September 29, 2022
Biden Loan Forgiveness Proposal Faces Legal Challenges
Two lawsuits attempting to block the forward movement of the Biden Administration’s plan to cancel student loan debt have been filed this week. The first was filed by the Pacific Legal Foundation, a conservative legal group and the other lawsuit was filed by six Republican-led states. Both lawsuits argue that the mass cancellation of student loan debt is an illegal abuse of authority.
In addition to arguing that the proposal is an illegal abuse of authority, the lawsuit by the states articulated that it was not the intent of Congress for an Administration to use the Higher Education Relief Opportunities for Students Act of 2003 for mass student loan forgiveness while the plaintiff in the Pacific Legal Foundation filing claimed that the cancellation of his student loan debt will do more harm than good because of his resulting state income tax liability. While federal income taxes have been waived on the cancellation of student loan debt forgiveness, states have various laws on whether such relief is taxable.
In addition, the Department of Education announced that borrowers with privately-held Federal Family Education Loans (FFEL) will no longer be able to receive forgiveness due to potential legal battles. Borrowers who have already taken steps to consolidate their FFEL loans to receive forgiveness will be able to do so as long as they were taken before September 29.
Meanwhile, in response to a request from House and Senate education committee Republicans, the Congressional Budget Office (CBO) issued a new analysis on the potential cost of the Biden Administration’s loan forgiveness and deferral proposal. The letter states that CBO has not finalized cost estimates for all of Biden’s proposals, thus additional information will be forthcoming but was able to provide a preliminary $420 billion estimate.
Of the preliminary $420 billion cost estimate, the CBO estimates that it will cost the federal government $400 billion to provide loan cancelation on loans issued before June 30, 2022. An additional $20 billion cost is added to that to cover the extended pandemic suspension of loan repayments from September to December 2022. The CBO notes that it has not completed a cost estimate for the new income-driven repayment plan.
The CBO estimates costs for student loans over the life of the loan, which is generally a 30-year period. In its analysis, the CBO notes that its estimates are highly uncertain, particularly related to borrower repayment behavior, future economic conditions, and potential changes to the terms of loans.
Contact: Stephanie T. Giesecke and Emmanual A. Guillory
In addition to arguing that the proposal is an illegal abuse of authority, the lawsuit by the states articulated that it was not the intent of Congress for an Administration to use the Higher Education Relief Opportunities for Students Act of 2003 for mass student loan forgiveness while the plaintiff in the Pacific Legal Foundation filing claimed that the cancellation of his student loan debt will do more harm than good because of his resulting state income tax liability. While federal income taxes have been waived on the cancellation of student loan debt forgiveness, states have various laws on whether such relief is taxable.
In addition, the Department of Education announced that borrowers with privately-held Federal Family Education Loans (FFEL) will no longer be able to receive forgiveness due to potential legal battles. Borrowers who have already taken steps to consolidate their FFEL loans to receive forgiveness will be able to do so as long as they were taken before September 29.
Meanwhile, in response to a request from House and Senate education committee Republicans, the Congressional Budget Office (CBO) issued a new analysis on the potential cost of the Biden Administration’s loan forgiveness and deferral proposal. The letter states that CBO has not finalized cost estimates for all of Biden’s proposals, thus additional information will be forthcoming but was able to provide a preliminary $420 billion estimate.
Of the preliminary $420 billion cost estimate, the CBO estimates that it will cost the federal government $400 billion to provide loan cancelation on loans issued before June 30, 2022. An additional $20 billion cost is added to that to cover the extended pandemic suspension of loan repayments from September to December 2022. The CBO notes that it has not completed a cost estimate for the new income-driven repayment plan.
The CBO estimates costs for student loans over the life of the loan, which is generally a 30-year period. In its analysis, the CBO notes that its estimates are highly uncertain, particularly related to borrower repayment behavior, future economic conditions, and potential changes to the terms of loans.
Contact: Stephanie T. Giesecke and Emmanual A. Guillory