It’s another setback for student loan borrowers.

Borrowers will now wait 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 evening, declaring it illegal.

The Department of Justice turned around and appealed to the 5th US Circuit Court of Appeals.

However, the case will need to play out before the Biden administration can indeed cancel any federal student loan debt under the program.

Legal Battles Aplenty

While the Biden administration continued to face legal challenges to the student loan forgiveness program since it was announced in August, the ruling on Thursday is the most significant setback to date — prompting the Department of Education to stop accepting applications for debt relief, according to an article on CNN.

The program was already on hold because of another legal challenge, but the administration continued accepting applications and has received 26 million to date.


Under the rules of the loan forgiveness program, eligible low- and middle-income borrowers may 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 or university

The uphill legal challenges will no doubt take months for the issue to be resolved.

The Texas decision “makes it more likely that the issue will ultimately go to the Supreme Court, though it is still too early to say,” said Abby Shafroth, staff attorney at the National Consumer Law Center, in the CNN article.

What About Borrowers?

Borrowers must wait for the government’s appeal to the 5th Circuit Court. While it’s hard to follow the many legal challenges, borrowers can subscribe for updates from the Department of Education and check the Federal Student Aid website for updated information.

Again, it could very well take months for the court to issue a final ruling. If it overturns the Texas lower court’s ruling, then the Biden administration could start 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 could be allowed to cancel debt before a final ruling is made by the 5th Circuit, according to the CNN article.

In the beginning, the Biden administration reported it would grant student loan forgiveness before payments were set to resume in January after the pandemic. However, Thursday’s ruling in Texas makes that January date uncertain.

“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.

Legal Arguments

The Biden administration has argued that Congress granted the secretary of education the power to broadly discharge student loan debt in a 2003 law known as the HEROES Act, passed in the wake of the September 11 terrorist attacks, according to the CNN article.

The government’s lawyers say the law lets the secretary discharge the debt in the event of a national emergency, including the COVID-19 pandemic.

However, the Texas federal judge says 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, according to the CNN article. “In this country, we are not ruled by an all-powerful executive with a pen and a phone,” he continued.

Conservative Filing

The conservative group, Job Creators Network Foundation, filed the Texas lawsuit 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 as 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.

These borrowers argued that they could not voice their disagreement with the program’s rules as the administration did not put it through a formal notice-and-comment rule-making process under the Administrative Procedure Act, the CNN article explains.

“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 the Job Creators Network Foundation, in a statement Thursday.

Lawsuits to Date

In addition to the recent Texas lawsuit, the Biden administration is facing other lawsuits over the student loan forgiveness program.

One is a lawsuit brought by six Republican-led states which are pending at the 8th US Circuit Court of Appeals. On Oct. 21, that appeals court put an administrative hold on the program, banning the administration from canceling any debt.

The states have argued the Biden administration does not have the legal authority to grant broad student loan forgiveness, and that the program would financially be detrimental for many reasons. A lower court dismissed the case, ruling states did not have legal standing to sue. The states immediately appealed to the 8th Circuit.

The Biden administration has had several wins in court to date, as plaintiffs have not been able to show they have the standing to sue.

One lawsuit, filed by a Wisconsin taxpayers group, was also dismissed by a trial-level federal judge, ruling the group didn’t have the standing to bring the challenge. The plaintiffs argued the loan forgiveness program, which is estimated to cost about $400 billion, will hurt taxpayers and the US Treasury. Supreme Court Justice Amy Coney Barrett also rejected the taxpayer group’s request for the Supreme Court to intervene.

A separate case, which was also rejected by Barrett and dismissed by a lower court, was filed by a borrower who argued the loan forgiveness program would result in a larger state tax bill. Some states may tax debt forgiveness, but it is not taxable on the federal level.

The Biden administration is also facing pending lawsuits from Arizona’s GOP Attorney General Mark Brnovich and the Cato Institute. These lawsuits argue that the president does not have the legal authority to cancel student loan debt.

Brnovich argues that the state has standing to sue since the student loan forgiveness program could reduce Arizona’s tax revenue. The state code doesn’t consider loan forgiveness as taxable income.

Additionally, the Arizona complaint argues the forgiveness policy will hurt the attorney general office’s chances to recruit employees. Presently, its employees may be eligible for the federal Public Service Loan Forgiveness program, however, some potential job candidates may not view that as a benefit if their student loan debt is canceled, the lawsuit suggests.

The Cato Institute argues the forgiveness program makes it difficult for it to attract new employees.

Who is Eligible for Student Loan Forgiveness?

If Biden’s program is permitted to move forward, individual borrowers who earned less than $125,000 in either 2020 or 2021 and married couples or heads of households who earned less than $250,000 annually in those years get 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 or university 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.

However, keep in mind that federal student loans 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 Sept. 29.

Source: CNN, Washington Post, and other various news reports