Legal challenges stack up for Biden's student debt forgiveness plan

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President Joe Biden’s plan to cancel billions in federal student loan debt faces new legal challenges, with a group of six conservative states joining forces Thursday on one lawsuit and Arizona filing its own challenge to Biden's plan.

Even as new suits emerged Thursday, a federal judge in Indiana dismissed yet another lawsuit aiming to block the massive loan forgiveness plan.

Arkansas is leading one of the court battles, together with Iowa, Kansas, Missouri, Nebraska and South Carolina.

Arkansas Attorney General Leslie Rutledge, who had said she was willing to challenge the administration’s plan to cancel student loan debt, in a Thursday press conference called it a disgrace that "the president is trying to bail out adult college students who voluntarily took out these loans."

It’s the second of at least three challenges to Biden's proposal this week, and it comes just days before the administration's early-October plan to share an application for people who want debt relief.

Biden's plan would cancel up to $20,000 in student loan debt for Pell Grant recipients and $10,000 for other borrowers, for people earning up to $125,000 a year or part of a household where total earnings are no more than $250,000.

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Rutledge, who said her office filed the suit Thursday in a Missouri federal court, said Biden acted beyond his authority. She said the president has declared the pandemic over and questioned how he could discharge student debt now, using the impact of coronavirus as a justification.

The states are seeking a preliminary injunction – which would halt the administration's plans – given the Education Department may begin discharging debts in October.

"When President Biden attempts to circumvent the Constitution in order to deliver on a political promise, myself and other state attorneys general take issue with this," Rutledge said.

The suit argues that the Education Department didn’t have the authority to cancel student loan debt. They mentioned a 2021 memo produced by the agency under former Secretary Betsy DeVos that stated the president couldn’t use a 2003 law, the HEROES Act, to cancel student debt. The Education Department issued a separate memo from August 2022 stating it did have the authority to discharge debt under the same law.

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Rutledge said the state had standing to file the lawsuit because it will be hurt by the debt cancellation. Specifically, the state said the Arkansas Student Loan Authority, a state agency that offers private student loans to cover higher education costs, said a drop in revenue would affect its ability to offer new loans.

The lawsuit similarly alleged that the Higher Education Loan Authority of the State of Missouri, or as it is better known to borrowers, MOHELA, would be damaged by mass student loan cancellation.

That entity oversees loans issued directly by the Education Department, known as Direct Loans, and privately held student loans backed by the federal government known as the Federal Family Education Loan (FFEL) program.

Arizona Attorney General Mark Brnovich filed his own suit against the Biden administration on Thursday to stop what he described as an "illegal student loan cancellation program." Brnovich filed in the U.S. District Court of Arizona and also challenged the administration's use of the HEROES act to cancel student loan debt.

"This mass debt forgiveness program is fundamentally unfair, unconstitutional, and unwise,” Brnovich said. “The question Americans need to be asking is why college costs so much in the first place.”

Borrowers cut out of forgiveness

Borrowers had been able to consolidate FFEL loans into accounts directly owned by the Education Department, which then gives the federal government the ability to cancel borrowers’ debts under Biden's plan. The states argued the mass cancellation would lead to more borrowers consolidating their loans, which in turn “harms the entity by depriving them of the ongoing revenue it earns from servicing these loans.”

It’s a timely coincidence then that the Education Department updated its guidance on FFEL loans on Thursday. The department had previously said borrowers with these types of loans could consolidate their accounts to take advantage of the debt relief. That window is now closed, and as of Sept. 29th borrowers who consolidate won’t qualify for the one-time debt relief.

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“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible,” a department spokesperson said. “And this will allow us to achieve that goal while we continue to explore additional legally-available options to provide relief to borrowers with privately owned FFEL loans and Perkins loans, including whether FFEL borrowers could receive one-time debt relief without needing to consolidate.”

The federal government estimated that 770,000 borrowers would be affected by the new policy, according to the Associated Press.

It’s unclear if the department’s decision was tied to the lawsuit. But it's not the first time the department has offered additional details about the debt cancellation program when facing a legal challenge.

What happened to the Pacific Legal Foundation's lawsuit?

Earlier this week, the Pacific Legal Foundation also filed a suit against the administration, saying some borrowers would be hurt by the debt cancellation. Specifically, some states plan to tax the debt forgiveness, and the foundation, a libertarian-aligned law firm, argued that borrowers residing in those states would be harmed by widespread debt discharge.

But White House press secretary Karine Jean-Pierre said Monday that borrowers are allowed to "opt out" of debt cancellation if they choose. She accused opponents of trying to stop Biden's action on student loan debt "because they know it will provide much-needed relief for working families."

Richard Young, a judge in the Southern District of Indiana, seemed to agree with the federal government. The court dismissed the foundation's request to stop debt cancellation Thursday, and said if the plaintiff can opt out of debt relief then he "cannot be irreparably harmed as is required for preliminary relief." Young gave the group until Oct. 10 to amend its complaint.

Young wrote that the plaintiff should consider if his damages are being caused by the debt relief program or Indiana's tax code. The judge added the plaintiff was speculating about the details of the program, "but as evidenced by the Government's recent addition of an opt-out provision, the plan is still evolving."

How many borrowers are in the states represented by the suit?

Approximately 2.8 million student loan borrowers are eligible for some amount of student debt cancellation in the six states represented in the joint suit, according to data from the White House:

  • Arkansas has roughly 365,000 borrowers

  • Iowa has roughly 408,000 borrowers

  • Kansas has roughly 361,000 borrowers

  • Missouri has roughly 777,000 borrowers

  • Nebraska has roughly 232,000 borrowers

  • South Carolina has roughly 681,000 borrowers

Separately, Arizona has 810,800 borrowers eligible for relief.

But an injunction could affect the entire universe of borrowers eligible for loan forgiveness –roughly 40 million people.

When asked about Arkansas residents with student loans, Rutledge encouraged them to pay their debts.

"You took out that loan with a promise that you would pay it back," she said. "Do what I did and pay that loan back. Don't put your loans on the back of someone else who didn't benefit with a college degree like you did."

Contact Chris Quintana at Follow him on Twitter at @CQuintanadc.

This article originally appeared on USA TODAY: Biden's student debt forgiveness plan challenged by several GOP states