Federal judge rejects GOP states’ challenge to Biden administration’s student debt relief plan

A federal judge has dismissed a legal challenge from six Republican-led states to President Biden’s student loan forgiveness plan, ruling that they do not have standing to sue. 

U.S. District Judge Henry E. Autry ruled that the attorneys general for Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina present “important and significant” challenges to Biden’s debt relief plan, but they did not prove they are directly harmed by the relief and therefore do not have standing. 

The states will likely appeal to the 8th Circuit Court of Appeals. 

The states filed the lawsuit, one of a few against the Biden administration’s proposal, in late September, arguing that the administration overstepped its authority because Congress has not directly authorized loan cancelation. 

Some argued that they have standing due to a previous version of Biden’s proposal, including a plan to allow for borrowers to consolidate loans given under the Federal Family Education Loan Program (FFELP) to direct loans. 

FFELP loans are issued by state and private entities and insured by the federal government, while direct loans are given directly by the federal government. 

Missouri argued that the state and the Higher Education Loan Authority of the State of Missouri (MOHELA), a nonprofit entity that services federal loans, are harmed by the relief plan in losing money through the consolidation of FFELP loans to direct loans. It argued this will hurt MOHELA’s ability to provide students loans and financial assistance. 

But Autry ruled that Missouri failed to connect the alleged harm to MOHELA to the state itself, and MOHELA is legally liable for judgments against it, not Missouri. 

Arkansas and Nebraska made similar arguments with their own state entities, but Autry ruled that their arguments are overcome by the Biden administration’s Sept. 29 decision to no longer allow borrowers with federal student loans not held by the Education Department to receive relief through consolidating FFELP loans into direct loans. 

The two states argued that the decision does not undermine their argument because the administration could change its mind, but Autry rejected the argument. 

Nebraska, Iowa, Kansas and South Carolina separately argued that they face an imminent risk of losing tax revenue. 

Discharges of federal student loans are not taxable under federal law through Jan. 1, 2026, according to Autry’s ruling. The states also plan to tax discharges occurring after that date and argue that they will lose revenue as a result of the forgiven loan amounts. 

Autry ruled that this is speculative and not imminent. He also said states can set their own tax policies, and Biden’s plan does not limit that power. 

The ruling comes soon after Supreme Court Justice Amy Coney Barrett rejected a request from a group of Wisconsin taxpayers to block the loan forgiveness plan while appeals play out in court. 

Biden’s plan will permit those earning less than $125,000 annually to receive up to $10,000 in federal loan forgiveness. Those who received Pell Grants can receive up to $20,000 in forgiveness under the plan. 

The administration rolled out its application late last week.