Student-loan companies are 'ready to apply' debt cancellation to borrowers' balances, Biden's Education Secretary says

• Education Sec. Miguel Cardona said student-loan companies are "ready to apply" debt relief.
• But they cannot actually cancel any student debt right now because the plan continues to be stalled.

President Joe Biden's Education Department says it is doing everything it can to implement student-loan forgiveness — but it still can't actually cancel any debt.

Just one week after Biden officially launched the online application for federal borrowers to apply for up to $20,000 in debt relief, the 8th Circuit Court of Appeals placed a temporary stay on the relief in response to a lawsuit filed in Missouri by six Republican-led states who argued loan forgiveness would hurt their states' tax revenues, along with that of Missouri-based student-loan company MOHELA.

The stay means that while the department can continue reviewing borrowers' applications as they come in, it cannot actually discharge any loans until the court makes a final decision on the legality of the relief.

On Saturday, Education Secretary Miguel Cardona gave borrowers a Twitter update on where the relief stands, saying that for the 26 million who have already submitted their forms, "the Department is reviewing applications and sending approved applications to loan servicers, which are ready to apply the relief to your loans."

"Unfortunately, our ability to process loan forgiveness has been paused," Cardona wrote. "That's because our plan has been temporarily put on hold as a result of a lawsuit brought by Republican elected officials in Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina who oppose our plan."

"We believe strongly that the lawsuits are entirely meritless, and that the debt relief plan is lawful and necessary," he added.

While the GOP-led states were using loan servicer MOHELA as one of its primary defenses as to why the relief should be blocked, the company confirmed in a letter to Missouri Rep. Cori Bush last week that it was not involved in any way in the lawsuit, potentially undermining the states' argument.

Biden said last week that of the 26 million borrowers who have already applied for relief, the department has approved 16 million of them to have up to $20,000 of their loans discharged. It's now all dependent on when, or if, the 8th Circuit lifts its temporary pause on the plan. Should the pause continue to remain in place, it brings financial uncertainty to borrowers who were expected to have the relief accounted for before having to resume payments in January 2023.

During his speech on student debt on Thursday, Biden noted that once payments resume, his "administration has a plan — the economically responsible course — to ensure the smooth transition to repayment and [prevent] unnecessary defaults," referring to a new income-driven repayment plan that will cap borrowers' monthly payments to 5% of their discretionary income, rather than the current 10%.

The administration hasn't commented on whether it will further extend the student-loan payment pause if the 8th Circuit decision continues to drag out, but it's continuing to work toward implementing other reforms to the student-loan industry through improvement to repayment plans and targeted forgiveness programs like Public Service Loan Forgiveness.