Student loan forgiveness reality check: Paperwork hurdles, legal challenges could complicate relief

As President Joe Biden proclaimed he would cancel millions of people’s student loan debt, borrowers across the nation rung their loan servicers.

They likely encountered lengthy hold times that led to unsatisfying answers.

“I cannot emphasize enough how little information any of us have,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance. “We don’t have any information other than what’s already been made public.”

Buchanan said the lack of notice about Biden's announcement caught servicers flat-footed just as millions of borrowers have more questions than ever. Servicers are just one part of the vast federal student loan system buckling under the expectations of millions of Americans' hope for debt forgiveness. And its limited capacity to serve may hinder borrowers seeking relief.

The Education Department’s financial aid website crashed the same day. Loan servicers' websites crashed too. The distressed system suggests any student loan debt erasure won’t come overnight. It’s unclear how long it will take the federal government to iron out the details of the announcement, which will be worth hundreds of billions of dollars.

How long will it take to see loan forgiveness?

Biden said the application form will be available in the coming weeks and will be "short and simple." However, it will almost certainly involve some form of income verification given the relief is limited to individuals making $125,000 or less.

That’s because the Education Department has limited access to people’s earnings through the Internal Revenue Service. Borrowers can opt to share that information, and often do so to apply for income-driven repayment plans. The Education Department already has enough earnings information to wipe out the debt of about 8 million borrowers, but that means tens of millions more will have to apply.

Buchanan said loan servicers also can verify a person’s income via tax returns, pay stubs or similar proof of earnings, but that process often takes longer because it involves human review.

Betsy Mayotte, president of the Institute of Student Loan Advisors, spends her time helping borrowers navigate the bureaucracy associated with the Public Service Loan Forgiveness program. If people have to file proof of income, some will skip the application, fearing it might be a scam, Mayotte said.

"There will be unfortunately some people that will be left behind," Mayotte said. "Hopefully, whatever process the Department of Education is coming up with leave the least amount of people behind."

The Education Department promised new details about relief in the weeks ahead. It had not released details about the application form or when it would be available when Biden announced his plan Wednesday.

But Friday, National Economic Council Deputy Director Bharat Ramamurti said the application should be available by early October. Once the application is complete, borrowers should expect relief within four to six weeks. Ramamurti said borrowers should apply by Nov. 15 if they want forgiveness before the payment pause lifts at the end of the year.

Tell us:What questions do you have about President Joe Biden's student loan forgiveness plan?

What about past debt relief programs like Public Service Loan Forgiveness?

The Public Service Loan Forgiveness program may offer a guide to how how good intentions can get mangled by the federal bureaucracy. The government initiative, created in 2007, was supposed to give people an incentive to work in the public sector as teachers, firefighters or even public defense attorneys. After 10 years of paying down their loans and working for a qualifying employer, the idea was they would have the remainder of their student loan debt forgiven. In reality, borrowers often encountered roadblocks when they applied for student loan debt relief through the program.

It was complex enough that as recently as September 2021, more than 433,000 people had proved they worked for an eligible employer, but were denied loan forgiveness because they hadn't met the program's exact requirements. Most borrowers who applied for relief made years of payments before realizing they carried ineligible loans or were in the wrong repayment plan to qualify. Only about 7,000 had received forgiveness through the program before Biden took office, according to an Education Department news release.

After Biden took office, his Education Department used its authority to loosen the rules of the program. Since then, more than 175,000 people have benefited from the program. The government is actively encouraging more borrowers to apply for relief through the initiative before the waiver ends October 31. And some lawmakers are pushing Biden to extend that waiver.

Though many are finally expected to have their loans forgiven, the bureaucratic requirements delayed relief for many and likely deterred others, skeptical that the program actually works.

Mayotte said that program required borrowers to submit a significant amount of paperwork, including certification that their employer qualified for the program, whereas a form for newly announced widespread debt relief will be focused on borrowers' incomes.

Will student loan debt actually be forgiven?

Critics of the plan on Thursday quickly raised the possibility that a legal challenge could derail the president's plan for mass debt forgiveness.

White House press secretary Karine Jean-Pierre, however, expressed confidence that Biden has not overstepped his authority when asked Thursday if the administration is prepared for legal challenges.

"What we know and what we have done is taken a look of our legal authority and how we can make this happen," Jean-Pierre said. "But I just don't want to get into hypotheticals on that at this time."

Both the Departments of Education and Justice have released memos making the administration's legal case for cancellation, but some are warning that lawsuits should be expected. In fact, the Job Creators Network, a small business advocacy group, said its weighing its options for a challenge.

Lanae Erickson, the senior vice president for social policy, education and politics at Third Way, a center left think tank, is certain the president's plan will face legal scrutiny. She has said the plan is ill-advised and questioned if relief would get to borrowers.

"There are too many people who hate this policy and will definitely be trying to find the plaintiffs to bring a challenge," Erickson said.

Erickson said loan servicers, borrowers just above the income thresholds or banks may have some standing to sue. Any kind of challenge could put borrowers in limbo about their loans. A federal judge could put the loan forgiveness program on hold, keeping the Department of Education from processing applications.

Challengers, however, would have to prove they have a legally protected interest that would be harmed by widespread debt cancelation and that their case is likely to succeed, said Rebecca Natow, a professor of higher education at Hofstra University who has previously practiced law.

"It's not one of these injunctions that is just sort of given routinely," Natow said.

She added, however, that the federal courts in recent years have shown a willingness to "walk away from precedent." Natow added it's something "people need to be prepared for, just in case."

Contributing: Maureen Groppe and Joey Garrison.

This article originally appeared on USA TODAY: Student loan forgiveness could be snarled by paperwork, lawsuits