Republicans File Multiple Lawsuits To Block Biden Student Loan Forgiveness Plan

Three lawsuits have now been filed to block the Biden Administration’s loan forgiveness plans. The first suit was filed by a conservative law firm, with one of its attorneys, Frank Garrison, as the plaintiff. The second suit was filed on Thursday, by six Republican Attorneys General.

Both suits want the courts to block the implementation of the loan forgiveness plan. If successful, they would prevent approximately 40 million plus borrowers from having some or all of their student loans canceled.

The Biden administration announced in late August that it would forgive up to $20,000 in student loans for students who received Pell Grants while in college (Pell grants are federal financial aid generally awarded to low-income students) if they meet income criteria. Other eligible borrowers will see $10,000 in forgiveness. Borrowers who earn less than $125,000 ($250,000 for couples) will be eligible for the plan.

What Are The Suits Focused On?

The first suit hinges on the plaintiff working towards Public Service Loan Forgiveness (PSLF). PSLF provides complete loan forgiveness for people working in government or non-profit jobs who make ten years (120) worth of payments on their loans, generally while enrolled in an income-driven repayment (IDR) plan. Crucially, there are no tax liabilities if someone receives student loan forgiveness through the PSLF program. This contrasts with the forgiveness plan recently announced, which is considered taxable in some states, including Indiana, where Garrison resides.

The suit argues that Garrison will suffer a financial loss due to the loan forgiveness plan because he will need to pay taxes on the amount forgiven. The suit claims Garrison will see his tax bill increase by $1,000 if he has $20,000 in student loans forgiven because he was a Pell Grant recipient.

Within days of the first suit being filed, the Department of Education (ED) updated the FAQ on loan forgiveness to make clear there is an opt-out provision for any borrower who thinks they will be financially harmed by receiving loan forgiveness under the recently announced plan.

Attorneys for ED filed a response to the suit noting that it has ensured that Garrison will not be harmed by removing him from the group of borrowers who will receive loan forgiveness. In response, Judge Richard Young, who is overseeing the case in Indiana’s Southern District, declined to block the plan. Young said the opt-out meant there was no irreparable harm that required immediate relief and gave Garrison until October 10 to submit an amended suit.

The second suit is led by Arkansas Attorney General Leslie Rutledge. The states of Iowa, Kansas, Missouri, Nebraska, and South Carolina joined Arkansas in filing the lawsuit.

In a press release, Rutledge said that “President Biden’s unlawful political play puts the self-wrought college-loan debt on the backs of millions of hardworking Americans who are struggling to pay their utility bills and home loans.”

The state-led suit claims injury to the respective states’ taxpayers and argues that President Biden does not have the legal authority to forgive student loans. The suit also claims that MOHELA, a student loan servicer based in Missouri is being harmed by the debt cancellation plan because it will reduce the number of students in repayment. Loan servicers are paid based on the number of accounts they service.

Based on data the White House released earlier this month, there are almost 2.5 million borrowers in the six states suing who will have some or all of their loans canceled. If the suit succeeds, those 2.5 million, plus approximately 40 million borrowers around the country, would no longer see any of their loans forgiven.

A third suit was filed on Tuesday by a Wisconsin-based conservative taxpayers association. This suit argues that student loan forgiveness will harm taxpayers. The lawsuit also alleges discrimination in the plan based on a White House Fact sheet saying the plan will help advance racial equity by reducing the racial wealth gap.

What Happens Next?

The administration estimates that its loan forgiveness plan will eliminate debt for 20 million borrowers. Many borrowers with smaller student loans were unable to complete their degrees and often ended up worse off than if they had never started college, trying to pay back student loans without the benefit of the increased earning power that a degree provides.

Republican lawmakers have opposed broad student debt forgiveness and have demanded hearings on in Congress on the legality of the issue. Democrats, many of whom support student loan forgiveness and who currently control Congress, have chosen not to hold any hearings.

It seems likely there will be more legal challenges to the administration’s debt forgiveness plan due to Republican Lawmakers’ maker’s broad opposition to student debt cancellation.