Mass Student Loan Forgiveness Emails Sent As Challengers Appeal To Block Debt Relief

https://www.forbes.com/sites/adamminsky/2023/08/21/mass-student-loan-forgiveness-emails-sent-as-challengers-appeal-to-block-debt-relief/?sh=7fdf6db675b8

The Biden administration is implementing a sweeping student loan forgiveness initiative, with hundreds of thousands of borrowers receiving notifications in the last week that their balances have been discharged.

Meanwhile, two conservative organizations are appealing their legal challenge to a federal circuit court to try to block any further relief. Their initial challenge was rejected by a federal district court judge last week.

Here’s where things stand.

Borrowers Receive Notifications Of Student Loan Forgiveness
During the last week, over 800,000 borrowers have received emails from their student loan servicers notifying them their balances have been discharged.

“Congratulations! The Biden-Harris Administration has forgiven your federal student loan(s) listed below in full,” says the text of the standardized notice. The emails were sent directly to borrowers by the Education Department’s major student loan servicers including Nelnet, Aidvantage, and MOHELA.

The relief is being provided through the IDR Account Adjustment, a temporary initiative that allows the government to credit borrowers with past periods toward loan forgiveness under income-driven repayment plans. These plans, which tie a borrower’s monthly payment to their income and family size, typically provide for student loan forgiveness after 20 or 25 years in IDR. But many borrowers were excluded from relief or had their loan repayment periods lengthened due to longstanding administrative problems associated with IDR programs.

“This debt relief was processed as part of the Biden-Harris Administration’s one-time account adjustment because your student loan(s) have been in repayment of at least 20 or 25 years,” says the email to borrowers approved for student loan forgiveness. “An adjustment to your account updated the number of payments that qualify towards income-driven repayment (IDR) forgiveness.”

What Borrowers Should Know About Student Loan Forgiveness Under Adjustment
The student loan forgiveness emails sent in the last week confirm that borrowers will not have to pay federal income taxes on the discharged balance, although state tax treatment of this type of loan forgiveness may vary.

“Due to the American Rescue Plan Act of 2021 the balance of your loans that were forgiven is not considered taxable income for federal income tax purposes” says the email. “Since state and local tax implications will vary, we recommend you contact a tax advisor for more information.”

The Education Department should update borrowers’ accounts to reflect the discharge and a new zero balance on their credit reports and on StudentAid.gov in the coming weeks.

The department will be running the account adjustment again in September and in November, so additional borrowers may qualify for student loan forgiveness before the end of the year. Borrowers who have not yet taken steps to qualify for the relief still have a limited window of time to take action.

Student Loan Forgiveness Lawsuit Dismissed, But Challengers File Appeal
Meanwhile, a group of conservative organizations tried to block the student loan forgiveness and other debt relief provided by the IDR Account Adjustment. A federal district court rejected their arguments last Monday, dismissing their lawsuit on the grounds that the groups had not demonstrated that they would incur a concrete injury directly resulting from the initiative.

But the challengers filed a notice of appeal last Tuesday, indicating that they will continue trying to block the debt relief at the Sixth Circuit Court of Appeals. Neither the challengers nor the Education Department have released formal statements regarding the ongoing legal battle, although the Mackinac Center for Public Policy — one of the organizations challenging the loan forgiveness program — confirmed they are appealing.