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Biden administration tightens student loan forgiveness amid legal challenges

The Biden administration is scaling back its student debt relief program because it is being challenged in court. Six Republican-led states have filed six new lawsuits against the program.

In a big change from Biden's original plan in August to cancel federal student loans up to $20,000, the US Department of Education said Thursday that it would not forgive debt from borrowers whose student loans are owned by private entities.

This week, the controversial program was challenged in court for the first time. On Monday, the nonpartisan Congressional Budget Office said that the program would cost taxpayers $400 billion.

In a new lawsuit filed in federal court in Missouri on Thursday, Republican attorneys general from Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina asked that the relief program be shut down. They said it was unconstitutional and "not remotely tailored to address the effects of the pandemic on federal student loan borrowers."

Politico says that there are significant business interests, such as banks, guaranty agencies, loan servicers, and investors, that pose a legal threat to the program. However, only a small number of the 42 million Americans who could be affected by the program have federal student loans tied to private entities.

Many businesses and companies would lose the money they lent to borrowers who turned their federally guaranteed loans into new loans made to the Department of Education.

Activists hold signs
Borrowers whose federal loans are owned by private lenders will no longer be eligible for relief as of Thursday.
AFP via Getty Images

Politico said that as of June 30, federal data showed that private lenders owned $108.8 billion worth of loans from 4.1 million federal borrowers.

Under Biden's plan, which was announced on August 24, people with an annual income of less than $125,000 could have up to $10,000 in federally owned student debt forgiven. People who get a Pell Grant may be eligible for another $20,000 in debt relief.

The DOE said Thursday that people who have already applied for consolidated loan forgiveness by September 29 will still get it, but they will no longer be able to get debt relief for those loans.

In an update on its website, the DOE said, "As of September 29, 2022, borrowers with federal student loans not held by ED will no longer be able to get one-time debt relief by consolidating those loans into Direct Loans."

"Borrowers with [Federal Family Education Loan] FFEL Program loans and Perkins Loans not held by ED who have applied to consolidate into the Direct Loan program before September 29, 2022, are eligible for one-time debt relief through the Direct Loan program."

In a statement to Politico, an Education Department spokesperson said, "Our goal is to help as many eligible borrowers as quickly and easily as possible." This will help us reach that goal while we continue to look into other legal ways to help borrowers with privately owned FFEL loans and Perkins loans, such as whether FFEL borrowers could get one-time debt relief without having to consolidate.

In their lawsuit, the six attorney generals said they would have trouble paying their bills if private lenders wrote off the loans they owned. Attorney General Doug Peterson of Nebraska said that some of his state's pension fund is put into securities backed by federally guaranteed loans. Others said that the whole program would hurt the economies of their states.

US President Joe Biden announces student loan relief on August 24, 2022
Biden announced his student debt relief program on Aug. 24 to backlash from conservatives.
AFP via Getty Images

On its website, the Department of Education said it is "evaluating whether there are other ways to help borrowers with federal student loans not held by ED, such as FFEL Program loans and Perkins Loans, and is talking with private lenders about this."

Biden used emergency powers to get the loan forgiven after progressive Democrats pushed for it. They said that the COVID-19 pandemic gave him the right to forgive the debt. During a national emergency, the government has used a law passed after 9/11 that was meant to help people in the military as a legal reason to reduce or get rid of student loan debt.

In their lawsuit, Republicans say that the administration is wrongly interpreting the law because, as Biden said in a recent "60 Minutes" interview, the pandemic is no longer a national emergency.

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