Biden administration extends student loan payment pause amid court battle over cancellation

Officials say the extension will “alleviate uncertainty” for millions of borrowers as the fate of the debt relief plan could rest with the Supreme Court

President Joe Biden’s administration will extend a pause on student loan debt repayment as courts decide whether to allow a plan to cancel up to $10,000 in balances for millions of borrowers.

The Covid-19-pandemic era moratorium of payments and interest was first enacted under Donald Trump and has been extended several times. It was set to expire on 31 December.

US Department of Education Secretary Miguel Cardona announced that the agency will extend the pause until it is “permitted to implement the debt relief program or the litigation is resolved, but no later than” 30 June 2023. Payments will then resume 60 days later.

The extension “will alleviate uncertainty” for borrowers as the administration asks the US Supreme Court to review lower-court rulings from Republican-supported lawsuits seeking to block the president’s plan to relieve up to $10,000 in federal student loan debt balances for roughly 40 million Americans.

A long-anticipated plan for debt cancellation was met almost immediately with litigation threats from conservative legal groups and Republican officials. Two lawsuits have successfully blocked the programme, at least temporarily, and the Education Department closed a loan cancellation web portal earlier this month.

The administration and millions of borrowers lost a legal battle last week after a federal appeals court in St Louis agreed to a preliminary injunction requested by six Republican-led states that would pause the plan while the appeals process plays out.

The ruling came just days after a federal judge in Texas blocked the programme, arguing that the administration did not have authority to implement it and had unlawfully sidestepped Congress.

Administration officials have vowed to continue appealing.

On Friday, the US Department of Justice asked the Supreme Court to reverse the federal appeals court ruling, which attorneys called “erroneous” and has left millions of borrowers locked out of making financial decisions without an “an accurate understanding of their future repayment obligations.”

The plan’s fate could rest with the nation’s high court, on which a supermajority of conservative justices will have final say.

“Callous efforts to block student debt relief in the courts have caused tremendous financial uncertainty for millions of borrowers who cannot set their family budgets or even plan for the holidays without a clear picture of their student debt obligations, and it’s just plain wrong,” Mr Cardona said in a statement. “We’re extending the payment pause because it would be deeply unfair to ask borrowers to pay a debt that they wouldn’t have to pay, were it not for the baseless lawsuits brought by Republican officials and special interests.”

Under the plan, borrowers earning up to $125,000, or $250,000 for married couples, are eligible for up to $10,000 of their federal student loans to be wiped out. Those borrowers are eligible to receive up to $20,000 in relief if they received Pell grants.

Roughly 16 million have already submitted their applications and received approval for debt cancellation, according to the Biden administration.

The student loan debt crisis has exploded to a total balance of nearly $2 trillion, mostly wrapped up in federal loans. Millions of Americans also continue to tackle accrued interest without being able to chip away at their principal balances, even years after graduating, or have been forced to leave their colleges or universities without obtaining a degree at all while still facing loan repayments.