Lawsuits Target Biden’s Student Debt Forgiveness Plan

Conservative groups and politicians say the president doesn't have the legal authority to cancel federal student loan debt and are trying to block his plan from taking effect.
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  • Existing lawsuits have called into question the legality of the president's proposed plan.
  • They all seek to prevent forgiveness from going into effect before the plan kicks goes is enacted.
  • They likewise all allege that the president doesn't have the legal authority to cancel federal student loan debt.

It took just a month for lawsuits seeking to stop President Joe Biden's federal student debt forgiveness plan to hit federal courts, and they continue to pile up even as the website to apply for cancellation is now live.

Thus far, the most high-profile challenges to the debt forgiveness plan have come from attorneys general from Republican-led states, as well as one challenge from a libertarian-leaning law firm.

One commonality among all of them: They all allege that the Department of Education (ED) doesn't have the legal authority to cancel federal student loan debt through the Higher Education Relief Opportunities for Students (HEROES) Act.

Existing challenges have yet to amount to any actions from the U.S. court system, but ED has seemingly reacted to some of these lawsuits' claims through last-minute changes to their guidance for borrowers.

Here's a rundown of the legal challenges to this point that could throw a wrench in the debt forgiveness program before it ever gets off the ground:

Six States Mount a Joint Suit

A joint lawsuit involving Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina is the most high-profile challenge to date.

The attorneys general from these states are hoping to block Biden's debt forgiveness plan by requesting a preliminary injunction and temporary restraining order from Judge Henry Edward Autrey in the Eastern District of Missouri. The judge vacated a planned hearing for the restraining order, but an oral argument for the motion for preliminary injunction is scheduled for Oct. 12, according to court documents.

These six states argue that debt forgiveness will financially harm them, either by impacting the volume of loans they service or because they won't be able to tax canceled debt as income.

The Higher Education Loan Authority of the State of Missouri (MOHELA) and the Arkansas Student Loan Authority (ASLA) are both servicers for the Federal Family Education Loans (FFEL) program. As such, they collect revenue by charging interest on these loans. Because ED's initial guidance stated FFEL holders can consolidate into the Direct Loan program to qualify for debt cancellation, these servicers claim they will lose millions of dollars worth of loans.

ED changed its guidance on the same day these states filed the lawsuit.

The department's updated guide now states loans consolidated into the Direct Loan program before Sept. 29 may qualify for forgiveness. Those who consolidated on or after that date would not.

That change proved to be key. The judge denied the states’ request for a preliminary injunction. In his opinion, published Oct. 20, Judge Autrey wrote that the states are no longer harmed by the debt forgiveness plan.

Additionally, any claims of lost tax revenue are speculative and too far in the future to qualify for an injunction.

The attorneys general immediately filed for an appeal with the Eighth Circuit Court of Appeals. That court issued a stay on Oct. 21 while it considers the full motion for an injunction. Until it reaches a decision, the Biden administration may not carry out any loan discharges under its plan.

Arizona Launches Its Own Lawsuit

Arizona Attorney General Mark Brnovich launched his own lawsuit against Biden's federal student loan debt relief plan.

Brnovich's suit makes many of the same claims of impending financial harm to the state, specifically regarding canceled debt as taxable income. He also similarly argues that the HEROES Act does not give ED the legal authority to offer blanket debt forgiveness.

The Arizona suit is unique in that it alleges that debt forgiveness will harm the state's ability to use the Public Service Loan Forgiveness (PSLF) program as a recruitment tool for government agencies.

PSLF offers complete forgiveness of federal student debt after making 10 years of qualifying payments on a loan while employed in public service. That applies to roles at nonprofits, public schools, and government agencies.

Brnovich argues that the Office of the Attorney General (OAG) employs dozens of attorneys that will be eligible for relief under PSLF. However, unilaterally writing off debt harms OAG's ability to recruit legal talent, and directly makes it less lucrative for lawyers to work for the OAG, according to court documents.

The suit also claims debt cancellation will harm Arizona's economy by contributing to inflation.

Law Firm Files the First Claim

California-based nonprofit law firm Pacific Legal Foundation (PLF) filed the first lawsuit against ED and President Biden on Sept. 27.

The libertarian-leaning firm filed the suit on behalf of Frank Garrison, a PLF employee based in Indiana. Garrison claimed that debt forgiveness would financially harm him because he resides in one of a handful of states where canceled debt counts as taxable income. Meanwhile, he will soon be eligible for student loan debt forgiveness through PSLF, which is not taxable, according to the lawsuit.

Therefore, he would ultimately lose money paying taxes he otherwise wouldn't have to pay under Biden's forgiveness plan.

The department clarified part of the plan soon after PLF filed the suit which may make this point moot.

White House Press Secretary Karine Jean-Pierre said during a press briefing the same date of the filing that Biden's plan will include an opt-out option. White House spokesperson Abdullah Hasan also stated that the lawsuit was baseless because borrowers who don't want relief may opt out.

Judge Richard Young of the Southern District of Indiana denied Garrison's motions for a preliminary injunction and a temporary restraining order on Sept. 29, according to court documents. Young later dismissed the complaint on Oct. 21.

In that decision, Young explained that it was not the federal government that is injuring Garrison, but the state of Indiana and its legislative decision.

Garrison soon after filed for an appeal to the U.S. Court of Appeals for the Seventh Circuit. Supreme Court Justice Amy Coney Barrett rejected a request for the Supreme Court to take up the case on Nov. 4.

Group Alleges Racial Discrimination in Forgiveness

The Brown County Taxpayers Association (BCTA) filed a suit in Wisconsin court on Oct. 4 with a unique allegation: One-time debt forgiveness would unfairly benefit Black and other borrowers of color.

BCTA alleges in its lawsuit that Biden's debt forgiveness plan violates the country's equal protection doctrine. Because the White House stated in its fact sheet that the program would advance "racial equity" and "narrow the racial wealth gap," the move includes an "improper racial motive," according to the lawsuit.

Biden's plan, however, does not offer any more or less debt cancellation based on race.

A U.S. district judge in Green Bay quickly tossed the suit.

According to WBAY, on Oct. 6, Judge William Griesbach said BCTA does not have the standing to sue. In the suit, BCTA claims they will be harmed by the action because forgiving debt en masse may cause taxes to rise. However, Griesbach said the Supreme Court has repeatedly ruled that paying taxes does not give citizens standing to challenge actions taken by the federal government.

The group filed an emergency request on Oct. 19 for the Supreme Court to block the program, according to CNBC. Supreme Court Justice Barrett denied the request soon after.

Plaintiffs Chide Government for Leaving Borrowers Out

Conservative advocacy group the Job Creators Network Foundation (JCNF) filed a suit on Oct. 10 in the U.S. District Court for the Northern District of Texas.

The initial filing includes two plaintiffs that say Biden's debt cancellation plan would harm them: Myra Brown and Alexander Taylor. Brown does not qualify for forgiveness because she has commercially held Federal Family Education Loan (FFEL) program loans, while Taylor doesn't qualify for the maximum $20,000 in cancellation because he did not receive a Pell Grant while in college, according to the suit.

"[They] are just a few of the millions of Americans who are being harmed by the department's arbitrary decision making," the lawsuit states.

Both plaintiffs say ED deprived them of their right to protect their own economic interests because the department did not go through a formal rulemaking process to create this forgiveness plan. Instead, Biden is leaning on the HEROES Act to institute it.

Brown and Taylor believe they should have had a chance to submit comments on the plan. Not having a rulemaking period violates the Administrative Procedures Act (APA), the lawsuit claims.

Both feel they should be entitled to maximum forgiveness.

Judge Mark Pittman of the U.S. District Court for the Northern District of Texas vacated the forgiveness plan on Nov. 10, leaving the administration unable to carry out loan discharges. The Department of Justice quickly appealed the decision to the conservative-leaning Fifth Circuit Court of Appeals.

Think Tank: Forgiveness Erodes PSLF’s Value

Washington D.C.-based libertarian think tank the Cato Institute filed a lawsuit against ED on Oct. 18 in the U.S. District Court of Kansas.

The Cato Institute’s allegations mirror those of the Arizona attorney general, but this time from the perspective of a 501(c)(3) nonprofit. Employees of nonprofits can also qualify for federal student loan forgiveness through PSLF, and the institute claims in court filings that Biden’s one-time debt cancellation plan would inhibit its recruitment ability.

“Rather than be advantaged in the labor market, as they were under the PSLF program, nonprofit employers will now have to increase compensation—and incur corresponding extra payroll costs—in order to attract employees,” the lawsuit states.

The nonprofit also argues that one-time forgiveness would incentivize employees to leave their job at a qualifying nonprofit.

The Cato Institute does make one unique argument as to why the HEROES Act shouldn’t be relied on to enact debt cancellation: “Most, if not nearly all, borrowers are in a better financial position today than before the pandemic with respect to their student loans,” due to the three-year pause on student loan payments.

The Cato Institute is being represented by the New Civil Liberties Alliance, according to a statement from the think tank.