Biden’s Student Loan Forgiveness Reforms Face Challenges

The Biden administration is in various stages of implementing a broad array of student loan relief for millions of borrowers. These efforts include expanding existing student loan forgiveness options and new regulations designed to make debt relief programs more accessible. As of February 2024, the administration has approved more than $135 billion in student loan forgiveness for millions of borrowers, with more potentially on the way.

However, several of President Biden’s initiatives and improvements to federal student loan programs are facing legal or legislative challenges, which could imperil debt relief. Here’s where things stand. 

Legal challenge to student loan forgiveness under IDR account adjustment

One of the most significant Biden administration student loan forgiveness initiatives has been the IDR Account Adjustment. Designed to rectify widespread historic loan servicing and program administering problems that prevented borrowers from accessing the full benefits of federal student debt relief programs, the adjustment temporarily relaxes federal rules to provide retroactive credit toward loan forgiveness under IDR as well as Public Service Loan Forgiveness. 

Hundreds of thousands of borrowers have already received student loan forgiveness under the adjustment, and millions more may advance their progress when the Education Department finalizes the initiative’s implementation in the summer of 2024.

But in 2023, conservative-leaning legal organizations filed a challenge to try to block the one-time account adjustment in court, arguing that the program was illegal. A federal District Court judge dismissed the challenge in August of 2023, arguing that the organizations did not have legal standing to challenge the program and could not demonstrate that it would harm them.

“Even if any of Plaintiffs’ hypothetical injuries were sufficiently concrete and particularized… Plaintiffs have not shown that the Adjustment caused their injury. Any of the hypothetical injuries Plaintiffs allege would be caused by Plaintiffs’ own employees or prospective employees, not the Adjustment.”

Hon. Thomas L. Ludington, U.S. District Judge

“Plaintiffs have not shown an individualized, concrete, and particularized injury-in fact, so they do not have Article III standing,” said the judge in the published decision dismissing the lawsuit. “Even if any of Plaintiffs’ hypothetical injuries were sufficiently concrete and particularized… Plaintiffs have not shown that the Adjustment caused their injury. Any of the hypothetical injuries Plaintiffs allege would be caused by Plaintiffs’ own employees or prospective employees, not the Adjustment.”

But the organizations have appealed to the Sixth Circuit Court of Appeals, where the case is pending. Briefing was just recently completed, with the challengers filing a reply brief earlier in January arguing that they do, in fact, have standing to sue the Biden administration. 

The Sixth Circuit has not yet rendered a decision.

Legal battles over Borrower Defense to Repayment program

There are also ongoing legal battles over President Biden’s regulatory changes to the Borrower Defense to Repayment program, which can provide federal student loan forgiveness to borrowers who were defrauded by their school. The updated regulations expand the categories of school misconduct that can be the basis for Borrower Defense relief, eliminate a strict statute of limitations, and soften the burden of proof so more borrowers can qualify for relief.

But these new regulations have been the subject of a legal challenge. Last year, the Fifth Circuit Court of Appeals agreed to block the new regulations while the litigation process continues in Career Colleges & Schools of Texas v. U.S. Department of Education. The court also blocked related regulations under the Closed School Discharge program, another loan forgiveness option for borrowers who were unable to complete their degree or certificate program due to their school’s closure. 

If Biden’s new Borrower Defense to Repayment and Closed School Discharge regulations get tossed, an older version of the rules — enacted by the Trump administration in 2019 and less borrower-friendly — could take effect. The legal battles have caused delays in the processing of Borrower Defense to Repayment applications. 

Meanwhile, a parallel legal battle over the Borrower Defense program is playing out in the Second Circuit Court of Appeals and could add even more chaos to the program. 

In NYLAG v. Cardona, the appeals court just sent the case back down to a lower court to determine if a statute of limitations provision associated with the Trump-era 2019 Borrower Defense regulations can be separated from the rest of the regulations. If the courts wind up invalidating the entire 2019 Trump-era Borrower Defense regulations (which is a possibility), and the Biden-era regulations get invalidated in the Fifth Circuit case, the entire Borrower Defense program could revert back to Obama-era 2016 regulations. 

Republicans release bill to repeal Biden’s student loan forgiveness and repayment plans 

House Republicans proposed new legislation to repeal much of President Biden’s student loan relief agenda, including curtailing authority to enact student loan forgiveness and repealing Biden’s most recent student debt relief initiatives. H.R. 6951, the College Cost Reduction Act, would result in a number of significant changes to the federal student loan system:

• Biden’s new regulations governing Borrower Defense to Repayment and Closed School discharges would be reversed.
• Biden’s new SAVE plan, including accelerated student loan forgiveness, would be repealed and replaced by a different income-driven plan that would be more costly and would not necessarily result in loan forgiveness for some borrowers. 
• The bill would prohibit a presidential administration from establishing new regulatory programs — including loan forgiveness initiatives — that “increase costs to the federal government.”
• The legislation would cap federal student loan borrowing and eliminate the Graduate PLUS and Parent PLUS programs altogether.

“It’s clear that the Biden administration needs a good old-fashioned dose of fiscal common sense – all it knows how to do is spend like a drunken sailor,” said Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) — one of the lead sponsors of the bill — in a statement earlier in January.

The bill currently stands little chance of becoming law, given Democratic control of the Senate and the White House. But the results of the 2024 elections will ultimately determine the fate of this legislation, as it will likely be reintroduced in the 2025 session of Congress.

Biden’s new student loan forgiveness plan under HEA likely to face legal challenges

The Biden administration is also working to develop a new student loan forgiveness plan under the Higher Education Act. This plan is designed to replace the one-time debt relief program that the Supreme Court struck down in 2023, ruling that Biden exceeded his statutory authority under a separate law called the HEROES Act.

This time, the administration is clearly trying to get out in front of a future legal challenge by going through a lengthy, bureaucratic “negotiated rulemaking” process which involves a series of meetings by a committee of key stakeholders and periods of public input. The administration did not go through that process when it established the prior loan forgiveness program under the HEROES Act.

The Biden administration is also trying to make the new HEA program more narrowly tailored to cover only certain categories of borrowers, such as those who have been in repayment for more than 20 years, people who owe now more than they originally borrowed, or those who qualify for existing loan forgiveness programs but haven’t applied. 

This is likely to avoid the application of the so-called Major Questions Doctrine, a conservative legal theory advanced by Chief Justice John Roberts whereby executive actions that have highly significant political or fiscal ramifications must be expressly authorized by Congress through statute in order to survive judicial scrutiny.

Regardless of the Biden administration’s efforts, however, the new HEA student loan forgiveness program is all but certain to be challenged in court — possibly later this year, when the Education Department releases final regulations.