In lawsuit over student loan forgiveness, 6 states slam Biden for overreach
A half-a-dozen states attempting to shut down President Joe Biden’s student debt forgiveness plan say their future financial losses are enough to permanently block the plan that would cancel debt for millions of Americans, according to court documents filed Tuesday.
The six conservative states – Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina – argued the president lacks the authority to forgive student loan debt en masse. They also contested they would be financially harmed should the federal government cancel billions in student loan debt.
Should they lose their appeal, the states requested that the court keep a temporary injunction on the plan in place for a week so they "can seek relief from the Supreme Court."
A federal judge in Missouri had dismissed the states' case, saying the group of six lacked the standing to sue, but the states appealed to the Eighth Circuit Court of Appeals, which temporarily blocked the plan late Friday. Of its 11 active judges, George W. Bush appointed five, Donald Trump appointed four, and George H.W. Bush and Barack Obama appointed one each.
The appeals court temporarily blocked the Biden administration from moving forward with its plan, though hopeful borrowers can continue to file applications to have their debt forgiven. It isn't clear when the court would take further action.
Biden has criticized the states and other conservative groups attempting to derail the mass debt forgiveness plan.
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“Twenty-two million of you applied (in one week)," Biden said Monday at a Democratic National Committee event. "The Republican response? Sue the federal government and block that relief."
Under Biden’s plan, borrowers making less than $125,000 – or $250,000 for married couples – can claim up to $20,000 in student loan debt relief.
Why are the states trying to block the president's student debt relief plan?
The states argued, as they did in a lower court, that the mass debt cancellation plan would prompt borrowers with Federal Family Education Loans (FFEL) – most of which are commercially held but federally backed – to consolidate their debts into Direct Loans. The federal government owns Direct Loans and can discharge them.
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Some of the states suing are home to quasi-state agencies that service these types of loans.
Initially, Biden's plan encouraged borrowers to consolidate their loans so they would be eligible for loan forgiveness. The federal government abruptly ended that option, cutting as many as 800,000 FFEL borrowers from the debt relief plan. The Biden administration noted in court filings that it removed the incentive to consolidate even before the states filed their lawsuit. As a result, the feds said there is no ongoing harm to the states.
In response to the federal government, the states argued Tuesday that it didn’t matter when the government decided to limit FFEL borrowers from relief, but rather when they told the public. The states contend that happened after they filed their lawsuit, and so the threat posed by consolidation is relevant.
Several of the states also argued they could lose out on future earnings. For example, they said loan servicers with ties to the states, like the Higher Education Loan Authority of the State of Missouri (MOHELA), would lose money if the loans they’re servicing, Direct or FFEL, were suddenly canceled.
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Nebraska, Iowa, Kansas and South Carolina also stated that they typically tax student loan debt relief, but because they can’t do so through 2025, they would miss out on taxing debt relief under Biden's plan. That loss in revenue, they argue, is because of the American Rescue Plan, which prevents student loan debt discharges from being included in a taxpayer’s federal adjusted gross income through 2025. These four states use taxpayers’ federal adjusted gross income as a baseline to determine their state level taxes.
“Under existing law, the states are set to tax a substantial amount of student loan debt discharge after 2025,” according to the states’ original appeal to the court. “Because the cancellation will immediately reduce the pool of debt to discharge in the future, it will result in less for the states to tax.”
How is the federal government arguing for student debt relief?
The federal government in response has said loan servicers are not guaranteed income from managing student loan debt. They further said states can set and change their tax codes as they see fit.
Prior to this case reaching the Eighth Circuit Court of Appeals, judges have dismissed the legal challenges to the president’s plans, in large part because the plaintiffs were unable to prove they would be harmed on an ongoing basis by debt cancellation.
On Monday, the administration criticized the states’ for their efforts to block the student debt relief plan. Federal attorneys argued that if the appeals court found it necessary to intervene, that the court narrowly tailor its relief. If the courts ultimately barred citizens from those states from receiving debt relief, about 2.8 million people would be affected.
The states also argued that a partial injunction wouldn’t provide the desired relief because MOHELA services loans nationally. Additionally, they argued that barring borrowers from the program in certain states would be ineffective because people and their loans move from state-to-state.
More:White House fires back in court against block on student loan debt forgiveness
Across the country, about 40 million people are eligible to have some or all of their student loan debt forgiven.
Contact Chris Quintana at (202) 308-9021 or email@example.com. Follow him on Twitter at @CQuintanadc.