The Biden administration is asking the Supreme Court to take up the student debt plan

WASHINGTON (AP) — The Biden administration plans to ask the Supreme Court to reinstate the president’s plan to cancel student debt, according to a legal filing warning Thursday that Americans will face financial stress if the plan remains stalled in court when loan payments are due to be repaid. in january.

The Justice Department is struggling to keep the Biden plan alive after two federal courts blocked it in recent weeks. On Thursday, she asked a federal appeals court in New Orleans to put a hold on a decision to overturn the Biden plan, and in the same filing announced plans to ask the Supreme Court to overturn an appeals court in St. Louis that had halted the plan.

Biden’s plan promises to forgive $10,000 in federal student debt for those with incomes of less than $125,000, or families with incomes of less than $250,000. Pell Grant recipients, who typically demonstrate more financial need, are eligible to receive an additional $10,000 in relief.

In its filing on Thursday, the administration argued that keeping debt relief on hold would leave the government with an “unnecessarily risky choice.” If she makes her student loan payments back as planned on January 1, millions of Americans will be billed for the debts she promised to cancel. But if the government extends the payment moratorium, it will cost billions of dollars in lost revenue.

It builds on arguments made by the administration in other filings this week, warning that many Americans won’t be able to pay their student debt bills in January if the cancellation plan remains stalled.

And the Education Department said that for ordinary borrowers, monthly payments would be $200 to $300 higher than they would be if Biden’s plan goes through. The stress can lead to higher default rates, which have increased twenty-fold in the wake of other natural disasters.

“We anticipate a historically significant increase in the amount of federal student loan defaults and defaults as a result of the COVID-19 pandemic,” Undersecretary of Education James Kavale said in a filing Tuesday. “It may result in one of the harms that the one-time student loan debt relief program was intended to avoid.”

Biden’s plan has sparked a wave of legal challenges, which have seen mixed results. Opponents of debt forgiveness have asked the Supreme Court to intervene at least twice after their cases failed in the lower courts. The Supreme Court denied both requests.

In its new filing, the Justice Department asked the appeals court to overturn US District Court Judge Mark Pittman’s decision to overturn the Biden plan. Pittman, who was appointed by former President Donald Trump and is based in Fort Worth, Texas, ruled last week that Biden’s plan exceeds his presidential authority and usurps Congress’ powers to make laws.

It arose from a lawsuit filed by two borrowers who are not eligible for relief under the criteria of the Biden plan. A St. Louis court separately blocked the program after six Republican-led states said it would harm financial institutions.

Nearly 26 million people have already applied for the relief, with 16 million approved, but the Education Department stopped accepting and processing applications last week after the scheme was ruled illegal.

The White House says it will prevail in court, but a barrage of lawsuits has thrown Biden’s plan into jeopardy. It is now uncertain whether the 40 million borrowers who have been promised debt relief will have to start making payments on that debt in January.

The biggest risk is the 18 million borrowers who have been told their entire loan balance will be canceled. The Department of Education warned that even if payments resume, these borrowers may think they are in the clear and ignore the bills.

Borrowers who are late can face severe consequences, including damage to their credit scores, wage withholding and tax refunds.

Advocates and some Democrats in Congress are pressing Biden to extend the payment moratorium until all legal challenges are resolved, despite his earlier assurance that the freeze would expire after Dec. 31.

In a filing on Tuesday, the Education Department said it was “considering all available options.” But she warned that extending the pause could cost the federal government “several billion dollars a month in non-refundable loan proceeds.”

The freeze has already cost the federal government more than $100 billion in revenue, according to a July report from the Government Accountability Office. Critics warn that another extension could exacerbate inflation and increase the risk of recession.

In a separate measure targeting student debt, the Departments of Education and Justice announced a new policy aimed at making it easier for borrowers to obtain student loans in bankruptcy court.

When bankrupt borrowers try to cancel their federal student loans, government lawyers usually turn to blocking them.

Advocates have long complained that only a fraction of borrowers in bankruptcy are successful in writing off their student loans, and many attorneys won’t even handle these cases. As a presidential candidate, Biden has promised to fix the problem.

On Thursday, the Justice Department sent new guidance to its attorneys explaining when they can support a borrower’s application for student debt forgiveness. Judges still have the final say, but the ministry said its guidance would lead to “fairer and more consistent results.”

Separately, a federal judge on Wednesday approved a settlement for the Education Department that would cancel $6 billion in student debt to borrowers who say they were defrauded by for-profit colleges. The deal was proposed in June but shelved amid defiance by several schools.

A federal judge in San Francisco found the settlement fair. Advocates and the Biden administration applauded the approval, while a for-profit university industry group promised to appeal the decision.

Under the settlement, the Department of Education agreed to cancel the loans of about 200,000 borrowers who went to one of more than 150 for-profit colleges and later applied for cancellation because of their schools’ misconduct.

It stems from a lawsuit filed in 2019 accusing the Trump administration of willfully stalling the loan forgiveness program while rewriting the rules.

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The Associated Press education team receives support from the Carnegie Corporation of New York. AP is solely responsible for all content.

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