Appeals court freezes Biden rule allowing student loan forgiveness when schools misled students

August 8, 2023

A federal appeals court has stopped the implementation of a Biden rule allowing student loan forgiveness when an institution of higher learning has misled students about job and salary prospects after graduation.

The New Orleans-based 5th Circuit appeals court issued the block on Monday after a lower court judge in Texas declined to do so.

In February, the for-profit schools association Career Colleges and Schools of Texas fined a lawsuit against the Biden administration, saying that the rule expansion was too broad and included even unintentional acts by colleges.

The association also argued that under the rule, the Department of Education has authority almost like a court to decide whether to grant relief to students.

Payments resume

The administration argued that debt relief granted by the DOE could be appealed in federal court.

The rule could ultimately be upheld by the courts if the lawsuit ends up not being successful, but until then, student borrowers will have to restart their payments along with everyone else in October when the pause in payments that began during the COVID-19 pandemic finally ends.

The administration has been looking at other forms of student loan debt relief after the Supreme Court struck down Biden's executive order granting $10-20,000 in relief to most borrowers (excluding those with incomes over $125,000.

Changes to income-driven repayment plans have allowed the Biden administration to award $39 billion in new loan forgiveness to 804,000 borrowers who have been making payments for 20 or 25 years.

Biden's new moves

The administration said that borrowers "fell through the cracks" of the IDR program and continued to make payments when they shouldn't have had to and that they were "fixing past administrative failures" with the new programs.

“At the start of this Administration, millions of borrowers had earned loan forgiveness but never received it. That’s unacceptable,” said Under Secretary James Kvaal. "Today we are holding up the bargain we offered borrowers who have completed decades of repayment.”

The IDR plans now ask for a maximum of 5% of a former student's income rather than 10%, and if those payments don't manage to pay off the loan in 10 to 20 years, it will be forgiven.

The plan would likely forgive $137 billion over 10 years, including 85% of student debt for borrowers who attended community college.

"The changes mean that most undergraduate borrowers will expect to only repay a fraction of the amount they borrow, turning student loans partially into grants," Adam Looneysenior fellow at the Brookings Institution Adam Looney said of the plan. "It's a plan to reduce the cost of college, not by reducing tuition paid, but by offering students loans and then allowing them not to pay them back."

It is unclear how the plan will be implemented with a current lack of funding to the DOE, and not enough funding expected to cover the costs, but it is very clear that the Biden administration is not giving up on student loan forgiveness and is determined to do it in any way it can.

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