Student Loans: DOJ Says Overruling Biden’s Forgiveness Could Lead to Lawsuits Over ‘Virtually All Federal Action’

US Biden, Zumpango, Mexico - 08 Jan 2023
Fernando Llano / AP / iStock.com

While the fate of borrowers’ loan repayments remains in limbo until the end of February, experts are waiting with apprehension of what an upheld Supreme Court ruling will mean, not only for federal student loan cancellation, but for future legal arguments on federal policy.

The Supreme Court will hear arguments on the legitimacy of President Biden’s plan to forgive up to $20,000 in student debt for federal borrowers making under $125,000 on Feb. 28. On Jan. 4, the Department of Justice (DOJ) submitted a filing to justify the legality of Biden’s program.

According to Business Insider, as part of its 86-page brief, the DOJ expressed concern that if the Supreme Court decides to stand by the 8th Circuit’s November ruling and invalidate Biden’s debt forgiveness program, it will set a bad precedent for future legal judgments.

The federal student loan forgiveness plan has been delayed since October due to two lawsuits filed by GOP-endorsed groups. The suits — one led by six Republican-led states arguing relief would hurt their states’ tax revenues and diminish the value of investments tied to student loans, and another by two student loan borrowers who did not qualify for the full $20,000 amount of relief — have been refuted by the Biden administration as baseless and politically-motivated.

Complicating the state-led lawsuit — pursued by Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — is the involvement of a third party, St. Louis-based student loan company MOHELA, which has been dragged into the legal challenge by the state of Missouri. MOHELA, one of America’s largest student loan servicers, currently has a contract with the federal government to service student loans.

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Missouri contends that MOHELA will lose money under Biden’s relief program because it will have fewer student loan accounts to manage, make less money and “will make it more difficult for MOHELA to make required payments to a state fund that helps its public colleges and universities,” according to Politico.

If the Supreme Court quashes this particular cancellation program and rules in favor of the plaintiffs in the two cases it is hearing in February, it could have “startling implications” for future claims, according to the filing.

“Virtually all federal action — from law enforcement to collecting taxes to managing property — has some side effect on government finances,” the filing read. “If such side effects were enough to stand, then every state would have the right to challenge almost any federal policy.”

“(B)anks could sue anyone who causes financial harm to their borrowers, credit-card companies could sue anyone who causes financial harm to their customers, and governments could sue anyone who causes financial harm to their taxpayers,” it adds.

The current student loan pause extension runs through 60 days after June 30, 2023, or whenever the lawsuits are resolved — whichever happens first. If the Supreme Court decrees Biden’s loan forgiveness plan to be legal, the Department of Education can begin to process the 26 million applications it has already received and will re-open the application process, per Forbes.

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