Student loan forgiveness applications halted after Texas judge blocks Biden plan

If this was the day you thought you'd apply for federal student loan forgiveness, you're out of luck.

On Friday, the U.S. Department of Education website stated that it has stopped accepting applications for student debt forgiveness at StudentAid.gov. The sudden change follows news late Thursday that a federal judge in Texas issued an order to halt President Joe Biden’s plan to cancel up to $20,000 in federal student debt for millions of borrowers.

Student debt relief is currently blocked.

The Education Department noted on its website: "Courts have issued orders blocking our student debt relief program. As a result, at this time, we are not accepting applications."

The department stated that it is seeking to overturn the orders. Some 26 million borrowers who already applied are being told that the department will hold their applications. More updates are expected at StudentAid.gov.

Biden maintained that his administration had authority to launch the massive, $400 billion student loan forgiveness program under the emergency-based HEROES Act. The move proved to be highly controversial and led to several legal challenges from conservative groups and several GOP-led states.

U.S. District Judge Mark Pittman called the program unlawful and wrote Thursday that the executive branch cannot give the U.S. Department of Education such authority. The order noted that the HEROES Act is not an “open book to which the agency may add pages and change the plot line" and that government agencies may “not seek to hide elephants in mouseholes.”

The lawsuit that prompted the Texas ruling was filed by the Job Creators Network Foundation, a conservative group, on behalf of two borrowers who did not qualify for debt relief. The foundation says it is "a nonpartisan organization founded by entrepreneurs who believe the best defense against bad government policies is a well-informed public."

"This attempted illegal student loan bailout would have done nothing to address the root cause of unaffordable tuition: greedy and bloated colleges that raise tuition far more than inflation year after year while sitting on $700 billion in endowments," according to a statement released by Elaine Parker, president of the Job Creators Network Foundation.

The federal student loan forgiveness program, announced in late August, was designed to move forward this year to enable many borrowers to see smaller monthly payments once the pandemic-related moratorium on payments ends Dec. 31.

The online application for debt relief was in place by Oct. 17. Early on, borrowers were told to aim to file for relief by Nov. 15 to see loans forgiven by the time payments resume next year.

More:Student loan forgiveness could be key to better job for those without college degree

The judge's order out of Texas will put more pressure on the Biden administration to yet again extend the moratorium through much of 2023.

"The Biden administration cannot now resume payments on January 1st. It must use all of its tools to fight to ensure that borrowers receive the debt relief they need," stated Persis Yu, deputy executive director for the nonprofit Student Borrower Protection Center.

Mark Kantrowitz, a student loan expert and author, said he would expect the payment pause now to be extended in January if the court cases are still pending or Biden's student loan forgiveness plan is permanently blocked.

More:Federal student loan borrowers need to plan ahead if payments restart in January

"If the president's plan is permanently blocked, there are other options the Biden administration can pursue to provide financial relief to borrowers," he said.

Kantrowitz said one alternative option is that the Biden administration could pursue providing forgiveness by issuing new regulations under the income-contingent repayment plan. But such an effort would likely be limited in scope to federal loans in the Direct Loan program that had been in repayment for at least five years, he said, or maybe at least 10 years. Such a plan, he said, also would have to be means-tested, due to the nature of income-driven repayment plans.

Borrowers who are concerned about their ability to repay, he said, can explore using the economic hardship deferment, unemployment deferment and general forbearances to continue to suspend repayment of their student loans, although interest may continue to accrue.

A borrower could qualify for a $0 monthly payment under an income-driven repayment plan if the borrower’s income is less than 150% of the poverty line.

For a single person, that limit would be around $20,385 in 2022. The poverty line $13,590 for a household of one.

A family of four could have a higher income as long as it’s under $41,625 to qualify for $0 monthly payments. The poverty line for a family of four in America is $27,750.

More than $50 billion in federal student loan debt is held by 1.4 million borrowers in Michigan, according to data compiled by the Education Data Initiative. That data is for outstanding principal and interest balances. The average balance per borrower in Michigan is $36,116.

Under the Biden plan, some borrowers who had Pell Grants in college would see up to $20,000 in federal student loans forgiven; others would see up to $10,000 in debt forgiven.

Income limits apply — an individual's income must be less than $125,000. The income for married couples must be less than $250,000. The income being used is for 2020 or 2021. The income requirements are based on your adjusted gross income, which tends to be lower than your total income.

Contact Susan Tompor: stompor@freepress.com. Follow her on Twitter @tompor. To subscribe, please go to freep.com/specialoffer. Read more on business and sign up for our business newsletter.

This article originally appeared on Detroit Free Press: Student loan forgiveness applications halted after Texas court ruling