The future of President Biden’s student loan forgiveness program remains in doubt after a federal appeals court issued an injunction preventing the government from discharging any debt while it considers a lawsuit to end the policy.
The U.S. Court of Appeals for the 8th Circuit decided 3-0 on Monday to side with a coalition of six Republican-led states that requested the court table cancellation amid its ongoing litigation. The injunction will remain in effect until further notice from the court or the Supreme Court, according to the order.
The ruling arrives days after a federal judge in a separate lawsuit in Texas declared Biden’s debt relief plan unlawful, effectively barring the Education Department from accepting more applications and discharging any debt. Justice Department attorneys have appealed that decision and the Biden administration has pledged to fight any legal challenge to one of the president’s signature economic policies. But the latest ruling from the 8th Circuit further complicates their efforts.
Before the Texas ruling, the states’ lawsuit was widely considered to be the greatest threat among the multiple legal challenges to Biden’s debt relief program. Other legal cases filed by individuals or conservative groups have been dismissed or had their requests for injunctions denied for lack of standing, the threshold to sue for harm. Conservatives had anticipated that standing would be a hurdle in their efforts to invalidate Biden’s policy.
In their ruling, the three-judge panel said Missouri, one of the states involved in the case, has the necessary standing to bring the lawsuit on behalf of the Missouri Higher Education Loan Authority, a quasi-state outfit that owns and services federal student loans. The lawsuit said MOHELA, which funds state scholarships, would also lose revenue from servicing Direct Loans—those made and owned by the federal government—that are wiped away. Missouri Attorney General Eric Schmitt (R) argued that loss of revenue would harm the state. The appellate court agrees.
“Due to MOHELA’s financial obligations to the State treasury, the challenged student loan debt cancellation presents a threatened financial harm to the State of Missouri,” the three-judge panel wrote in a 10-page opinion. “Missouri has shown a likely injury in fact that is concrete and particularized, and which is actual or imminent, traceable to the challenged action of the Secretary, and redressable by a favorable decision.”
The opinion addresses the issue of standing but not the merits of the states’ case. The appellate court in October granted the states an administrative stay, instructing the Biden administration to stand down on discharging debt under the relief effort, while it considered the request for an injunction.
The White House did not immediately respond to requests for comment Monday. Nebraska Attorney General Doug Peterson (R), one of the officials who sued the administration, praised the court’s ruling.
“The Eighth Circuit’s thorough analysis of the standing issue confirms that the States have a right to pursue this very important case,” Peterson said in a statement. “The court also recognizes that this attempt to forgive over $400 billion in student loans threatens serious harm to the economy that cannot be undone. It is important to stop the Biden administration from such unlawful abuse of power.”
The coalition of states—Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina—sued the Biden administration in September over the debt relief policy. The states accuse the president of overstepping his authority and threatening the revenue of state entities that profit from federal student loans.
A lower court judge dismissed the states’ lawsuit this month for lack of standing. U.S. District Judge Henry E. Autrey, a George W. Bush appointee, said that while the states raised “important and significant challenges to the debt relief plan,” they could not prove sufficient harm.
Biden’s loan relief plan would cancel up to $10,000 in federal student debt for borrowers earning up to $125,000 annually, or up to $250,000 for married couples. Those who received Pell Grants are eligible for an additional $10,000 in forgiveness.
The president has vigorously defended his debt relief policy, saying it “lowers costs for Americans as they recover from the pandemic to give everybody a little more breathing room,” during an appearance last month at Delaware State University. Biden has maintained that the policy is both legal and critical for the economy.
The Justice Department released a 25-page memo that says a 2003 law authorizes the education secretary “to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies.”
The states and other opponents of the program argue that the scale of loan cancellation, at a cost of about $300 billion over 10 years, warrants congressional authorization because of the economic and political significance. The Supreme Court invoked that idea, known as the “major questions” doctrine, earlier this year to limit the Environmental Protection Agency’s power to combat climate change.
The states also claimed that some student loan companies and state investment entities that own debt from the defunct Federal Family Education Loan program could be hurt financially by the forgiveness plan. Some borrowers with FFEL loans rushed to consolidate their loans into Direct Loans held by the federal government so that they could qualify for forgiveness. But the Biden administration in late September said FFEL borrowers could no longer do that, a change Autrey said defeated the claims of the states.
In a filing to the appellate court, Justice Department attorneys used many of the same arguments Autrey raised in his opinion to tear holes in the states’ arguments. They said, as Autrey had also noted, MOHELA’s revenue and liabilities are independent of the state, even though the governor appoints five members of its board.
MOHELA, which is not a named party to the lawsuit, has tried to distance itself from the case. After Rep. Cori Bush (D-Mo.) questioned its perceived involvement, MOHELA wrote her saying it played no role in the state’s decision to sue.
More than 26 million people have applied for the forgiveness program to date, according to the Education Department. An additional 8 million people whose income information is already on file with the department qualify for automatic debt relief.
The vast majority of federal student loan borrowers do not have to make payments until January, more than two years after President Donald Trump, citing the coronavirus pandemic, implemented a freeze on federal loan payments.