President Joe Biden’s student loan forgiveness plan faced a significant setback on Monday when two federal judges partially blocked a measure of the plan, which has a projected cost of $160 billion.
The rulings came from U.S. District Judge Daniel Crabtree in Wichita, Kansas, and U.S. District Judge John Ross in St. Louis, Missouri. Both judges sided with several Republican-led states, halting progress on a key student debt relief initiative.
The Biden administration had already approved nearly $160 billion in relief for about 4.6 million borrowers. However, Judge Crabtree’s ruling prevented the U.S. Department of Education from implementing parts of a plan set to take effect on July 1, aimed at lowering monthly payments and accelerating loan forgiveness for millions of Americans. Shortly afterward, Judge Ross issued a preliminary injunction that barred the Department from further loan forgiveness under the administration’s Saving on a Valuable Education (SAVE) Plan.
The SAVE plan is designed to tie monthly payments to the income and family size of a borrower. According to CNN, it has already been utilized by eight million people, with over half of them seeing their payments reduced to $0. This plan was introduced by the Biden administration after their initial loan forgiveness program was halted by the Supreme Court.
As a result of these rulings, the White House must cease canceling federal student debt for those enrolled in the program. Both Biden and the Department of Education have yet to comment on the court decisions.
The lawsuit revisits a previous legal battle between the Biden administration and Missouri, which played a central role in the Supreme Court case that nullified the Democratic president’s initial attempt at loan cancellation last year. The Supreme Court had determined that loan cancellation would harm Missouri due to its connection with MOHELA (the Missouri Higher Education Loan Authority), a quasi-state loan servicing company that would lose revenue generated by federal student loans.
The new lawsuit presents a similar argument, claiming that Biden’s SAVE Plan accelerates an existing path to loan cancellation, which would deprive MOHELA of “up to 15 years in servicing fees.” Arkansas, Florida, Georgia, North Dakota, Ohio, and Oklahoma joined Missouri in the suit.
Income-driven repayment plans were established by Congress in the 1990s to assist borrowers struggling with student loan payments. These plans cap payments based on income and promise to cancel any remaining debt after 20 or 25 years. The lawsuit asserts that Biden’s plan, by being overly generous, undermines the Public Service Loan Forgiveness (PSLF) program, which allows borrowers to have their loans canceled after 10 years of work in public service jobs. This program is considered a vital recruitment tool for states.
The lawsuit highlights that out of 13 law school graduates hired by the Missouri Attorney General’s office last year, almost all cited PSLF as a significant factor in their decision to work in the public sector. “Once the Final Rule takes effect, however, PSLF will not be nearly as attractive compared to other income-driven repayment programs,” the suit claims. “Its comparative advantage will shrink or disappear entirely.”
The states also argue that more than half of the borrowers in the plan are making no payments. “This is not a student loan program. It is a grant program that Congress never authorized,” the lawsuit states.
Graduates with private loans need to consolidate them into one federal debt consolidation loan to qualify for forgiveness programs. A crucial factor in determining forgiveness eligibility is the number of years Americans have been actively paying off their loans, which could range from ten to 25 years depending on the program.
The U.S. Department of Education is working diligently to ensure that borrowers receive credit for every month they’ve earned toward forgiveness, according to U.S. Under Secretary of Education James Kvaal.
As college costs continue to rise, more students are turning to loans to finance their education, but many struggle to repay them due to accumulating interest that keeps the total debt high despite regular payments. This ongoing challenge underscores the importance of effective student debt relief measures to alleviate the financial burden on borrowers.
