Biden’s student debt forgiveness regulation on hold again, after brief reprieve

In less than 24 hours the Biden administration won, then lost the ability to proceed with its new student debt relief plan that would deliver forgiveness to more than 25 million Americans.

Student debt relief has become highly politicized and divisive as conservatives seek to dismantle President Joe Biden 's plans which they say unfairly burden taxpayers and are a naked attempt at swaying voters.

The turn of events stems from a lawsuit filed in September by seven Republican-led states to stop Biden's new student loan forgiveness rule. The Education Department appeared on track to move forward with the program, after a federal judge in Georgia let a temporary restraining order halting the plan expire and transferred the case to the Eastern District of Missouri on Wednesday night. But the department's victory was short-lived after the new judge in the case granted an injunction at the states' request on Thursday.

The states — Missouri, Georgia, Alabama, Arkansas, Florida, North Dakota and Ohio — claim that the administration is exceeding its authority and illegally preparing to forgive loans before the rule is even in effect. They say the regulation would hurt state tax revenue and the earnings of state entities such as the Missouri Higher Education Loan Authority (Mohela).

Skip to end of carousel How much student loan debt has Biden canceled?President Joe Biden's administration has canceled billions of dollars in student loans, which is more than any other. Here's a breakdown of how much student loan debt Biden has canceled . End of carousel Those arguments resonated with U.S. District Judge J. Randal Hall in Georgia, when he imposed the restraining order last month. Yet he decided that Georgia, which claimed the forgiveness program would deny the state income-tax revenue, failed to show sufficient harm. The court dismissed Georgia from the lawsuit, ruling the state had no standing and could no longer be the venue for the case. Hall said it would be more equitable to transfer the case to the Eastern District of Missouri because the states rely on the harm to Mohela as their primary basis for standing.

Missouri Attorney General Andrew Bailey (R) has argued the quasi-state agency that services federal student loans and funds state scholarships would lose revenue from servicing direct loans — those made and owned by the federal government — when the loans are reduced or eliminated. It's the same argument that was used to derail Biden's earlier plan to deliver up to $20,000 in student loan forgiveness to more than 40 million borrowers. The Supreme Court struck down that program in 2023.

Within hours of the case being transferred to Missouri, Bailey and the other state attorneys general petitioned the court Thursday for an injunction amid the ongoing litigation. U.S. District Judge Matthew T. Schelp in Missouri sided with the states and said they are "likely to succeed" with their argument that the Education Department's actions are unlawful and debt relief would cause Mohela irreparable harm.

"This is yet another win for the American people," Bailey said in a statement Thursday evening. "The court rightfully recognized Joe Biden and Kamala Harris cannot saddle working Americans with Ivy League debt. We will never stop fighting for the rule of law and fairness for all."

A spokesperson for the Education Department said the agency was "extremely disappointed" by the latest ruling, but will "continue to vigorously defend" the proposed regulation in court.

The lawsuit involves a proposed rule designed to reach borrowers who the Education Department says are shut out of existing loan forgiveness programs or have been trapped in unaffordable debt. The proposed plan, created through the federal negotiated-rulemaking process, is slated to be finalized this fall.

No debt can be forgiven under the policy before then, but the GOP-led states said the department instructed its loan servicers to start clearing balances before the rule is finalized. They said it was unprecedented for the department to let borrowers opt out of the plan before it even goes into effect. Although federal law says major rules may not take effect until 60 days after publication, the attorneys general claim the department intends to immediately begin forgiving loans once the rule is published, according to the complaint.

The department began working on the new debt relief rule after the Supreme Court shut down Biden's attempt to forgive up to $20,000 in federal student loans for more than 40 million borrowers. The alternative program is far more targeted and relies on a different authority than its failed predecessor.

The proposed plan offers partial or full debt relief to borrowers in four circumstances: those who owe far more than they originally borrowed because of interest; those who have been paying for at least 20 or 25 years; those who attended career-training programs that led to high debt loads or low earnings; and those who are eligible for existing forgiveness programs but never applied.

A key feature of the plan, which was introduced in April, is the elimination of up to $20,000 in accrued interest for borrowers, regardless of their income. Single borrowers earning less than $120,000 or married couples earning less than $240,000 could qualify to have all of their accrued interest forgiven if they are enrolled in an income-driven repayment plan.

The White House estimates that more than 25 million people could benefit from that component alone, which is supposed to take effect this fall when the proposal is finalized. Other features will debut next year. That is, if the plan is not overturned. The Biden administration estimates the plan will cost $147 billion over a decade.