Appeals Court Deals Another Blow to Debt Forgiveness Plan

The 8th U.S. Circuit Court of Appeals reversed the opinion of a lower court, granting a preliminary injunction.
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  • Biden's forgiveness plan would cancel up to $20,000 in debt per borrower.
  • It has been the target of many lawsuits and conservative opposition.
  • Federal Student Aid is no longer accepting applications for loan forgiveness.

An appeals court overruled a lower court, handing down a preliminary injunction blocking President Joe Biden's student loan debt forgiveness plan.

The 8th U.S. Circuit Court of Appeals ruled on Monday that at least one of the six Republican-led states that hoped to stop the program had standing to sue. That stands in opposition to what a lower district court judge ruled earlier in the case.

This appeals court had previously issued a stay on the case. This bought the court some time to weigh the issues.

According to court documents, the injunction will remain in effect until further direction from the 8th Circuit Court or from the U.S. Supreme Court.

Plaintiffs in the case include:

  • Arkansas
  • Iowa
  • Kansas
  • Missouri
  • Nebraska
  • South Carolina

The most important plaintiff, however, was Missouri. According to the appellate court's decision, Missouri's connection to the Higher Education Loan Authority of the State of Missouri (MOHELA) was integral in deciding whether the case had standing to proceed.

The lower court judge ruled that MOHELA was an independent agency, so it would have to sue on its own. The appellate court stated in its decision that because MOHELA has financial obligations to the state treasury, student loan debt cancellation presents possible financial harm to the state.

Therefore, the case can proceed.

MOHELA services the Federal Family Education Loans (FFEL) program. While commercially held FFEL loans are not eligible for forgiveness under Biden's plan, his administration previously encouraged these borrowers to consolidate out of the FFEL program, potentially costing MOHELA loans it serviced.

Biden's administration later backtracked on that guidance.

The 8th U.S. Circuit Court of Appeals did not address this policy change.

Additionally, the court says it contemplated limiting the injunction only to borrowers in the above states. However, it concluded that doing so "would be impractical and would fail to provide complete relief to the plaintiffs."

In a separate case, a federal judge in Texas called Biden's plan unlawful, vacating the program. The Biden administration quickly appealed the decision. It likewise stopped accepting applications for federal student loan debt cancellation.

The administration started taking applications on Oct. 17, and more than 26 million borrowers had applied for debt cancellation, ED Secretary Miguel Cardona said on Nov. 10.

The president's proposed debt cancellation plan would discharge up to $20,000 in federal student loan debt per borrower making less than $125,000 per year.