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Published: Nov 16, 2022 6 min read
Photo collage of a college graduate in cap and gown holding a diploma with a sticker on his face that says  Keep Calm
Money; Getty Images

The original timeline of President Joe Biden's student loan forgiveness plan is out the window following two major legal setbacks.

Tens of millions of federal student loan borrowers were encouraged to submit their applications for up to $20,000 of loan forgiveness by Nov. 15, in order to have their debts forgiven by 2023. That deadline passed before millions had the chance to apply.

Some 26 million borrowers applied for forgiveness by last week, according to Biden administration officials. However, the application portal closed Friday after a federal judge in Texas issued an injunction, which halts the forgiveness program as the court case plays out. The Biden administration quickly appealed the decision. But on Monday, a separate federal appeals court dealt another blow by issuing a similar injunction.

“The injunction will remain in effect until further order of this court or the Supreme Court of the United States,” the federal appeals judges said in their ruling.

These legal developments leave Biden's marquee student debt relief initiative in limbo.

One-time forgiveness of up to $20,000 per borrower was a key part of the president's plans to make sweeping changes to federal student loan programs before loan payments are set to resume on Jan. 1, 2023. Monthly federal loan payments have been paused since March 2020.

In the meantime, the Biden administration has canceled more than $38 billion of student loan debt through targeted relief programs. The broad, one-time forgiveness plan is seen as the cherry on top. If the administration's loan forgiveness program is successful, as many as 20 million borrowers could have their entire balances wiped out.

It's not yet clear if the broad loan forgiveness plan will survive the challenges in court. At the very least, the planned student loan forgiveness timeline is upended, and the Biden administration is reportedly in the early stages of considering another extension to the loan payment pause to allow borrowers more time to react and prepare accordingly.

What’s next for student loan forgiveness?

For the borrowers who have already applied for broad student loan forgiveness, the Education Department has said it will keep their information on hand. But the department cannot forgive anyone’s debt through this program unless the Biden administration triumphs in court.

In other words, it’s a waiting game. Borrowers should sit tight and subscribe to student loan forgiveness alerts directly from the Education Department to stay updated as the Biden administration defends its program in court. At some point, the matter is expected to reach the Supreme Court.

“We are confident in our legal authority for the student debt relief program and believe it is necessary to help borrowers most in need as they recover from the pandemic,” White House press secretary Karine Jean-Pierre said in a statement following Monday’s ruling. “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.”

Will there be another student loan payment pause?

The one-two punch of legal setbacks are expected to delay or possibly even derail the forgiveness program as Jan. 1, 2023, bears down on millions of borrowers who will have to restart payments.

If broad student loan forgiveness is not happening by then, approximately 20 million borrowers who were expecting their student debt balances to be completely wiped out will have to begin making loan payments again.

Loan services may also be sent into a scramble, as they are faced with the unprecedented task of restarting payments for additional borrowers. In April the federal government estimated as many as 15 million borrowers may have financial difficulty restarting payments. That number could be much higher if forgiveness does not come through in the near future.

To avoid this scenario, the Biden administration is beginning to weigh yet another extension to the student loan payment pause, according to anonymous aides cited by the Washington Post.

“The extension we’re likely to see is meant to make sure borrowers don’t have the rug pulled out from under them, rather than an indefinite replacement for loan forgiveness,” one person told the Post.

Not everyone is on board with this approach.

“With inflation at a 40-year high and unemployment near historic lows, there is absolutely no justification for extending the student debt pause yet again,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement Tuesday. “The pause was put in place as an emergency measure early in the pandemic. As the President has repeatedly pointed out, the pandemic recession is long over.”

When asked to comment on the matter, the Department of Education deferred Money's questions to the White House, and the White House did not respond.

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