Biden’s student loan forgiveness could come after a narrow lawsuit win

A federal judge will allow a temporary restraining order that has prevented President Biden from paying off student loan debt for more than 25 million Americans to expire on Thursday, clearing the way for the administration to move ahead with its plan.

The decision provides a small victory in the Biden administration’s ongoing fight to alleviate federal student loan debt, and a much-needed victory after a series of legal challenges that have thwarted those efforts. Student debt relief has become highly politicized and divisive as conservatives seek to dismantle plans that they say unfairly burden taxpayers and are a naked attempt to woo voters.

The ruling, issued late Wednesday by U.S. District Judge J. Randal Hall in Georgia, follows a lawsuit filed in September by seven Republican-led states seeking to stop the Biden administration’s new student loan forgiveness rule. The states – Missouri, Georgia, Alabama, Arkansas, Florida, North Dakota and Ohio – claim the administration is overstepping its authority and illegally preparing to forgive loans before the rule takes effect. They argue that the regulation would harm state tax revenues and the revenues of state entities such as the Missouri Higher Education Loan Authority (Mohela).

These arguments appealed to Hall when he issued a restraining order last month. But it found that Georgia, which argued that the forgiveness program would deprive the state of income tax revenue, had not shown sufficient harm. The court dismissed Georgia from the lawsuit, finding that the state had no legal standing and could no longer be the place where the case was heard. Judge Hall stated that it would be more equitable to transfer the case to the Eastern District of Missouri because the state’s primary basis for standing is the harm to Mohela.

Missouri Attorney General Andrew Bailey argued that the quasi-state agency that services federal student loans and funds state grants would lose revenue from servicing direct loans – those made and owned by the federal government – if the loans were restricted or eliminated. The same argument was used to derail Biden’s earlier plan to forgive up to $20,000 in student loans for more than 40 million borrowers. The Supreme Court struck down the program in 2023.

“The Missouri Attorney General’s case is as absurd as it is dangerous,” said Persis Yu, deputy executive director and managing counsel for the Student Borrower Protection Center advocacy group. “The decision to take this case to the Brunswick Division of the Southern District of Georgia – a hand-picked court with a single Republican-appointed judge – was a clear and desperate move to undermine democracy and oppose working families.”

The latest lawsuit concerns a proposed rule aimed at reaching borrowers who the Department of Education says have been excluded from existing loan forgiveness programs or trapped in unsustainable debt. The proposed plan, created through a federal negotiated rulemaking process, is expected to be finalized this fall.

Under the policy, no debt can be forgiven early, but GOP-led states said the department has instructed its loan servicers to begin settling balances before the rule is finalized. They said it was unprecedented to allow borrowers to opt out of the plan before it even goes into effect. Although federal law states that major regulations cannot take effect until 60 days after publication, the attorney general says the department intends to begin loan forgiveness immediately after the rule is published, according to the complaint.

The Department of Education would not comment on the specifics of the case, but an agency spokesman praised the court’s ruling and said the lawsuit “reflects the continued efforts of Republican elected officials to prevent millions of their constituents from having their student loans forgiven.”

As time passes temporary restraining order, the Biden administration can move to finalize this rule. Still, a Missouri court could suspend the program before it goes into effect.

The department began working on new debt forgiveness rules after the Supreme Court rejected Biden’s attempt to forgive up to $20,000 in federal student loans for more than 40 million borrowers. The alternative program is much more focused and relies on a different government than its failed predecessor.

The proposed plan offers partial or full debt relief to borrowers in four circumstances: those who owe significantly more than they originally borrowed due to interest; those who have been paying for at least 20 or 25 years; people who participated in job training programs that led to high debt or low earnings; and those who qualify for existing forgiveness programs but have never applied.

A key feature of the plan, which was introduced in April, is the elimination of up to $20,000 in accrued interest on borrowers, regardless of their income. Single borrowers earning less than $120,000 or married couples earning less than $240,000 may qualify for forgiveness of all accrued interest if they are enrolled in an income-driven repayment plan.

The White House estimates that more than 25 million people could benefit from this component alone, which will take effect in the fall after the application is finalized. Other features will debut next year. The Biden administration estimates the plan will cost $147 billion over a decade.