Debt Relief Blocked, for Now

The Biden administration is encouraging borrowers to keep applying for student loan forgiveness despite a temporary stay issued by a federal appeals court Friday night that blocked the administration from discharging any debt. 

The U.S. Court of Appeals for the Eighth Circuit, which granted the request for an emergency stay from six Republican-led states, will hear the challenge on an expedited timeline with briefs due today and tomorrow. 

In a video posted to Twitter, Education Secretary Miguel Cardona said the legal challenges to the student debt–relief plan are “baseless” and that the administration was not deterred. He also defended the plan in an op-ed published over the weekend in USA Today, noting that the stay doesn’t prevent the administration from reviewing applications for forgiveness.

“Amidst Republicans’ efforts to block our debt relief program, we are moving full speed ahead to be ready to deliver relief to borrowers who need the help,” Cardona said in a statement. “As we continue our preparations in compliance with this order, we continue to encourage working- and middle-class Americans to apply for debt relief at studentaid.gov. President Biden and this administration are committed to fighting for the millions of hardworking students and borrowers across the country.”

The emergency stay comes after the Biden administration thwarted several legal challenges. A federal district judge dismissed the lawsuit from the Republican-led states because the plaintiffs lacked standing to sue. The plaintiffs quickly appealed to the Eighth Circuit.

Nearly 22 million people have applied for forgiveness in the week since the application opened, and that group will be among the first to see their student loan balances drop if the stay is lifted. The administration is forgiving up to $10,000 for Americans earning less than $125,000 and up to $20,000 for those who received a Pell Grant. The plan is expected to affect more than 40 million borrowers.

So far, none of the six lawsuits challenging the student relief plan has been successful, including one that requested an emergency injunction from the U.S. Supreme Court. Justice Amy Coney Barrett rejected that request Thursday on her own and without comment. 

“Republican members of Congress and Republican governors are doing everything they can to deny this relief even to their own constituents,” President Biden said Friday during an event at Delaware State University, before the stay was granted. “Their outrage is wrong and hypocritical, but we’re not letting them get in the way. They’ve been fighting us in the courts, but just yesterday a state court and the Supreme Court said, ‘No, we’re on Biden’s side.’”

Plaintiffs in lawsuits that have been dismissed have appealed, and Republican lawmakers pledged to keep fighting.

“This is an illegal action and there are multiple pending lawsuits,” U.S. representative Virginia Foxx said in a statement. “We will continue to support those challenges and protect taxpayer dollars from this abuse of the executive pen.”

Meanwhile, the administration is moving forward with plans to start forgiving student loans. Since the August announcement about the student loan forgiveness plan, the administration has worked quickly to set up the application and finalize the policy specifics. With student loan payments resuming in January, advocates of debt relief said the urgency is needed. 

“The administration is working as hard as they can to get this released to borrowers as fast as possible,” said Persis Yu, deputy executive director and managing counsel for the Student Borrower Protection Center. “The sooner we can clear the books of all of these loans, the better it’s going to be for the student loan system and student loan borrowers as a whole.”

Several lawsuits have sought to block the administration from forgiving student loans, arguing that the plan was illegal. The legal challenges led the administration to tweak the debt relief plan, including cutting out privately held Federal Family Education Loans that weren’t consolidated before Sept. 29. 

Those changes worked to undermine the lawsuits, including one brought by the attorneys general of six Republican-led states, which experts said was the strongest challenge to the plan and was dismissed Thursday by a district court judge before the emergency stay was granted. The stay is not a ruling on the merits on the case. As part of that lawsuit, the administration agreed not to forgive any student loans until Oct. 23.

U.S. District Judge Henry Edward Autrey wrote in his order dismissing the states’ lawsuit that the plaintiffs failed to show that they had standing to sue, noting the decision to cut out FFEL loans prevented the states from claiming an ongoing injury. Three of the states involved said forgiving FFEL loans would mean reduced revenues and assets for agencies that hold loans or use them to invest. 

“Arkansas’s only remaining claim is that the department could decide to declare FFELP loans eligible for cancellation, which could reduce [the Arkansas Student Loan Authority]’s revenue and could limit its student loan financing,” Autrey wrote of one of the state’s claims. “This position is too attenuated to show a concrete and particularized injury for the purposes of standing.”

In addition to Arkansas, the other states suing are Iowa, Kansas, Missouri, Nebraska and South Carolina. 

Beth Akers, a senior fellow with the American Enterprise Institute, a right-leaning think tank, said the lawsuit is one of the more significant legal hurdles for the administration to clear. 

“The question still remains on whether the administration is prepared to make [debt relief] happen administratively,” she said. “I don’t have the most confidence that they will be able to execute this effectively and efficiently.”

Akers said it’s in the administration’s best interest—politically and strategically—to start forgiving debts as quickly as possible. 

“No one wants to be opposing it while it’s in process,” she said. “It becomes a much pricklier political issue once the dollars become credited to borrowers’ accounts.”

Cases Dismissed

So far, three of the six lawsuits challenging the plan have been dismissed. A lawsuit brought by the Pacific Legal Foundation on behalf of borrowers whose loan forgiveness would be taxed at the state level unless they opted out was thrown out Friday.

The plaintiffs lacked standing because “their injury is not traceable to the Department of Education or Secretary Cardona,” U.S. District Judge Richard L. Young wrote in the opinion.

“It is Indiana—not the Department of Education—that made the decision to impose a higher tax burden,” Young wrote. “The debt relief program only provides a benefit by eliminating part of plaintiffs’ debt load. As federal law only provides benefits and Indiana law solely causes the injury, whether Plaintiffs face an injury is entirely up to Indiana.”

The Pacific Legal Foundation is appealing the decision to the U.S. Court of Appeals for the Seventh Circuit, which also is considering an appeal in a similar lawsuit from the Wisconsin Institute for Law & Liberty and the Brown County Taxpayers Association. 

Lawyers with the Department of Justice have argued in court filings that the lawsuits should be thrown out because the plaintiffs don’t have standing and would fail on the merits of their claims. 

“Plaintiffs seek to challenge a program for providing loan relief to third parties not before the court, based on speculative claims of downstream incidental economic effects on certain state economies,” the administration’s lawyers wrote in one filing.

The administration says its authority comes from the Higher Education Relief Opportunities for Students, or HEROES, Act of 2003, which was passed after the Sept. 11 attacks and authorizes the education secretary to forgive student loans during specific periods such as a war or national emergency. The various plaintiffs have argued that the HEROES Act doesn’t allow for debt relief in the manner proposed. 

“But plaintiffs are incorrect: the secretary’s decision, based on thorough economic analysis and targeted in response to the COVID-19 national emergency, fits comfortably within the Secretary’s HEROES Act authority,” administration lawyers wrote in one filing. 

No federal judge has yet to weigh in on the merits of the case because the plaintiffs haven’t cleared the standing threshold.

“While plaintiffs present important and significant challenges to the debt relief plan, the current Plaintiffs are unable to proceed to the resolution of these challenges,” Autrey wrote in the states’ lawsuit.

Other judges have made similar points while also dismissing lawsuits challenging the plan.

“If, as plaintiff alleges, the executive branch lacks all authority to void student debts in the manner proposed, defendants’ action may be void or voidable,” U.S. District Judge William C. Griesbach wrote in an opinion issued earlier this month. “If that is so, a future administration may not be bound by such actions and may seek to collect the purportedly forgiven debts … Those seeking to take advantage of the program, however, may wish to consider this possibility before placing undue reliance on the benefits promised.”