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What student loan borrowers need to know after a federal court struck down Biden’s forgiveness program

<i>Jim Watson/AFP/Getty Images</i><br/>President Joe Biden speaks at Wilkes University in Wilkes-Barre
AFP via Getty Images
Jim Watson/AFP/Getty Images
President Joe Biden speaks at Wilkes University in Wilkes-Barre

By Katie Lobosco, CNN

Student loan borrowers are now waiting indefinitely to see if they’ll receive debt relief under President Joe Biden’s student loan forgiveness program after a federal judge in Texas struck down the program Thursday, declaring it illegal.

The Department of Justice immediately appealed to the 5th US Circuit Court of Appeals. But that case will have to play out before the Biden administration can cancel any federal student loan debt under the program.

While the Biden administration has faced several legal challenges to the student loan forgiveness program since it was announced in August, the ruling on Thursday is the most significant setback thus far — prompting the Department of Education to stop accepting applications for debt relief.

Biden’s program was already on hold due to a separate legal challenge, but the administration had continued accepting applications, having received 26 million to date.

Under the rules of the program, eligible low- and middle-income borrowers can receive up to $10,000 of federal student loan forgiveness and up to $20,000 in cancellation if they also received a Pell grant while enrolled in college.

What happens now for borrowers?

Borrowers will have to wait for the government’s appeal to the 5th Circuit Court to play out. While it can be tough to follow all the various legal challenges, borrowers can subscribe for updates from the Department of Education and check the Federal Student Aid website for further information.

It could take months for the court to issue a final ruling. If it overturns the Texas lower court’s ruling, then the Biden administration could begin canceling student debt.

But the Department of Justice could also ask for an emergency stay of the Texas judge’s order. If granted — and if a different appeals court ends its temporary stay on the program in a separate, pending case — then the administration would be allowed to cancel debt before a final ruling is made by the 5th Circuit.

Initially, the Biden administration said that it would start granting student loan forgiveness before payments are set to resume in January after a years-long pandemic pause.

But Thursday’s ruling in Texas puts that timeline in jeopardy.

“For the 26 million borrowers who have already given the Department of Education the necessary information to be considered for debt relief — 16 million of whom have already been approved for relief — the Department will hold onto their information so it can quickly process their relief once we prevail in court,” said White House press secretary Karine Jean-Pierre in a statement Thursday.

“We strongly disagree with the District Court’s ruling on our student debt relief program,” she said.

What are the legal arguments?

The Biden administration has argued that Congress has given the secretary of education the power to broadly discharge student loan debt in a 2003 law known as the HEROES Act.

But the Texas federal judge found that the law does not provide the executive branch clear congressional authorization to create the student loan forgiveness program.

“The program is thus an unconstitutional exercise of Congress’s legislative power and must be vacated,” wrote Judge Mark Pittman, who was nominated by then-President Donald Trump.

“In this country, we are not ruled by an all-powerful executive with a pen and a phone,” he continued.

The Texas lawsuit was filed by a conservative group, the Job Creators Network Foundation, in October on behalf of two borrowers who did not qualify for debt relief.

One plaintiff did not qualify for the student loan forgiveness program because her loans are not held by the federal government and the other plaintiff is only eligible for $10,000 in debt relief because he did not receive a Pell grant.

They argued that they could not voice their disagreement with the program’s rules because the administration did not put it through a formal notice-and-comment rule making process under the Administrative Procedure Act.

“This ruling protects the rule of law which requires all Americans to have their voices heard by their federal government,” said Elaine Parker, president of Job Creators Network Foundation, in a statement Thursday.

The advocacy group was founded by Bernie Marcus, a major Trump donor and former Home Depot CEO.

Where do the other lawsuits stand?

The Biden administration has been banned from canceling any debt since the 8th US Circuit Court of Appeals put an administrative hold on the program on October 21.

The appeals court has yet to rule on that lawsuit, brought by six Republican-led states. A lower court judge dismissed the lawsuit on October 20, ruling that the states did not have the legal standing to bring the challenge.

The Biden administration is facing several other legal challenges to the program. Supreme Court Justice Amy Coney Barrett has denied two separate requests to challenge the program.

Who may be eligible for student loan forgiveness?

If Biden’s program is allowed to move forward, individual borrowers who earned less than $125,000 in either 2020 or 2021 and married couples or heads of households who made less than $250,000 annually in those years could see up to $10,000 of their federal student loan debt forgiven.

If a qualifying borrower also received a federal Pell grant while enrolled in college, the individual is eligible for up to $20,000 of debt forgiveness.

There are a variety of federal student loans and not all are eligible for relief. Federal Direct Loans, including subsidized loans, unsubsidized loans, parent PLUS loans and graduate PLUS loans, are eligible.

But federal student loans that are guaranteed by the government but held by private lenders are not eligible unless the borrower applied to consolidate those loans into a Direct Loan before September 29.

This headline and story have been updated with additional information.

™ & © 2022 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

CNN’s Tierney Sneed contributed to this report.

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