WASHINGTON — The Department of Education announced on Tuesday it is extending the pandemic-era pause on federal student loan repayments until June 30 while legal challenges to the administration’s student debt relief program are fought over in the courts.
The agency said if the student debt relief program has not been put in place by June 30, and if litigation is still tied up in the courts, student loan payments will begin 60 days after that.
“Payments will resume 60 days after the Department is permitted to implement the program or the litigation is resolved, which will give the Supreme Court an opportunity to resolve the case during its current Term,” the department said in a statement. “If the program has not been implemented and the litigation has not been resolved by June 30, 2023 — payments will resume 60 days after that.”
Earlier the administration had said the pandemic-era pause would expire on New Year’s Eve. Two lawsuits blocking the Biden plan, including one brought by six GOP-led states, have been appealed by the Justice Department, but it’s unclear how long the legal process could take.
“We’re extending the payment pause because it would be deeply unfair to ask borrowers to pay a debt that they wouldn’t have to pay, were it not for the baseless lawsuits brought by Republican officials and special interests,” U.S. Secretary of Education Miguel Cardona said in a statement.
President Joe Biden, in a Tuesday tweet, said the extension will give “the Supreme Court time to hear the case in its current term.”
“I’m confident that our student debt relief plan is legal,” he said on Twitter.
Before the announcement, more than 200 advocacy groups had urged Biden to extend the pause.
In a Monday letter, the groups argued that if student loan repayments restart, it would be a financial setback for borrowers, especially at a time of record high inflation.
“We, the undersigned 225 organizations, urge you to immediately extend the payment pause until your Administration is able to fully implement debt relief for all eligible borrowers and to continue to use every legal authority at your disposal to make this relief real,” according to the letter.
“We cannot allow these blatantly political lawsuits to throw millions of borrowers into financial catastrophe,” the letter said. “Throwing millions of borrowers back into repayment as the state of debt relief remains uncertain is a recipe for disaster and will result in widespread confusion and set borrowers up for failure.”
Most of the organizations that signed onto the letter include labor groups like the AFL-CIO, legal organizations like the ACLU and NAACP, and debt cancellation advocacy groups such as the Debt Collective and Student Debt Crisis Center.
The Trump administration implemented the pause on student loan repayments due to the coronavirus pandemic and the Biden administration has extended it multiple times.
A federal appeals court issued a nationwide injunction that barred the Biden administration from carrying out its student debt relief plan following the challenge by the six GOP-led states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina.
The Biden administration has asked the U.S. Supreme Court to vacate the nationwide injunction.
“The Eighth Circuit’s erroneous injunction leaves millions of economically vulnerable borrowers in limbo, uncertain about the size of their debt and unable to make financial decisions with an accurate understanding of their future repayment obligations,” Solicitor General Elizabeth Prelogar wrote in the filing to the U.S. Supreme Court.
In late August, Biden announced he would cancel up to $20,000 in federal student loan debt for Pell Grant borrowers and up to $10,000 for all other borrowers with an income of less than $125,000 for an individual and $250,000 for a household.
The program would only apply to current borrowers, not future ones, and income levels for the 2020 and 2021 tax years would be considered. Student loan borrowers who have private student loans would not be eligible.
The attorneys general from the states that launched the legal challenge argued that the loan relief program threatens those states’ future tax revenues and that the plan overrode congressional authority.
The three-panel judge from the 8th Circuit Court of Appeals in St. Louis put the injunction in place “until further order of this court or the Supreme Court of the United States.”
Following the decision, White House press secretary Karine Jean-Pierre said the White House believes it has the legal authority to carry out the program.
“The Administration will continue to fight these baseless lawsuits by Republican officials and special interests and will never stop fighting to support working and middle class Americans,” she said in a statement.
26 million applicants
More than 26 million student loan borrowers have applied for the program, and 16 million have been accepted, according to the Department of Education.
The nonpartisan Congressional Budget Office found that the program would add $400 billion to the national deficit over the span of 30 years. The agency found that the pause on federal student loan repayments has cost $20 billion from September to December 2022.
Adam Looney, a senior fellow at the Brookings Institute — a left-leaning think tank — said while the cost seems high, for borrowers who qualify it comes out to a monthly average savings of about $59.
Looney previously was a senior economist for public finance and tax policy with former President Barack Obama’s Council of Economic Advisers, and was an economist at the Federal Reserve Board.
“It’s like a tax cut,” Looney said of student loan borrowers who would qualify for debt relief.
The Biden administration stopped accepting applications for student debt relief following a second decision from a federal judge in Texas who separately ruled the program was unlawful.
In Fort Worth, U.S. District Judge Mark Pittman, an appointee of former President Donald Trump, ruled that the program was an “unconstitutional exercise of Congress’s legislative power.” He ruled in favor of two borrowers, backed by a conservative advocacy group, who brought the challenge.
The Department of Justice has already filed an appeal to that ruling.
Pittman wrote in his opinion that “[w]hether the Program constitutes good public policy is not the role of this Court to determine.”
Sabrina Calazans, the outreach director at the Student Debt Crisis Center, said prior to Tuesday’s announcement that the Biden administration should resume its pause on student loan repayment. The center also signed onto the letter to the White House from the more than 200 organizations.
“We’re advocating for an extension to the payment pause until student debt cancellation is applied to borrowers’ accounts,” she said. “We believe that borrowers should be able to get their debt canceled and not have to make any payments until that happens because they’ve been promised this relief.”
Calazans, who has student loan debt herself — federal and private loans — and is a first-generation college student, said the pause on repayments has been a lifeline for her and her family. The pause did not include private loans, which she has, so she’s had to continue those payments throughout the pandemic.
“Folks were struggling before the pandemic started,” she said of student loan debt. “This was already a crisis that people were dealing with beforehand, so this has been around for a long time, not just recently.”
Calazans said those student loan borrowers who applied to the Department of Education for debt relief are starting to get emails that their applications for student debt cancellation were approved, but the lawsuits are blocking it.
“Folks are excited about the prospect of having their debt canceled — whether it’s all of it or a portion of it — and now that hope that they had is now suddenly stopped for now because of the blocking of this plan,” she said. “Borrowers are in this limbo.”
Emails sent out
The Department of Education has sent out emails to student loan borrowers who applied, and were approved for the debt relief program with the subject line: “Your Student Loan Debt Relief Application Has Been Approved.”
However, the body of the email reads: “Unfortunately, a number of lawsuits have been filed challenging the program, which have blocked our ability to discharge your debt at present.”
“We believe strongly that the lawsuits are meritless, and the Department of Justice has appealed on our behalf,” according to the email. “We will keep your application information and will continue our review of your eligibility if and when we prevail in court. We will update you when there are new developments.”