Student Loan Forgiveness Plan Gets Halted Yet Again In Chaotic Week For Borrowers

A federal judge in Missouri blocked one of President Joe Biden’s major initiatives to enact mass student loan forgiveness. The Thursday order was issued only hours after a different court in Georgia had rejected challengers’ arguments and ruled that the case must be transferred to Missouri.

Seven states led by Republican attorneys general initiated a legal challenge in September to prevent the Biden administration from moving forward with a new student loan forgiveness initiative. Dubbed “Plan B” as a second attempt at mass debt relief after the Supreme Court blocked Biden’s first program, the initiative would provide sweeping debt relief to at least 25 million borrowers.

The latest student loan forgiveness ruling caps off a wild week for borrowers in what has been an unprecedented and chaotic year as numerous programs have been initiated, terminated, paused, or blocked.

Student Loan Forgiveness Plan Had Been Given Brief Reprieve

Biden’s latest attempt at broad student loan forgiveness would focus relief on four categories of borrowers: those who first entered repayment at least two decades ago, borrowers whose balances have exploded due to interest accrual, people who went to low-value institutions that lost access to federal aid programs because of failure to comply with federal regulations, and borrowers who qualify for relief under other loan forgiveness programs but never enrolled. The program would be estimated to cost over $140 billion if enacted.

The state of Missouri and six other states led by Republicans filed a legal challenge in a Georgia court last month. The states argued that the program was not authorized by Congress and is an illegal executive overreach that would harm the states by depriving them of revenue, in part associated with state-related loan servicers. Biden administration officials countered that the suit was filed too early, as the program has not even been finalized yet. Officials have argued that the program is a legitimate exercise of the Education Department’s compromise and settlement authority under the Higher Education Act.

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The Georgia court initially blocked the program. But on Thursday, in a surprise ruling, the court vacated the temporary restraining order that had prevented the Education Department from moving forward with the loan forgiveness plan. The court then ordered the case to be transferred to Missouri, concluding that it was improperly filed in Georgia. The judge found that a Missouri court would be more appropriate given the coalition’s reliance on arguments that MOHELA, a Missouri-based loan servicer contracted with the Education Department to service federal student loans, would lose revenue if mass student loan forgiveness was enacted.

Missouri Court Blocks Biden’s Student Loan Forgiveness Plan Again

But just hours after the Georgia court’s ruling, the state of Missouri filed a motion for a preliminary injunction to block the loan forgiveness plan. And a judge quickly ruled in favor of the injunction while the legal challenge continues.

“Allowing Defendants to eliminate the student loan debt at issue here would prevent this Court, the U.S. Court of Appeals, and the Supreme Court from reviewing this matter on the backend, allowing Defendants’ actions to evade review,” said the order.

Advocates for student loan borrowers slammed the decision.

“With a dearth of legal reasoning, today’s decision takes the extraordinary step of blocking a proposed federal student debt relief rule that has yet to be finalized and has never been implemented,” said Persis Yu, Student Borrower Protection Center Deputy Executive Director and Managing Counsel in a statement on Thursday. “This case lacks seriousness and this judge’s order puts our captured courts on full display. With this case, the Missouri Attorney General continues to put naked political interest and corporate greed ahead of student loan borrowers in Missouri and across the country.”

Student Loan Forgiveness Ruling Caps Chaotic Week For Borrowers

The rollercoaster of rulings over Biden’s “Plan B” for student loan forgiveness is just one of several issues causing chaos throughout the federal student loan system.

The SAVE plan, a new income-driven repayment plan that reduces payments and provides several pathways to eventual student loan forgiveness, remains blocked due to a legal challenge. That challenge is also led by Missouri, which made many of the same legal arguments tying its finances to MOHELA’s revenues. The SAVE plan legal challenge has forced millions of borrowers into a forbearance, upended the IDR processing system, and threatens to eliminate student loan forgiveness under several IDR plans.

Meanwhile, earlier this week two critical student loan relief programs came to an end. The on-ramp initiative had protected borrowers from the adverse impacts of missed payments during the last 12 months, and prevented struggling borrowers from going into default. Simultaneously, the Fresh Start program came to an end, as well. Fresh Start had extended the pause on collections activities against defaulted federal student loan borrowers, and gave them a pathway to get back into good standing. With both programs now over, borrower advocates expect to see a spike in delinquencies and defaults in the coming months, particularly given the ongoing issues related to the SAVE plan litigation.