driven repayment plan — but he said he didn't have faith given the constant legal challenges with Biden's debt relief policies.

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"I've had nothing but anxiety and stress from this. I'm not going to believe the government's letter, I'm going to believe the credit report," Harmon said. "And when the credit report shows that loan is no longer on there, that's when I know I'm debt-free on that loan."

He was right to be skeptical — after the lawsuit challenging the income-driven repayment relief was filed, he told Insider in an email that he's "very, very bummed this time because a tiny, small, sad part of me held out hope that the loan will finally be forgiven."

Here's where the legal challenges to Biden's student-debt relief policies stand.

The latest student-debt relief challenges

In July, the Education Department announced it would automatically cancel $39 billion in student debt for 804,000 borrowers who have completed the necessary 20 or 25 years of qualifying payments on income-driven repayment plans. The announcement was part of the department's one-time account adjustment to ensure borrowers payments are up to date, and those who completed more than the required payments would receive a refund.

However, on August 4, the New Civil Liberties Alliance — a nonprofit organization aimed at protecting constitutional freedoms — filed a lawsuit on behalf of conservative groups Cato Institute and the Mackinac Center for Public Policy to block Biden's latest reforms for borrowers on income-driven repayment plans. The groups said in their complaint that the relief was an overreach of authority. They also said that, as nonprofits, it also undermined their recruiting efforts through the Public Service Loan Forgiveness program, which forgives student debt for government and nonprofit workers.

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An Education Department spokesperson said that "this lawsuit is nothing but a desperate attempt from right wing special interests to keep hundreds of thousands of borrowers in debt, even though these borrowers have earned the forgiveness that is promised through income-driven repayment plans. We are not going to back down or give an inch when it comes to defending working families."

But just days later, a separate debt relief measure got blocked in court. On August 7, a three-judge panel consisting of Trump and Reagan appointees in the Fifth Circuit blocked the Education Department's new rules to make it easier for borrowers who say they were defrauded by the schools they attended to discharge their debt. The new rules concerned the process known as borrower defense, and they would create a more streamlined application and expand the types of school misconduct that would qualify a borrower for relief.

The lawsuit was filed by Career Colleges and Schools of Texas, a for-profit college group, who argued that the new borrower defense rule "imposes strict liability upon schools for even unintentional erroneous representations or omissions, and then irrationally presumes that every borrower in the group would not have attended the school but for the school's act or omission, whatever it is."

A department spokesperson said it "won't back down in our efforts to take on predatory colleges, provide relief to borrowers who have been cheated or had their school close, and hold institutions accountable for deceptive schemes."

While the Career Colleges lawsuit has blocked the new borrower defense rules from being implemented as the legal process is carried out, it's unclear what will happen to borrowers who have been notified of relief due to the income-driven repayment account adjustments. The department has already notified borrowers of that relief, and it expects more will qualify.

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