Biden's student-debt cancellation goes to court today. Republican arguments will center around the 'enormous' financial harm the relief will cause loan companies and states.
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- Six Republican-led states are seeking to block Biden's student-loan forgiveness.
- A federal judge will hear their arguments on Wednesday.
- Their defense outlines financial harms the relief will cause to state and company revenues.
Wednesday could be a turning point for President Joe Biden's student-loan forgiveness plan.
A federal judge will hear oral arguments from six Republican-led states who sued Biden's $20,000 debt relief announcement at the end of August, arguing that the relief will hurt their states' tax revenues and the financial operations of loan company MOHELA, which is based in Missouri where the lawsuit was filed. It's one of at least five major conservative lawsuits that have been filed so far seeking to block the policy, and should a judge rule in the group's favor, the long-awaited loan forgiveness will not move forward.
At the end of last week, Biden's administration filed its first legal defense of the plan and pushed back on every argument the GOP-led states made as to why the plan should be blocked, including justifying the Education Secretary's authority to cancel student debt under the HEROES Act of 2003 and dismissing concerns that relief will hurt MOHELA's operations, saying that is not legally justifiable.
But in a new court filing on Tuesday, the group argued otherwise.
"Were there any doubt of the Cancellation's unlawfulness before, there isn't now," the filing said. "Defendants' Rationale Memo, which the Secretary approved early the same morning it was completed, does not address key statutory elements of the HEROES Act, does not consider a single alternative to erasing billions in debt, and does not even attempt to justify central eligibility requirements contributing to the Cancellation's breathtaking scope."
Here are the main points the Republican group will likely address in court, according to the filing:
Financial harms suffered by debt consolidation
After announcing relief, Biden's Education Department said that borrowers within the Family Federal Education Loan (FFEL) program, which are privately-held loans, could consolidate their debt into direct federal loans to qualify for loan forgiveness. But at the end of September, the department later revised its guidance to say that FFEL borrowers cannot consolidate their debt to qualify for relief, likely in response to the looming lawsuits.
In their defense, the Republicans said they are still being harmed by financial losses from consolidation because the process could be ongoing for borrowers who made the change prior to the September guidance, and they called for a pause on the debt relief and any related consolidations. And to remedy "at least some of the harms already inflicted by the widespread Department-induced consolidation," the group recommended borrowers be forced to pay their former lender back for lost interest caused by the consolidation.
Financial harms to MOHELA
The Republicans countered the Biden administration's claim that MOHELA is separate from the state, and financial harms to the company would not impact the state. They said that MOHELA must report to the Missouri government, and because student-loan forgiveness would impact revenue from direct loans, "it reduces MOHELA's resources to perform these essential education-advancing functions for Missouri. That unquestionably harms the State."
The filing also noted that there is "concrete and direct — and enormous" harm to MOHELA's finances brought on by debt relief, citing a loss of tens of millions of dollars per year in revenue should the relief go through.
Financial harms to states
The Republicans representing Arkansas, South Carolina, Iowa, Kansas, Nebraska, and Missouri all claimed that they could suffer revenue loss from student-loan forgiveness, even as Biden's defense argued any loss is "too speculative and attenuated." The group said that while each states could operate by its own tax code, changing laws to make them inconsistent with federal law would ease the burden for taxpayers and revenue officers, and "compelling them to undo that will frustrate those purposes."
Misinterpretation of the HEROES Act
Biden's administration has long defended its one-time student-loan forgiveness under the HEROES Act of 2003, which gives the Education Secretary the ability to waive or modify student-loan balances in connection with a national emergency, like COVID-19. As has been the argument with many Republican lawmakers and conservatives, the GOP group argued this policy is an overreach of that authority.
They said that emergencies are temporary, and any action responding to them must also be temporary, referring to the continued student-loan payment pauses during the pandemic — but broad debt cancellation is is "inconsistent with the limited reason that the HEROES Act grants authority in the first place," the filing said. They also argued that Biden has not shown how up to $20,000 in relief is the necessary amount to avoid financial harm to borrowers.
The public can tune into the Wednesday hearing here, and a summary of Biden's defense can be read here.
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