The U.S. Court of Appeals for the Eighth Circuit has granted an emergency stay pending appeal of a lawsuit seeking to delay the scheduled rollout of student debt relief promised by the Biden administration.
In other words, borrowers hoping to write off $10,000 or $20,000 from their debts will have to wait until this lawsuit progresses. A hearing is already scheduled for next week. He has four other lawsuits pending appeal or pending trial.
Mike Pierce, director and co-founder of the Student Borrower Protection Center, said the stay was no reason to panic. Procedural. Courts cannot pass judgments if they are not fully informed, he said, Pierce. Stay requires a response from the Justice Department by Tuesday afternoon.
“There’s nothing to see here,” says Pearce.
The temporary suspension came days before the first borrower’s balance was expected to decrease. Earlier this month, the White House said it would not release a bailout until Oct. 23.
On Oct. 21, Biden said 22 million borrowers had already submitted applications since the form first went live in beta a week ago. The White House has said an estimated 40 million borrowers will be subject to cancellations. The debt relief application is still open.
What are the allegations in the lawsuit?
Six states (Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina) have jointly argued that Biden’s debt forgiveness would harm state tax revenues and the finances of state-based lending institutions. All six states are Republican-led.
These student loan servicers and companies manage commercially held FFELP loans. This is an older type of federal student loan that was originally funded by private companies. They argue that consolidating loans to qualify FFELP borrowers for surrender would hurt profits because it eliminates or reduces expected interest payments.
In response, the Biden administration in late September revoked the cancellation eligibility of borrowers who hold FFELP loans commercially.
A federal district court dismissed the lawsuit on October 20. Plaintiffs promptly filed an emergency motion for administrative stay with the Eighth Circuit Court of Appeals. They asked the court to suspend the rollout of debt forgiveness scheduled for Saturday, October 22nd at 9am CST.
The court did not wait long. Approved an administrative suspension on Friday.
Where does this take borrowers?
Borrowers who have applied for or waited for automatic relief are now at a loss. And federal student loan payments are set to resume in January 2023, after a nearly three-year pause due to the pandemic, unless the pause is extended again.
Additional extensions have not yet been announced. It is wisest to proceed as if payments resumed as scheduled on his January 1st.
If you are eligible for debt forgiveness and have not yet applied, please do so. No harm. Once the legal hurdles are removed, you can secure your spot in line.
If you plan to seek refunds for payments made during the suspension, please reconsider. You can still request a refund, but the refund amount will be added to your loan balance as before.
If you have already received a refund for payments made during the suspension, do not use it. If one of your lawsuits succeeds, you can put it back into your loan balance.