Cases & Developments

The U.S. House of Representatives introduced the Tax-Free Pell Grant Act. The legislation – which is expected to pass – would shield community college students from paying taxes on portions of their Pell Grant that can go toward books and living expenses and enable some students to qualify for the American Opportunity Tax Credit.  

The U.S. Department of Education (the Department) announced its intention to host public hearings and establish negotiated rulemaking committees to prepare proposed regulations on various programs authorized under Title IV. The Department is inviting public feedback, especially on Public Service Loan Forgiveness (PSLF), Pay As You Earn (PAYE), Income-Contingent Repayment (ICR), or other topics that would streamline current federal student financial assistance programs. Comments must be submitted by May 5, 2025.

The American Council on Education (ACE) sent a letter (the Letter) to the U.S. House of Representatives expressing strong support for the Tax-Free Pell Grant Act (the Act). The Letter states that the Act would repeal the taxability of Pell Grants and help hundreds of thousands of low-income Pell Grant recipients access the American Opportunity Tax Credit (AOTC). Additionally, the Act expands the AOTC and the Lifetime Learning Credit to include essential student expenses like dependent care and computers. The Letter summarizes that approximately 550,000 Pell students will be impacted by this legislation, and the Act would simplify the tax code and ensure that low-income students access a critical tax benefit.  

Memorandum Opinion Granting Plaintiffs’ Motion and Issuance of a Preliminary Injunction. Plaintiffs, the National Treasury Employees Union (NTEU), National Consumer Law Center (NCLC), National Association for the Advancement of Colored People (NAACP), Virginia Poverty Law Center, Rev. Eva Steege, and the Consumer Financial Protection Bureau (CFPB) Employee Association allege that the actions taken by defendants to formally terminate the CFPB are unconstitutional, and seek a temporary restraining order. Plaintiffs allege that following the Stop Work Order issued to the CFPB by Russel Vought, Acting Director of the CFPB on February 10, 2025, all probationary and term-limited employees were fired without cause, funding was cut off, contracts terminated, and all offices were closed and a reduction in force (RIF) was applied to everyone else in the Bureau. Plaintiffs allege both statutory and constitutional violations, as well as violation of the Administrative Procedure Act (APA). Plaintiffs allege that defendants’ actions exceed executive authority and usurp legislative authority, arguing that the CFPB can only be eliminated by Congress. Plaintiffs further allege that the Acting Director’s actions to close the agency on behalf of the President violated both the separation of powers inherent in the U.S. Constitution and the statute that created the CFPB assigned it mandatory duties. Finding in favor for plaintiffs, the Court found dozens of individual plaintiffs had Article III standing, both the employees who have had their jobs terminated abruptly but also the consumers at large, such as one plaintiff with a terminal illness who had been trying to enroll in the Public Service Loan Forgiveness Program and contacted the CFPB for help. She was informed that she was entitled to forgiveness, as well as $15,000 refund of overpayments, however, after the stop work order, she was unable to follow up with any staff to determine her next steps and feared that after her demise her family would be left with her student loan debt. The former student subsequently passed away on March 15, 2025, before any resolution could be found by way of the CFPB. Ruling for plaintiffs, the Court held that plaintiffs are likely to succeed on their claims and that they would suffer irreparable harm absent immediate court intervention. As such, it issued a preliminary injunction that maintains CFPB’s existence and reinstates and preserves its contracts, work force, data, and operational capacity, and protects employees’ ability to perform statutorily required activities. 

The U.S. Department of Education’s Office of Federal Student Aid reopened the online income-driven repayment (IDR) plan and loan consolidation applications for borrowers. The Department reported that the application was temporarily paused to comply with the Eighth Circuit Court of Appeals injunction, which directed the Department to cease implementation of the Saving on a Valuable Education (SAVE) Plan and parts of other IDR plans. 

Executive Order: “Restoring Public Service Loan Forgiveness.” This Executive Order directs the Secretary of Education to coordinate with the Secretary of the Treasury to propose revisions to 34 C.F.R. 685.219, Public Service Loan Forgiveness Program. It specifically directs that “public service” be defined to exclude employment with organizations that participate in “activities that have a substantial illegal purpose” including (1) “aiding or abetting violations of 8 U.S.C. 1325 or other Federal immigration laws,” (2) “supporting terrorism … or engaging in violence for the purpose of obstructive or influencing Federal Government policy,” (3) “child abuse, including the chemical and surgical castration or mutilation of children or the trafficking of children to so-called transgender sanctuary States,” (4) “engaging in a pattern of aiding and abetting illegal discrimination,” or (5) “violating State tort laws, including laws against trespassing, disorderly conduct, public nuisance, vandalism, and obstruction of highways.” 

Opinion affirming the district court’s entry of a preliminary injunction and remanding for further proceedings. Plaintiffs are seven states challenging a rule by the U.S. Department of Education under the Biden administration that modified an existing income contingent repayment (“ICR”) plan for federal student loans, known as the Saving on a Valuable Education (“SAVE”) plan. Plaintiffs challenged the SAVE Rule as exceeding statutory authority given to the Secretary of Education because they claim the Secretary cannot forgive loans through an ICR plan, among other things. The district court concluded that plaintiffs were likely to succeed on this claim and preliminarily enjoined the early loan forgiveness provisions. On cross-appeals to the Eighth Circuit, plaintiffs requested a broadening of the injunction and federal officials sought vacatur of the preliminary injunction. The Circuit agreed with the district court that the states are likely to succeed in their claim that the Secretary’s authority to promulgate ICR plans does not authorize loan forgiveness at the end of the payment period. The court analyzed statutory history, including that Congress expanded repayment options for low-income borrowers by creating an income-based repayment (“IBR”) plan, which provided caps on payments and provided for loan forgiveness for borrowers using IBR once they made enough loan payments. Unlike IBR, the ICR statutory text does not provide a specific formula for calculating loan payments and does not explicitly state the Secretary can forgive loans. The court reasoned that “[t]he power Congress gave the Secretary in 20 U.S.C. § 1087e(d)(1) to create repayment plans means the Secretary must design ICR plans leading to actual repayment of the loans. The Secretary has gone well beyond this authority by designing a plan where loans are largely forgiven rather than repaid.” The Eighth Circuit affirmed the entry of the preliminary injunction but concluded that the district court erred by not enjoining the entire rule. The Circuit remanded the case with instructions to modify the injunction to cover the entire SAVE Rule and the revived forgiveness provisions under the 2015 REPAYE plan, which federal officials resuscitated to fill in the gap created after the SAVE Rule was enjoined by the district court.