Biden could have 'Plan B' if court stalls student debt forgiveness — more repayment delays

On Jan. 1, a temporary pause on federal student loan repayments is set to expire — meaning millions of borrowers are bracing to repay loans after a nearly three-year reprieve.

While the Biden administration called the latest extension the "final" one, some experts predict the pause could be extended if the legal uncertainty over a new student loan forgiveness plan continues.

On Friday, hours after President Biden announced that 22 million people had applied for forgiveness, a federal court of appeals issued an administrative stay that bars the administration from dispensing with the loans while it considers a challenge to the program.

White House Press Secretary Karine Jean-Pierre declined to discuss the possibility of extending the repayment pause, but she also didn't rule it out when reporters raised questions on Monday.

“I'm not going to get into hypotheticals, and we have to let the process play out,” she said. “We're not going to get ahead of ourselves from here.”

In August, the Biden administration announced a plan that would forgive $10,000 of student debt for people making less than $125,000 and an additional $10,000 for those who received Pell Grants, which go to borrowers with extreme financial need. The plan has sparked opposition from Biden's opponents, who contend it's too expensive and oversteps Biden's authority. Others contend it doesn't address the root problems that make college so expensive. The plan has sparked several legal challenges.

The U.S. Court of Appeals for the Eighth Circuit is expected to rule on a suit from six Republican-led states aiming to block the program permanently after a lower court dismissed the suit for lack of standing — meaning a judge found the states didn't show that the forgiveness plan hurt them.

“It’s very important that the legal issues involving presidential power be analyzed by the court before transferring over $400 billion in debt to American taxpayers,” Nebraska's Republican Attorney General Doug Peterson said in a statement after the appeals court stayed Biden's plan.

'Maybe for the duration of his tenure as president'

If the legal logjam continues, experts note the administration would have a right to further extend the pause on repayments.

“While the Biden administration said that this final extension is a final, final extension, that isn't the first time they said that something was final," student financial aid expert Mark Kantrowitz told Yahoo Finance.

The Biden administration might issue a temporary extension if the legal questions remain unsettled by January, he said. The pause could continue if a judge ultimately rules against Biden.

“If they lose in court and the president's loan forgiveness plan is blocked," he says, "well nothing stops them really from extending the student loan payment pause and interest waiver further, maybe for the duration of his tenure as president.”

While opponents question Biden's authority to forgive debt, it's more clear that the law allows him to issue the pause on repayments. Both efforts derive from the Higher Education Relief Opportunities For Students (HEROES) Act, which allows the Secretary of Education to grant relief to federal student loan recipients in connection with a national emergency.

During the early days of the COVID-19 pandemic, then-President Donald Trump invoked the power to delay student loan repayments; Biden has continued extending the deadline since taking office.

The Biden administration is also trying to use the HEROES Act to go further and forgive federal student loan debt. But Biden's ability to forgive debt under that law is less clear, and some experts predict the government will lose if the Supreme Court weighs in on the plan.

‘Full steam ahead’…for now

Biden has only offered minimal comments on the legal setback. He defended the effort and condemned Republican efforts to stop it during a stop Monday at the Democratic National Committee headquarters.

The White House press secretary underlined Monday the administration will continue accepting applications for forgiveness and expressed confidence that it would soon be up-and-running.

Kyra Taylor, a supporter of forgiveness and a staff attorney focused on student loans at the National Consumer Law Center, takes the administration at its word. "I think the administration will keep moving,” she said. Unless a court actually rules against the program, she said, “It’s full steam ahead.”

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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