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Inside the 24-hour legal whiplash that sent 30 million student-loan borrowers into limbo

Inside the 24-hour legal whiplash that sent 30 million student-loan borrowers into limbo
Student-loan borrowers got a flurry of legal decisions in 24 hours that ultimately blocked debt cancellation.

  • Millions of student-loan borrowers have faced legal whiplash over the past 24 hours.
  • A Missouri judge blocked Biden from carrying out his broader debt relief plan just hours after receiving the case.
  • The ruling came before the Education Department had even published the final rule for the debt relief.

It’s been a tumultuous 24 hours for millions of student-loan borrowers — and confusion is rife.

Borrowers woke up on October 3 to the news that a federal court may have given President Joe Biden’s administration a small legal victory. After a group of GOP state attorneys general filed a lawsuit in early September in Georgia to block Biden’s second attempt at a broad plan to cancel student debt — expected to benefit over 30 million borrowers — a federal judge ruled that Georgia was the improper venue to file the case and declined to continue blocking the relief.

The Georgia judge ended up transferring the case to Missouri, which he determined was the proper venue for it. That’s because the lawsuit argued the relief would hurt the revenue of student-loan company MOHELA, which is based in Missouri. Just hours later, the Missouri judge issued a preliminary injunction on the relief, blocking the Education Department from implementing the plan before the final rule for the relief had even been finalized.

The ruling officially stomped out any glimmer of hope borrowers may have received just hours earlier when the Georgia judge declined to block the relief. It also spurred criticism from the Biden administration and some lawmakers for blocking a plan that was still in progress.

“The Department of Education is extremely disappointed by this ruling,” a department spokesperson told Business Insider.

“This lawsuit was brought by Republican elected officials who made clear they will stop at nothing to prevent millions of their own constituents from getting breathing room on their student loans,” the spokesperson continued. “We will continue to vigorously defend these proposals in court. We will not stop fighting to fix the broken student loan system and provide support and relief to borrowers across the country.”

Prior to the latest ruling, a temporary restraining order from the Georgia-based judge had been in place on the relief, and it was set to expire on October 3. Judge Matthew Schelp of the Eastern District of Missouri, appointed by former President Donald Trump, replaced the temporary restraining order with the preliminary injunction hours after the case was transferred to his district.

Schelp wrote in his ruling that the order prevents the Education Department from “mass canceling student loans, forgiving any principal or interest, not charging borrowers accrued interest, or further implementing any other actions under the Rule.

That means broader student-loan forgiveness is blocked until a court issues a final decision on whether the relief can move forward. This ruling is also not related to the SAVE income-driven repayment plan, which is blocked following separate legal challenges.

The relief doesn’t even exist yet

After the Supreme Court struck down Biden’s first attempt at broad student-loan forgiveness last summer under the HEROES Act of 2003, which allowed the education secretary to waive or modify student-loan balances in connection with a national emergency like the pandemic, his Education Department began pursuing a new route for relief using the Higher Education Act of 1965.

A key difference with this new route is that it required the department to undergo a process known as negotiated rulemaking, which had a lengthy timeline that included a series of negotiation sessions with stakeholders and a period for public comment before the rule could be finalized.

Notably, the rule still hasn’t been finalized, and the lawsuit partly hinges on the timing of that rule. The group of GOP attorneys general argued that, based on communications between the department and loan servicers they obtained as part of the legal proceedings, the department was preparing to implement relief before finalization, which they claimed was in violation of administrative procedure, and so the plan should be thrown out.

However, the Education Department wrote in response to the lawsuit that “all the steps it has taken to date, including the Department’s work with third parties, were merely preparatory and did not indicate that any discharge of student debt would occur before the issuance of a final rule.”

The department refuted the claims that it was preparing to implement relief in violation of administrative procedure, instead saying that it was typical for the department to prepare servicers for any changes, regardless of whether a rule has been finalized.

Missouri Attorney General Andrew Bailey, one of the plaintiffs on the lawsuit, lauded the court’s decision, writing on X that the back-and-forth legal rulings was “a huge -and quick – win for every American who won’t have to pay for someone else’s Ivy League debt.”

However, some lawmakers criticized the ruling on a plan that was not yet finalized — suggesting that the lawsuit is on shaky legal ground and may not succeed in permanently blocking the relief.

“President Biden has the legal authority to cancel student debt under the Higher Education Act,” Sen. Elizabeth Warren wrote on X on Thursday. “What’s lawless and unprecedented is for a judge to block a rule that doesn’t even exist. This is another unfounded decision by a Trump judge to block relief for millions of Americans.”

Read the original article on Business Insider



This article was originally published by Ayelet Sheffey at All Content from Business Insider (https://www.businessinsider.com/where-student-loan-forgiveness-stands-borrowers-legal-challenges-biden-relief-2024-10).

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