Dive Brief:
- A federal judge on Thursday temporarily blocked the Biden administration from carrying out proposed regulations that would provide student debt relief for wide swaths of borrowers.
- The ruling is in response to a lawsuit filed by seven conservative-led states, who argued that the debt relief plan would harm their tax revenue and the Higher Education Loan Authority of the State of Missouri, or Mohela, a loan servicer that helps fund Missouri’s public education.
- The ruling deals yet another blow to the U.S. Department of Education’s debt relief efforts, which have faced a series of legal setbacks in recent months.
Dive Brief:
The Biden administration unveiled proposed regulations in April that would provide debt relief to large groups of borrowers. That includes borrowers who owe more than their initial balance due to ballooning interest, those who have been making payments for over two decades and those whose colleges didn’t provide them with “sufficient financial value.”
The administration predicted the regulations would eliminate accrued interest for 23 million borrowers, fully cancel federal student loan debt for 4 million and provide $5,000-plus in debt relief for another 10 million.
The Education Department has not yet released a final rule, which the administration indicated would be released this month. However, the conservative-led states alleged that U.S. Education Secretary Miguel Cardona ordered loan servicers to start mass canceling federal loans as soon as Sept. 3.
They argued that this attempt to forgive student loans is the administration’s weakest yet, relying on “the least plausible textual authority yet.”
“All this explains why the Secretary now is trying to quietly rush this rule out too quickly for anybody to sue,” they said in their complaint. “It does not matter how many rules he breaks in the process, so long as he forgives billions of dollars in debt before the courts stop him.”
An Education Department spokesperson said in a statement Friday that the agency is “extremely disappointed” with the ruling.
“This lawsuit was brought by Republican elected officials who made clear they will stop at nothing to prevent millions of their own constituents from getting breathing room on their student loans,” the spokesperson said. “We will continue to vigorously defend these proposals in court.”
The states initially filed the lawsuit in Georgia federal court. However, U.S. District Judge J. Randal Hall on Wednesday ruled Georgia didn’t have standing to sue and transferred the case to Missouri federal court.
Hall noted the states primarily rely on harm to Mohela — which made nearly $90 million in revenue from administrative fees on federal loans in 2022 — to prove standing. Therefore, the “suit could have originally been brought” in Missouri federal court.
Mohela was also at the center of the U.S. Supreme Court lawsuit that struck down the Biden administration’s initial student loan forgiveness plan.
The day after the case was transferred, U.S. District Court Judge Matthew Schelp granted the remaining states’ request for a preliminary injunction. In a three-page ruling, Schlep wrote that the states were likely to succeed in their arguments against the Biden administration.
The new ruling is just one of many legal roadblocks the Education Department has faced.
The Supreme Court struck down the Biden administration’s initial attempt at widespread loan forgiveness last year. Federal court rulings have since blocked a new income-driven repayment plan that promised debt relief to certain borrowers after 10 years of payments.
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