How Biden's new student-loan forgiveness plan is trying to keep away some of the lawsuits that threatened the debt relief the first time around

The Supreme Court struck down the first student-loan forgiveness plan. The Education Department is trying to make sure that doesn't happen.

• The Education Department is beginning its second round of negotiations for student-debt relief this week.
• It released the draft text of the relief, which included reimbursing certain private lenders.
• It could be the key to preventing legal challenges.

President Joe Biden's Education Department is trying to ensure its second plan for student-debt relief can stand up against legal challenges.

On Monday, the Education Department is beginning its second round of a two-day negotiation session with stakeholders and borrowers over its second plan for student-loan forgiveness using the Higher Education Act of 1965. These negotiations are happening because the Supreme Court struck down Biden's first plan for debt relief at the end of June, and the Higher Education Act requires the administration to go through a lengthy negotiation and public comment process to create a new rule for relief.

Last week, the department released its draft text of the rule it is proposing to the negotiators. It included information on not only which groups of borrowers it's seeking to prioritize for the next round of relief, but also how it might be able to protect itself from some potential legal challenges.

"This administration is taking another critical step to advance the President's goal of delivering debt relief to as many borrowers as possible. Our action today is necessary because Republican elected officials have done everything in their power to block relief for millions of hardworking Americans," White House Deputy Director for Economic Mobility Robert Gordon told reporters last week following the release of the draft text.

"Following the lead of Republican plaintiffs who filed suit in court, six Supreme Court justices wrongly blocked the President's first attempt of student debt relief," he said.

A key section that hinted toward the department's efforts to protect itself from some lawsuits concerned borrowers who hold loans in the Federal Family Education Loan program. These are federal loans for borrowers with older loans that are managed by private lenders. What that means is that a state or nonprofit agency, known as a guaranty agency, oversees FFEL loans and repays the lender if the loan defaults.

The draft text for the new relief plan outlines the authority the education secretary has to forgive loans for borrowers within the FFEL program.

Additionally, if the secretary determines an FFEL loan qualifies for relief, he would notify the lender, the lender would submit a claim to the guaranty agency, and the Education Department would reimburse the agency for the discharged loan. Including language to reimburse the agency is likely an attempt to keep away legal concerns that plagued the administration during its first attempt at debt relief because the agencies could argue the relief would hurt their revenue.

In September 2022, about a month after Biden announced his first broad relief plan, the Education Department updated its guidance to state that FFEL borrowers would no longer qualify for the relief. As Politico reported at the time, the FFEL program presented significant business interests to private lenders and guaranty agencies, and it was an industry that posed "the greatest legal risk" to the debt relief program.

While the draft text could change before its final version is released, both the Education Department and negotiators are crafting it to be less expansive than the broad relief first proposed. Along with the FFEL language, the relief is also looking like it will be more narrow than the first plan by targeting four groups of borrowers, including those who have balances exceeding what they originally borrowed and those whose loans entered repayment 25 or more years ago.

A fifth group of borrowers — those experiencing "hardship" — is set to be discussed during the sessions on Monday and Tuesday.