1. Home
  2. policy
  3. economy
  4. news
  5. Student-loan forgiveness through Biden's new repayment plan faces another lawsuit from 7 GOP states

Student-loan forgiveness through Biden's new repayment plan faces another lawsuit from 7 GOP states

Ayelet Sheffey   

Student-loan forgiveness through Biden's new repayment plan faces another lawsuit from 7 GOP states
  • Another group of GOP states filed a lawsuit to block the SAVE income-driven repayment plan.
  • The lawsuit argued the SAVE plan diminishes the value of PSLF and harms MOHELA's revenue.

Another lawsuit to block President Joe Biden's new student-loan repayment plan has arrived.

On Tuesday, Missouri's Attorney General Andrew Bailey led six other GOP states in filing a lawsuit to block the new SAVE income-driven repayment plan. The lawsuit argued that the plan, established in July 2023 to give borrowers more affordable monthly payments, is unconstitutional and is in "defiance of the Supreme Court" decision that blocked Biden's first attempt at broad debt relief at the end of June.

Specifically, the Education Department implemented a provision of SAVE ahead of schedule in February: $1.2 billion in debt relief for 153,000 borrowers who originally borrowed $12,000 or less and made as few as 10 years of qualifying payments.

That provision was originally set to be implemented in July, and the lawsuit said there is "no justification for the early implementation of this provision."

"This latest attempt to sidestep the Constitution is only the most recent instance in a long but troubling pattern of the President relying on innocuous language from decades-old statutes to impose drastic, costly policy changes on the American people without their consent," the lawsuit said.

This lawsuit comes just a couple of weeks after a separate group of 11 GOP state attorneys general filed a lawsuit also targeting the SAVE plan. An Education Department spokesperson said at the time that the department doesn't comment on pending litigation. However, the spokesperson noted that "Congress gave the US Department of Education the authority to define the terms of income-driven repayment plans in 1993, and the SAVE plan is the fourth time the Department has used that authority."

One of the key distinctions between Bailey's lawsuit and the other lawsuit to block SAVE is Bailey's argument that the SAVE plan would hurt the revenue of student-loan company MOHELA, which is based in Missouri.

It's a similar argument to the lawsuit Biden v. Nebraska, which the Supreme Court ruled had standing to strike down Biden's first broad debt relief plan. Missouri was one of the plaintiffs in that lawsuit and argued that any debt relief would harm MOHELA's revenue because it would service fewer accounts under any loan forgiveness.

"The Supreme Court determined that MOHELA suffers financial harm whenever loans that it services are discharged," the lawsuit against SAVE said.

"So when student loan balances go to zero, as they will under the Final Rule, MOHELA will lose the revenue from servicing those loans," it continued. "Thus, by accelerating the forgiveness timeline for the typical borrower by as much as 15 years, the Final Rule imposes financial harm on MOHELA, and thus the State of Missouri, by depriving MOHELA of up to 15 years in servicing fees."

The states also argued that the SAVE plan diminished the value of the Public Service Loan Forgiveness program, which forgives student debt for government and nonprofit workers after 10 years of qualifying payments. It said that due to the generosity of the SAVE plan, fewer borrowers will enroll in PSLF, thus undermining states' recruitment efforts into the public sector.

This lawsuit follows Biden's release of new details for his broader student-loan forgiveness plan, which is set to benefit over 30 million borrowers. While that plan will not be implemented until the fall, at the earliest, Bailey wrote on X on Monday that lawsuits will likely come: "See you in court."

Popular Right Now