Republican states sue to block Biden student loan cancellation plan

Six Republican-led states sued on Thursday to overturn President Biden’s plan to cancel up to $20,000 in student debt for millions of borrowers, as conservatives advance legal challenges to one of the administration’s signature economic policy initiatives.

The new suit, filed in federal court in Missouri, comes two days after a conservative attorney in Indiana filed a separate lawsuit against the administration seeking to reverse the policy. The lawsuit filed by the GOP-run states asks the court to block the program immediately to prevent the Biden administration from canceling loan balances as early as next week.

Lawsuit aims to stop Biden’s student loan forgiveness plan

The White House’s policy would cancel up to $10,000 in federal student loan debt for borrowers who earn less than $125,000 per year, or less than $250,000 for married couples, or up to $20,000 for those who received federal Pell Grants. The Biden administration has been adamant that it has the legal authority to cancel student debt, citing a 2003 law giving the executive branch broad authority to overhaul student loan programs.

GOP lawmakers and conservative advocacy groups have pushed back on that claim, arguing Biden’s move represents illegal executive overreach because the 2003 law was created to give the president authority after a disaster like the Sept. 11, 2001, terrorist attacks. Instead, Republicans such as Sen. Ted Cruz (Tex.) have said their biggest challenge in successfully overturning the policy is finding someone who can demonstrate “standing” before the court, or the grounds to sue.

The Indiana lawyer suing over the policy claimed he has standing because debt cancellation could push up his state tax bill, since Indiana plans to tax federal debt relief as a form of income. White House press secretary Karine Jean-Pierre dismissed that claim on Tuesday, pointing out to reporters that “anyone who does not want to get debt relief can opt out.”

The lawsuit filed by the states takes a different tack, arguing that debt cancellation will hurt them in numerous ways. The suit emphasizes that Missouri’s student loan servicer, which is part of its state government, could see a drop in revenue because borrowers are likely to consolidate their loans under the Federal Family Education Loan program.

On Thursday, however, the administration said it would exclude FFEL from the loan forgiveness program, a move first reported by Politico. That change could help head off legal claims against the policy, although it will mean that roughly 2 million of the 44 million otherwise eligible borrowers will not qualify for relief.

Anyone who applied before Thursday to consolidate their commercial FFEL debt into the Direct Loan program — where loans are made and held directly by the federal government — will be eligible for forgiveness, according to the department. But everyone else with those loans will be shut out for now.

“Our goal is to provide relief to as many eligible borrowers as quickly and easily as possible, 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 Education Department said in a statement.

Scores of commercial FFEL borrowers consolidated their loans to be eligible for Biden’s debt relief plan after it was announced in August. But earlier this month, the department told borrowers there was no need to take immediate action, as the agency would find a way forward.

People with student loans from defunct federal program seek relief

That assurance led Christopher Martin, 50, to hold off on applying to consolidate his $29,341 in student loans. Martin, who lives in Jersey City, was happy with the low interest rate on his education debt, which would have gone up if he consolidated. If he knew the administration would impose a deadline to consolidate, Martin said he would have applied already.

Martin accused the White House of lying, adding some expletives. “To tell people that don’t necessarily need to consolidate and then one day say, you needed to do it yesterday, is just despicable,” he said.

Missouri Attorney General Eric Schmitt (R), who is leading the litigation, also said in a statement that the policy will worsen inflation for Americans who do not benefit from student debt cancellation. Arkansas, Iowa, Kansas, Nebraska, and South Carolina joined Missouri in filing the complaint. Schmitt is also the Republican nominee for Missouri’s U.S. Senate seat in this fall’s election.

“No statute permits President Biden to unilaterally relieve millions of individuals from their obligation to pay loans they voluntarily assumed,” the lawsuit states.

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