The past few days brought more bad news for those hoping for student loan forgiveness. On November 10, a federal court in Texas ruled that President Joe Biden and the Department of Education cannot unilaterally forgive federal student loans without congressional authorization. A few days later, the Eighth Circuit Court of Appeals granted a preliminary injunction in favor of six Republican-controlled states challenging the loan-forgiveness plan.
Both rulings effectively block the loan-forgiveness plan from moving forward. While the government says it will appeal both decisions, the Department of Education’s website has stopped accepting forgiveness applications. This is a strange move because when the Eighth Circuit issued an emergency order blocking student loan discharges last October, the Department of Education continued to accept forgiveness applications. Why the sudden lack of interest in accepting applications? It could be because the loan-forgiveness plan was simply a political stunt.
What happens in the future is anyone’s guess. Now that the midterm elections have passed and the anticipated Republican red wave turned out to be more like a ketchup stain, it is uncertain how quickly and aggressively the administration will attempt to get these court rulings overturned. Since this is a highly divisive issue with a roughly equal number of voters for and against loan forgiveness, the administration will likely take its time to figure out whether it is better politically to get a decision quickly or use delaying tactics until the next election.
It is highly likely that loan forgiveness was a political tactic to begin with. After all, why did Biden wait until a few months before the elections to announce a student loan forgiveness plan? There was a legal memo from the Legal Services Center of Harvard Law School stating that the president had authority to cancel student loans. Also, there was a preliminary memo from the Department of Education discussing the legality of student loan forgiveness as early as April 2021.
Biden knew for a long time that a unilateral executive action would be challenged in court. Republicans in Congress claimed that loan forgiveness is not only unfair, but also that a decision that would cost at least $400 billion requires congressional approval. Democratic Speaker of the House Nancy Pelosi stated that the president cannot forgive student loans on his own. Even Biden himself questioned whether he had the authority to cancel them on his own.
Indeed, continuing to pursue student loan forgiveness would alienate a large number of voters. But if the administration loses interest in pursuing loan forgiveness, it could upset voters who have made major financial decisions in reliance of the plan. Others may have been financially harmed. For example, some people who held Federal Family Education Loans (FFEL) may have to pay higher interest rates due to consolidating their loans into Direct Loans. Others paid more than the minimum in order to pay the loans early or to be able to skip payments during times of financial hardship without defaulting. By consolidating, they could lose their prepayment credit.
Most people will vote for politicians for many reasons other than student loan forgiveness. But for those who are voting based on this issue alone, they are not likely to want plans or proposals that could be blocked by the courts. They will want results. The administration will need to work with some members of the razor-thin Republican house majority to get congressional approval of a student loan forgiveness plan. The way things are going now, it may be easier than litigation.
It is easy to blame unelected Republican judges for crushing the hopes of millions seeking debt relief. But it is very possible that Biden knew that his loan-forgiveness proposal would be blocked by the courts and moved forward anyway to sway indebted voters. But if the administration wants to continue with pursuing loan forgiveness, single-issue voters will want to see their loan balances reduced before they vote. They are tired of political stunts.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at firstname.lastname@example.org. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.