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Home»Finance News»Student Loan Forgiveness Lawsuit Transferred, Potentially Opening Path To Relief For 30 Million People
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Student Loan Forgiveness Lawsuit Transferred, Potentially Opening Path To Relief For 30 Million People

October 8, 2024No Comments7 Mins Read
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Student Loan Forgiveness Lawsuit Transferred, Potentially Opening Path To Relief For 30 Million People
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WASHINGTON, DC – FEBRUARY 28: People rally in support of the Biden administration’s student loan … [+] forgiveness plan in front of the the U.S. Supreme Court on February 28, 2023 in Washington, DC. (Photo by Drew Angerer/Getty Images)

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The Biden administration got a surprise victory this week in an ongoing legal challenge over a key student loan forgiveness program, the latest twist in what has been a rollercoaster year for borrowers. But the win may only be temporary as the litigation continues.

A group of Republican-led states had filed a preemptive lawsuit against the Biden administration in September to halt implementation of a sweeping new student loan forgiveness plan. That plan, if enacted, could provide relief to millions of borrowers. Shortly after the suit was filed in a Georgia federal court, the presiding judge issued a temporary order blocking the program. But in a new ruling on Wednesday, the judge sided with the Biden administration and transferred the case to a different court, potentially offering the program a lifeline.

Here’s the latest.

Biden’s Newest Student Loan Forgiveness Program Explained

President Joe Biden first unveiled plans for a new mass student loan forgiveness initiative last summer, in the wake of the Supreme Court landmark ruling that overturned his first attempt at mass debt relief. The new so-called “Plan B” option would be a different program, enacted through a different process, under a separate legal authority.

Earlier this year, the Education Department released preliminary details on the new student debt cancellation plan. Unlike Biden’s first program, which would have provided $10,000 in blanket relief for most borrowers, the new plan would provide more targeted student loan forgiveness to four distinct groups:

  • Borrowers who first entered repayment at least 20 or 25 years ago.
  • Those who owe more on their student loans today than what they originally borrowed due to the impacts of interest accrual and capitalization.
  • People who attended institutions that lost access to federal financial aid programs because of a failure to meet federal standards.
  • Borrowers who qualify for student loan forgiveness under other programs but have not enrolled or applied.

The administration established the new program under the compromise and settlement authority of the Higher Education Act, which borrower advocates have long suggested could be a stronger legal basis for mass debt cancellation than the HEROES Act, which the administration relied on for the first loan forgiveness plan. The Education Department has spent the last year developing new regulations for the program through a formal rulemaking process, with the final version of the rules expected to be released sometime in October.

Education Department officials suggested that 25 million borrowers could benefit under the runaway interest prong alone, with millions of additional borrowers possibly qualifying for student loan forgiveness under the other provisions of the program.

Lawsuit Challenged Biden’s ‘Plan B’ Student Loan Forgiveness Initiative

Seven Republican-led states, spearheaded by Missouri — which has been at the forefront of legal challenges to the Biden administration’s attempts to implement broad student loan forgiveness — filed a suit in September, alleging that the administration was preparing to implement mass debt relief in a matter of days, before the Education Department had even published the final version of the regulations. If true, this could have been a violation of federal law.

The states argued that implementation of mass student loan forgiveness would harm state finances, in part because state-related servicers (such as Missouri-based MOHELA) would lose revenues, and those lost revenues would in turn impact state treasuries. Missouri and other states made similar arguments in the legal challenge to Biden’s first debt relief plan.

The Biden administration disputed the allegations in the suit. Nevertheless, a Georgia judge (where the suit was filed) issued a Temporary Restraining Order, briefly blocking the program for several weeks while giving the parties an opportunity to submit legal arguments.

Georgia Judge Transfers Student Loan Forgiveness Lawsuit, Giving Borrowers A Temporary Win

In a surprise ruling on Wednesday, the Georgia court rejected the states challengers’ request to implement a more-lasting preliminary injunction, and effectively ended the litigation in Georgia. The court concluded that there was no indication that the state of Georgia, specifically, would be harmed by the proposed student loan forgiveness initiative.

The court’s order dismissed the state of Georgia as a party in the suit, concluding that “Georgia lacks standing because it failed to show an injury” as a result of the loan forgiveness program. The court also declined to extend the restraining order that had blocked the program.

Rather than dismissing the case outright, however, the court transferred the suit for the remaining states to a federal court in Missouri, given Missouri’s reliance on MOHELA in arguing that it would be harmed by the new student loan forgiveness program. Missouri has tied MOHELA to several of its legal challenges involving the Biden administration’s student loan forgiveness plans.

“Based on Plaintiffs’ reliance on MOHELA as its primary basis for standing, the Court finds the most equitable transfer would be to the United States District Court for the Eastern District of Missouri,” wrote the court.

What The New Ruling Means For Newest Biden Student Loan Forgiveness Plan

The ruling gives the Biden administration a temporary victory, opening the door to the possibility that this new loan forgiveness program could move forward. But now the case is with a federal court in Missouri, so the litigation is far from over. Still, advocates for borrowers praised the ruling.

“Today’s legal decision is a small victory for democracy,” said Student Borrower Protection Center deputy executive director and managing counsel Persis Yu in a statement on Wednesday. “This case by the Missouri Attorney General is as absurd as it is dangerous. The Biden-Harris Administration’s Plan B is both legal and necessary to bring vital relief to over 30 million Americans trapped in a cycle of unaffordable debt. The decision to file this case in the Brunswick Division of the Southern District of Georgia— a carefully chosen court with a single Republican-appointed judge—was a clear and desperate move to undermine democracy and stack the odds against working families.”

But the legal battle is continuing. Now, a Missouri court will consider the challengers’ arguments. And Missouri has been successful in relying on its relationship with MOHELA to challenge several Biden administration programs.

“This case is the third attempt by the Missouri Attorney General to undermine relief for borrowers, and ensure maximum profits for the federal student loan servicer, MOHELA, and revealing a clear intent to rig the system against working families,” said Yu.

Advocates have called on the Biden administration to quickly implement the new student loan forgiveness plan, particularly given that another program — the new SAVE plan — remains blocked due to a separate legal challenge. That challenge is also led by Missouri.

In August, the Education Department sent millions of notices to borrowers, giving them the opportunity to opt out of relief under the “Plan B” debt relief program. With the initiative now at least temporarily free of a court order and the opt-out deadline now expired, it remains to be seen how the department will proceed from here.

Update: The Missouri court granted a preliminary injunction blocking the “Plan B” student loan forgiveness plan late in the day on October 3.

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See also  Will Student Loans Be Canceled If Trump Shuts Down Education Department?
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