- Biden’s administration submitted its full legal defense of its student debt relief plan to the Supreme Court.
- Student loan company MOHELA is at the center of the lawsuit filed by six GOP-led states.
- The DOJ said the decision in favor of the states’ argument could set an odd precedent.
A Missouri-based student loan company is at the center of a lawsuit blocking student loan forgiveness — and President Joe Biden’s administration has said its role could set an odd precedent.
It’s a critical year for millions of student loan borrowers as Biden’s plan to forgive up to $20,000 in student debt will have its day in the Supreme Court on February 28. For more than two months, the implementation of the simplifications has been blocked due to two court cases against the administration. One was filed by two student-loan borrowers who did not qualify for the full $20,000 relief amount, and another by six Republican-run states who said the relief would hurt their states’ tax revenues as well as those of student-loan company MOHELA .
While the administration has backed down on the arguments in both cases, claiming neither of them have standing to sue, the latter – involving MOHELA – is complex as the company itself denied having been involved in the case after the 8th in November to have been circuit judgment blocking relief.
Adding to this complexity, the Justice Department wrote in a lawsuit Wednesday night that upholding the Eighth Court ruling would mean that “banks could sue anyone who causes financial harm to their borrowers, credit card companies could sue anyone who causes financial harm to their customers.” , and governments could sue anyone who financially harms their taxpayers.”
Dalié Jiménez, a law professor at the University of California Irvine and director of the Student Loan Law Initiative, told Insider that Biden’s legal defense attorney “did a really good job when he said that if AB does financial damage and BC owes money, then it can.” C sue… and that’s crazy.”
She added that the states’ reputation was in question and she was concerned about the legal precedent this would set should the Supreme Court rule in her favour.
“I think this is an important case,” said Jiménez. “I’m a bit afraid of what’s going to happen more in terms of the bigger impact on what the Supreme Court does, what its purpose is and its role and legitimacy.
Advocacy of GOP-led states’ case has ‘terrifying implications’
Since the lawsuit arose, Biden’s Department of Justice has argued that MOHELA is a separate entity from the state and can itself sue and be sued, and the Department responded to states’ contention that the relief would result in MOHELA no longer receiving handling fees . which would impair the company’s “ability to meet its state law obligation to contribute a certain amount of money to the treasury”.
“But states have never claimed that the plan will result in MOHELA failing to meet its obligations to the state,” the Justice Department wrote. “And it is pure speculation that if the plan results in a reduction in MOHELA’s revenue, MOHELA will respond by defaulting on its commitments rather than, say, cutting its other expenses.”
Steve Vladeck, a professor at the University of Texas School of Law, said during a news conference Wednesday that every case filed in federal court must show that the plaintiff would be harmed by the policy, that the violation can be directly attributed to the defendant , and that the relief they seek would address those injuries.
But the damage MOHELA could suffer is unknown and “Missouri itself is not directly harmed, and … the indirect damage Missouri is suffering from the damage to MOHELA is speculative at best,” Vladeck said.
And, as the Justice Department wrote in its filing, four of the states — Iowa, Kansas, Nebraska, and South Carolina — said that debt forgiveness would also affect their tax revenues because their state tax laws chose to include debt forgiveness as gross income. although federal law prevents debt relief from being taxed until 2025.
“Any damage to the coffers here is also self-inflicted,” the filing said, adding that “any consequent reduction in their tax revenues is not due to the minister’s plan but to their own decisions in structuring their tax bill.”
Should the Supreme Court decide in favor of the states, the consequences would be “frightening,” the filing says.
“Virtually all federal action — from law enforcement to collecting taxes to managing property — has some side effect on government finances,” it said. “If such side effects were enough to stand, then every state would have the right to challenge almost any federal policy.”
While Biden’s Department of Education extended the student loan payment pause for 60 days after June 30 or when the lawsuits are settled — whichever comes first — Jiménez said if the Supreme Court eventually overturns the debt relief, it’s important that the government another way is student loan forgiveness before payments resume.
“I think even if they don’t think this particular cancellation scheme is appropriate, there are other ways the administration can and should do it,” she said.