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What’s Next in the Fight Over Student Loan Forgiveness

7 minute read

Cody Hounanian submitted his application for student loan forgiveness as soon as the site launched on Oct. 14. He’s one of 22 million borrowers who applied in the first week to receive up to $20,000 in debt relief.

“It shows you how eager and, in some cases, desperate these borrowers are to get this relief,” says Hounanian, executive director of the Student Debt Crisis Center, a nonprofit that advocates against student loan debt. “And you can count me as one of them. I was very excited.”

But a week later, the program—and any potential debt cancellation—was put on hold, as a federal appeals court considers one of several legal challenges brought against the Biden Administration’s policy, which will affect 40 million borrowers. Legal experts are skeptical that this case—or the others—will ultimately prevail in court and reverse the student loan forgiveness program.

Legal challenges are likely to continue for months—possibly halting the process again. However, once borrowers begin receiving debt relief, it will become much harder to reverse, legal experts say.

The case now before the U.S. Court of Appeals for the Eighth Circuit was brought by six Republican-led states, that are arguing the plan will cost them future tax revenue.

“I think this is the case that is most likely to get the farthest of all the lawsuits that have been brought,” says Tara Grove, a University of Texas School of Law professor who focuses on the federal judiciary and separation of powers. “And even this one, I think, is a stretch under current case law.”

“Is this going to be the last lawsuit? Probably not,” she says. “And yet, I don’t assume that this program is going to be forever in legal limbo.”

What does this mean for student loan forgiveness?

For now, there won’t be any student loan balances forgiven until there’s a ruling from the Eighth Circuit Court of Appeals. It’s not clear how long that could take. The court granted an emergency stay on Friday so it would have time to review the case before making a decision.

The six Republican-led states argue that Biden overstepped his authority in announcing this debt-relief plan and that the states will be harmed by lost tax revenue as a result.

The stay came after the states appealed a decision on Thursday by U.S. District Judge Henry Autrey, who dismissed the lawsuit. Autrey said the states had presented “important and significant challenges to the debt relief plan,” but lacked legal standing because the program’s “effect upon future taxation is uncertain.” Legal standing means that a plaintiff must have suffered a concrete, imminent injury in order to bring a lawsuit.

“The order does not reverse the trial court’s dismissal of the case, or suggest that the case has merit,” White House Press Secretary Karine Jean-Pierre said in a statement. “It merely prevents debt from being discharged until the court makes a decision.”

Grove and other experts say it’s likely that the appeals court will also rule that the states lack standing, in part because it could potentially open the floodgates for lawsuits by states over many more federal programs. “That would be just extraordinary if it were possible to complain about any sort of government program because of the way it affected state tax revenues,” Grove says.

Are there other legal challenges?

Regardless of what happens in this case, there are sure to be more legal challenges in the future. Lawsuits thus far have attacked the shaky legal justification for Biden’s policy. His administration has said the President has the authority to cancel student debt under the Higher Education Relief Opportunities for Students (HEROES) Act of 2003, which gives the Education Department the ability to change student financial assistance programs during a “national emergency.” The Biden Administration says the COVID-19 pandemic is such an emergency.

But Biden himself declared the pandemic over during an interview in September, which could strengthen the legal case against the program—if those seeking to challenge it are able to find someone with standing to sue.

“I think it is quite possible that no one will have standing to challenge the administration’s student debt forgiveness program,” Grove says.

Last week, Supreme Court Justice Amy Coney Barrett rejected a request to halt the forgiveness program by a Wisconsin-based taxpayers group. That group argued it would cost taxpayers $1 trillion—referring to a Penn Wharton Budget Model analysis that found debt cancellation would cost up to $519 billion and “could exceed $1 trillion” in total, when factoring in changes to loan repayment based on income. (A September report by the Congressional Budget Office estimated the plan would cost about $400 billion.)

And in another win for the Education Department, a federal judge on Monday dismissed another suit brought by an attorney for the conservative Pacific Legal Foundation, who had argued he would be financially harmed by the policy because he would have to pay state income taxes on the debt forgiveness in Indiana, where he lives. But a judge ruled that was the result of state tax law, not the student debt relief plan.

The Pacific Legal Foundation is appealing that decision, and other conservative groups are likely to bring new litigation. Ultimately, it would only take one judge ruling in their favor to throw a wrench in the debt cancellation rollout.

“If there’s a nationwide injunction that’s put in place, it could certainly imperil the program,” says Adam Minsky, a lawyer who specializes in student loan law. “At a minimum, it could at least delay relief for borrowers. It could sow confusion for borrowers. It could dissuade some borrowers from even applying. So there is a lot at stake.”

Should I still apply?

The Education Department and advocates for debt forgiveness are encouraging borrowers to still apply as soon as possible.

While the emergency stay could delay the timeline for borrowers to see relief, the Education Department said officials are still moving forward with reviewing applications for debt relief and preparing them for transmission to loan servicers.

If the program is halted after some debt starts to be canceled, that becomes a more complicated problem. But legal experts say it would be highly unusual for courts to reinstate debt that has already been forgiven.

“It’s unlikely that people whose debts were already canceled are going to have it reinstated, so that’s a reason for people to get moving quickly,” says Luke Herrine, an assistant law professor at the University of Alabama who is an expert in student loan law and an advocate for student debt cancellation. “There’s no downside to applying,” he says. “The worst that can happen is you’re back where you started.”

Hounanian at the Student Debt Crisis Center is urging more borrowers to ignore the lawsuits for now and complete the brief application for debt forgiveness. “We are optimistic,” he says. “We do not want borrowers spending their energy and worry on tracking a multitude of lawsuits that are already going out the door.”

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Write to Katie Reilly at Katie.Reilly@time.com