Lawsuits, shrunk eligibility take the shine off Biden’s student debt relief

President Biden’s student loan forgiveness plan hit multiple road bumps this week, leading to the administration ultimately scaling back eligibility, excluding hundreds of thousands of borrowers from its relief plan.

The administration was confronted with the first round of lawsuits against the program, as well as a tough score from the Congressional Budget Office (CBO) that elevated concerns over its cost, both issues that the White House has downplayed in an attempt to keep voters enthusiastic about forgiveness.

The applications for debt relief are expected to open this month under the program, which will forgive up to $10,000 in federal student loan debt for borrowers earning under $125,000 and up to $20,000 for borrowers who received Pell Grants.

An abrupt update on Thursday, however, said that borrowers with federal student loans not held by the Education Department are no longer eligible to obtain the relief, stirring up confusion.

“There’s so much fear going on, so many borrowers are already calling, rushing to us, ‘What does this mean for me?’ It was very abrupt to have, ‘Today is the day we announce it and the day that is the last day to consolidate within minutes of lawsuits coming out,’” said Natalia Abrams, president of the Student Debt Crisis Center.

One major legal challenge came from several Republican-led states, arguing that the plan is unlawful because there is no statute from Congress authorizing the cancellation of student loan debt.

With the lawsuits in mind and potentially more to come, advocates warn the administration needs to not delay on giving out forgiveness in order to retain enthusiasm from voters about the program ahead of the midterms.

“Every day that people go without having their debt canceled feels more bitter than sweet. To retain that sort of bump in polling that I think people sort of broadly agreed has occurred because of the announcement, to retain that favorability they need to actually cancel the debt,” said Braxton Brewington, spokesperson for the Debt Collective.

“No one wants to go into November with no one’s debt having been canceled,” he said.

Also this week, the CBO released its official estimate that the plan will cost about $400 billion. It also projected that 90 percent of income-eligible borrowers will apply for debt cancellation, which the White House pushed back on as too optimistic of a percentage based on participation in other government programs.

When the president announced the plan in August, Republicans and even some moderate Democrats quickly criticized it for being too costly for taxpayers.

“The announcement didn’t get the political praise they thought it would. When you look at the national reaction, it wasn’t as well received. So, you have that, and you have the legal challenges and the cost estimates coming out,” said Robert Moran, a former senior policy adviser in the Education Department under President George W. Bush.

Others argued that issues such as scope and implementation won’t impact the enthusiasm level about the program from voters.

“Failure to address the prominent campaign promise of student debt forgiveness would have been hard to overcome politically. A few initial bumps on the scope and implementation of the plan aren’t enough to walk back the enthusiasm for student loan forgiveness, particularly in the minds of younger voters,” said Debra Dixon, former chief of staff at the Office of Planning, Evaluation and Policy Development at the Education Department under President Obama.

But Dixon warned that “legal limitations could be another story.”

The other lawsuit this week came from public interest firm Pacific Legal Foundation, which challenged the plan through a plaintiff who is currently paying off loans. The plaintiff claimed he would be subject to an expensive tax in the event of debt relief because he lives in Indiana, which is one of several states that considers debt cancellation taxable income.

“Looking at this whole situation at a very high level, the administration’s always been on somewhat shaky legal ground,” said Moran, a principal at Bose Public Affairs Group. “From a legal standpoint, observationally, this administration is using the Heroes Act, which has always kind of been controversial but everyone has used it, both Republican and Democratic administrations, for various purposes.”

The Heroes Act allows the Education Department to waive or modify statutes or provisions related to student financial assistance programs during war or national emergencies such as the COVID-19 pandemic.

The lawsuits this week are largely being attributed by observers to the timing of the update to exclude some borrowers. But the White House says it is simply trying to speed up effective action.

“Our goal from day one has always been to deliver relief to as many borrowers as possible, as quickly as possible, and this change helps us achieve that,” press secretary Karine Jean-Pierre said on Friday.

The update says that only borrowers in the Federal Family Education Loan (FFEL) Program whose loans are held by the federal government are eligible. The FFEL Program, which stopped issuing loans in 2010, was a student loan system that had private banks manage the loans, though they were guaranteed by the federal government.

While the update was considered abrupt and sudden, a source familiar with the decision said the administration started conversations with the FFEL community shortly after the August announcement to gauge if lawsuits would stem from this exclusion.

The end result on Thursday was that if a borrower with a FFEL loan was preemptively consolidating to prepare for cancellation ahead of the application period opening, they can still qualify to get cancelation.

Many numbers have circulated over how many borrowers will now be excluded from the program, ranging between 700,000 to 5 million.  The administration did not respond to a request for the exact number but Jean-Pierre said on Friday it is “much smaller” than the millions being reported.

The update is worrying other borrowers into thinking they may be excluded, advocates said.

“This is a very, very small group of borrowers, but then being reported out…to where people are thinking this is going to affect all borrowers or most of them,” Abrams said.

Advocates and progressives had pushed for $50,000 per borrower in relief, before the administration announced up to $20,000 per borrower, and the decision to now exclude some borrowers is another issue for them.

“I think it’s just as bittersweet as the announcement in a lot of ways because the relief that Biden announced was already skimpy,” Brewington said. “And so now it just feels, sort of throwing FFEL borrowers under the bus, feels like its skimping on the skimp.”