The Justice Department is fighting to keep Biden’s plan alive after it was halted by two federal courts in recent weeks. The agency is asking for quick action to block both rulings and allow the plan to take effect even as it plays out in the nation’s courts. In a legal filing Thursday, the administration announced plans to appeal one of those rulings, from a federal appeals court in St. Louis, to the nation’s highest court. And she says she is prepared to appeal the other case if necessary. The White House has said it will prevail, but even some supporters of the plan worry about its chances before a conservative Supreme Court that has limited Biden’s power in other ways, including a June ruling that limited the ability of the Environmental Protection Agency to limit emissions energy plan. Biden’s plan promises $10,000 in federal student debt relief to those with incomes of less than $125,000 or households earning less than $250,000. Recipients of Pell Grants, who typically demonstrate greater financial need, are eligible for an additional $10,000 in relief. Keeping debt relief on hold would leave the government with an “unnecessarily risky choice,” the government argued in its filing. If he restarts student loan payments as scheduled on Jan. 1, millions of Americans will be saddled with debt he promised to cancel. But if the government extends the payment freeze, it will cost billions of dollars in lost revenue. It builds on arguments the administration has made in other filings this week, warning that many Americans will be unable to pay their student debt bills in January if the repeal plan remains on hold. For typical borrowers, monthly payments would be $200 to $300 higher than they would be if Biden’s plan goes through, the Education Department said. The strain could lead to a spike in bankruptcy rates, which have risen an average of twentyfold in the wake of other natural disasters. “We anticipate that there could be a historically large increase in the amount of federal student loan delinquencies and defaults as a result of the COVID-19 pandemic,” Under Secretary of Education James Kwaal said in a filing Tuesday. “This could lead to one of the harms that the one-time student loan debt relief program was intended to avoid.” In its latest filing, the Justice Department is asking the appeals court to reverse U.S. District Court Judge Mark Pittman’s ruling striking down Biden’s 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’ lawmaking powers. It arose from a lawsuit by two borrowers who did not qualify for relief under the parameters of the Biden plan. The program was halted separately by a St. Louis court after six Republican-led states said it would hurt financial institutions. Almost 26 million people have already applied for the relief, with 16 million approved, but the Ministry of Education stopped accepting and processing applications last week after the scheme was ruled illegal. Biden’s plan has sparked a slew of legal challenges, with mixed results. Opponents of debt relief have asked the Supreme Court to intervene at least twice after their cases failed in lower courts. The Supreme Court rejected both requests. The barrage of lawsuits jeopardized Biden’s plan, which was meant to fulfill a major campaign promise. It is now uncertain whether 40 million borrowers who were promised debt relief will have to start paying on that debt in January. The biggest risk is for 18 million borrowers who have been told their entire loan balance will be cancelled. Even if payments resume, those borrowers may think they’re in the clear and ignore the bills, the Department of Education warned. Borrowers who fall behind on payments can face severe consequences, including damage to their credit scores and withholding of wages and tax refunds. Supporters and some Democrats in Congress are pushing Biden to extend the payment freeze until all legal challenges are resolved, despite his earlier assurance that the freeze would end after Dec. 31. In a filing Tuesday, the Department of Education said it was “considering all available options.” But he warned that extending the moratorium could cost the federal government “several billions of dollars a month in uncollected 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 worsen inflation and raise the risk of an economic recession. In a separate action targeting student debt, the Education and Justice departments announced a new policy aimed at making it easier for borrowers to discharge student loans in bankruptcy court. When borrowers in bankruptcy try to discharge their federal student loans, government lawyers have typically moved to block it. Defense attorneys have long complained that only a small fraction of borrowers in bankruptcy manage to discharge their student loans, and many attorneys won’t even take these cases. As a presidential candidate, Biden promised to fix the problem. The Justice Department on Thursday sent new instructions to its attorneys, clarifying when they can support a borrower’s request for student debt forgiveness. Judges still have the final say, but the department said its guidance will lead to “fairer, more consistent outcomes.” Separately, a federal judge on Wednesday approved a Department of Education settlement that will cancel $6 billion in student debt for borrowers who say they were defrauded by for-profit colleges. The deal was proposed in June but was delayed amid opposition from many schools. A federal judge in San Francisco concluded that the settlement is fair. Advocates and the Biden administration applauded the approval, while a for-profit college industry group vowed to appeal the decision. As part of the settlement, the Department of Education agreed to cancel loans for about 200,000 borrowers who attended one of more than 150 for-profit colleges and later applied for cancellation because of misconduct by their schools. It stems from a 2019 lawsuit that accused the Trump administration of intentionally stalling the loan relief program while rewriting the rules.
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