The Biden administration announced that it is narrowing the scope of its student loan debt cancelation program because they’re afraid that loans held by private companies won’t pass legal muster in the courts.
Private entities hold some student loans through a program known as the Federal Family Education Loan Program. About four million borrowers out of the 45 million Americans who have outstanding student loan debt have secured loans through a private source.
The loans are held by various private lenders, guaranty agencies, and loan servicers — any of which would have the standing to sue the administration for canceling the debts. Given that the chances are excellent they would win in court, the administration decided that they present the greatest legal threat to the debt relief plan.
Many of those companies face losses as borrowers convert their privately held federal student loans into ones that are owned directly by the Education Department — through a process known as consolidation.
Administration officials said when they announced the debt relief program in August that borrowers with federally guaranteed loans held by private lenders would be able to receive loan forgiveness by consolidating their debt into a new loan made directly by the Education Department.
The agency said Thursday that borrowers who already took those steps to receive loan forgiveness would still receive it. But the Education Department said that path is no longer available to borrowers after the new guidance.
That will teach all the procrastinators a valuable lesson.
The administration had been negotiating with the private loan sources trying to secure an agreement that would allow debt cancellation on slightly different terms for student loan borrowers. But a deal proved elusive.
Top Education Department officials and industry groups had for weeks been negotiating a compromise deal in which the companies were compensated for their losses and avoid suing the administration over the issue. But those discussions have not yet produced a deal.
The Education Department said on its website Thursday it “is assessing whether there are alternative pathways to provide relief to borrowers with federal student loans not held by [the Education Department], including FFEL Program loans and Perkins Loans, and is discussing this with private lenders.”
The first lawsuit challenging the debt forgiveness plan was filed on Tuesday. Now, six Republican-led states are suing the administration over its blatantly illegal and unconstitutional effort to cancel debt.
In the lawsuit, being filed Thursday in a federal court in Missouri, the Republican states argue that Biden’s cancellation plan is “not remotely tailored to address the effects of the pandemic on federal student loan borrowers,” as required by the 2003 federal law that the administration is using as legal justification. They point out that Biden, in an interview with CBS’ “60 Minutes” this month, declared the COVID-19 pandemic over, yet is still using the ongoing health emergency to justify the wide-scale debt relief.
“It’s patently unfair to saddle hard-working Americans with the loan debt of those who chose to go to college,” Arkansas Attorney General Leslie Rutledge, who is leading the group, said in an interview.
It’s doubtful this suit will go anywhere. The Republican AGs will not be able to prove that any specific citizen in their state will suffer damage as a result of the student loan debt cancelation. They simply don’t have the legal standing to sue.
The change in the parameters of the debt cancelation program won’t materially affect any legal action going forward. But it’s just another indication that the Biden administration knows the plan is illegal and unconstitutional — but is going ahead with it anyway.
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