Conservative groups and politicians say the president doesn’t have the legal authority to cancel federal student loan debt and are trying to block his plan from taking effect.
- Existing lawsuits have called into question the legality of the president’s proposed plan.
- They all seek to prevent forgiveness from going into effect before the plan kicks goes into effect.
- They likewise all allege that the president doesn’t have the legal authority to cancel federal student loan debt.
It took just a month for lawsuits seeking to stop President Joe Biden’s federal student debt forgiveness plan to hit federal courts.
Thus far, the most high-profile challenges to the debt forgiveness plan have come from attorneys general from Republican-led states, as well as one challenge from a libertarian-leaning law firm.
One commonality among all of them: They all allege that the Department of Education (ED) doesn’t have the legal authority to cancel federal student loan debt through the Higher Education Relief Opportunities for Students (HEROES) Act.
Existing challenges have yet to amount to any actions from the U.S. court system, but ED has seemingly reacted to some of these lawsuits’ claims through last-minute changes to their guidance for borrowers.
ED expects to launch its application to apply for forgiveness in October.
Here’s a rundown of the legal challenges to this point that could throw a wrench in the debt forgiveness program before it ever gets off the ground:
Six States Mount a Joint Suit
A joint lawsuit involving Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina is the most high-profile challenge to date.
The attorneys general from these states are hoping to block Biden’s debt forgiveness plan by requesting a preliminary injunction and temporary restraining order from Judge Henry Edward Autrey in the Eastern District of Missouri. The judge vacated a planned hearing for the restraining order, but an oral argument for the motion for preliminary injunction is scheduled for Oct. 12, according to court documents.
These six states argue that debt forgiveness will financially harm them, either by impacting the volume of loans they service or because they won’t be able to tax canceled debt as income.
The Higher Education Loan Authority of the State of Missouri (MOHELA) and the Arkansas Student Loan Authority (ASLA) are both servicers for the Federal Family Education Loans (FFEL) program. As such, they collect revenue by charging interest on these loans. Because ED’s initial guidance stated FFEL holders can consolidate into the Direct Loan program to qualify for debt cancellation, these servicers claim they will lose millions of dollars worth of loans.
ED changed its guidance on the same day these states filed the lawsuit.
The department’s updated guide now states loans consolidated into the Direct Loan program before Sept. 29 may qualify for forgiveness. Those who consolidated on or after that date would not, potentially putting the central argument from Missouri and Arkansas into question.
Arizona Launches Its Own Lawsuit
Arizona Attorney General Mark Brnovich launched his own lawsuit against Biden’s federal student loan debt relief plan.
Brnovich’s suit makes many of the same claims of impending financial harm to the state, specifically regarding canceled debt as taxable income. He also similarly argues that the HEROES Act does not give ED the legal authority to offer blanket debt forgiveness.
The Arizona suit is unique in that it alleges that debt forgiveness will harm the state’s ability to use the Public Service Loan Forgiveness (PSLF) program as a recruitment tool for government agencies.
PSLF offers complete forgiveness of federal student debt after making 10 years of qualifying payments on a loan while employed in public service. That applies to roles at nonprofits, public schools, and government agencies.
Brnovich argues that the Office of the Attorney General (OAG) employs dozens
of attorneys that will be eligible for relief under PSLF. However, unilaterally writing off debt harms OAG’s ability to recruit legal talent, and directly makes it less lucrative for lawyers to work for the OAG,
according to court documents.
The suit also claims debt cancellation will harm Arizona’s economy by contributing to inflation.
Law Firm Files the First Claim
California-based nonprofit law firm Pacific Legal Foundation (PLF) filed the first lawsuit against ED and President Biden on Sept. 27.
The libertarian-leaning firm filed the suit on behalf of Frank Garrison, a PLF employee based in Indiana. Garrison claimed that debt forgiveness would financially harm him because he resides in one of a handful of states where canceled debt counts as taxable income. Meanwhile, he will soon be eligible for student loan debt forgiveness through PSLF, which is not taxable, according to the lawsuit.
Therefore, he would ultimately lose money paying taxes he otherwise wouldn’t have to pay under Biden’s forgiveness plan.
The department clarified part of the plan soon after PLF filed the suit which may make this point mute.
White House Press Secretary Karine Jean-Pierre said during a press briefing the same date of the filing that Biden’s plan will include an opt-out option. White House spokesperson Abdullah Hasan also stated that the lawsuit was baseless because borrowers who don’t want relief may opt-out.
Judge Richard Young of the Southern District of Indiana denied Garrison’s motions for a preliminary injunction and a temporary restraining order on Sept. 29, according to court documents.
Garrison and PLF moved to amend the complaint. The judge said they will have until Oct. 10 to do so, but encouraged the plaintiff to consider whether ED has sufficiently addressed concerns through recent clarifications.
Plaintiff’s allegations speculate about the terms of the program,
Judge wrote in his Sept. 29 order. But as evidenced by the government’s recent addition of an opt-out provision, the plan is still evolving.
