skip to Main Content

Court block on student loan forgiveness continues, but there’s a big update

There’s a new development in a lawsuit challenging President Biden’s sweeping student loan forgiveness initiative. How a federal appeals court deals with this new information may prove crucial to the plan’s future.

Here is the latest.

The Court of Appeals temporarily suspended Biden’s student loan forgiveness plan

Biden launched his unprecedented student loan cancellation plan in August and issued a online application last month. Under this initiative, up to 40 million borrowers with government-administered federal student loans can receive up to $20,000 in student loan forgiveness whether their 2020 or 2021 income was within the program income limits.

But several lawsuits threatened the plan. While multiple lawsuits have been fired by federal court judges, a coalition of Republican-led state attorneys general appealed such a dismissal to the 8th Circuit Court of Appeals, which temporarily blocked the student loan forgiveness program last month. The decision is temporary while the court considers whether to impose a longer preliminary injunction, which could be much more problematic for the future of the program.

New correspondence sheds more light on FFELP’s challenge to student loan relief plan

One of the coalition’s main legal arguments in its lawsuit challenging the Biden student loan forgiveness plan is that the initiative hurts states financially because state-affiliated FFELP agencies will lose revenue due to the cancellation of loans. States must demonstrate that there is concrete harm related to the policy challenged in order for them to have standing to sue.

The Federal Family Education Loan Program, or FFELP for short, is an older federal student loan program in which loans are originated by commercial lenders, which are guaranteed by nonprofit organizations or affiliated with the state which are then, in turn, supported by the federal government. MOHELA, a Missouri-based agency, is one such FFELP agency (MOHELA is also a contractor for the US Department of Education’s Direct Loan Program, and it now also administers the US Department of Education’s Loan Forgiveness Program. public service). The coalition of states (which includes Missouri) challenging Biden’s student loan forgiveness plan argued that MOHELA, and therefore the state of Missouri, would be financially harmed by the loan forgiveness.

But lawyers for the Biden administration had argued that MOHELA is an independent agency that can sue and be sued in its own name. Yet MOHELA is not a named plaintiff in the lawsuit.

New correspondence published this week casts further doubt on MOHELA’s direct involvement in the legal challenge. In a filing in court On Tuesday, Justice Department attorneys notified the 8th Circuit Court of Appeals of a MOHELA letter sent to Representative Cori Bush (D-MO) in response to a request for information, whereby MOHELA confirmed that he was not a party to the lawsuit filed by the States, nor was he involved in the decision to seek an injunction preliminary.

“MOHELA executives were not involved in the Missouri Attorney General’s Office’s decision to file a preliminary injunction petition in federal court on September 29, 2022,” the agency said. “As a government entity [MOHELA] has no shareholders and does not exist to make a profit.

MOHELA’s statements could undermine the coalition’s argument that MOHELA and other similar FFELP agencies would be financially harmed by Biden’s student loan forgiveness plan, especially since the administration has determined that the loans FFELP held by companies would not qualify for loan forgiveness under the initiative in most cases, even if they are consolidated into a direct consolidation loan.

Student loan forgiveness application still pending

The Department of Education cannot implement any student loan forgiveness while the 8th Circuit temporary stay remains in place. But the administration still accepts student loan forgiveness applications.

“Following a court order, we are temporarily prevented from processing debt releases. We encourage you to apply if you are eligible,” reads a message on the application website. “We will continue to review applications.”

The 20 million borrowers who have already submitted their applications for student loan forgiveness continue to await an 8th Circuit ruling on the preliminary injunction, which could be issued any day. But the Biden administration is projecting confidence.

“We are going to win this case”, Biden predicted in the public comments last week.

Further Reading on Student Loan Forgiveness

When will you receive student loan forgiveness? Key schedule details

A new, bigger student loan forgiveness initiative is about to be launched – and it’s not what you think

5 crucial points to remember after the court suspended student loan forgiveness

In Reversal, Biden Administration Announces New Student Loan Forgiveness Eligibility Limits

Back To Top