Can Biden Forgive Student Loan Debt? These states say no. here’s why

Half a dozen states attempt to end President Joe Biden’s student debt cancellation plan say their future financial losses are enough to block the plan that would cancel the debt of millions of Americans, according to court documents filed Tuesday.

The six conservative states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — argued the president lacked the power to write off student loan debt en masse. They also disputed that they would suffer financial harm if the federal government canceled billions of dollars in student loans.

A federal judge in Missouri had dismissed the states case, asserting that the states lacked standing to sue, but the states appealed to the Eighth Circuit Court of Appeals. Of his 11 active judges, George W. Bush has appointed five, Donald Trump has appointed four, and George HW Bush and Barack Obama have appointed one each.

Court of Appeal Temporarily blocked the Biden administration to move forward with its plan, although hopeful borrowers may continue to file requests for debt cancellation. It is unclear when the court would take further action.

Biden has criticized the states and other conservative groups trying to derail the massive debt cancellation plan.

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“Twenty-two million of you applied (in one week),” Biden said Monday at a Democratic National Committee event. “The Republican response? Sue the feds and block this relief.”

Under Biden’s plan, borrowers earning less than $125,000 – or $250,000 for married couples – can claim up to $20,000 in student debt relief.

Why are states trying to block the presidential student debt relief plan?

The states argued, as they did in a lower court, that the massive debt cancellation plan would incentivize borrowers with Federal Family Education Loans (FFELs) — most of which are held by companies but supported by the federal government – to consolidate their debts into direct loans. The federal government holds direct loans and can repay them.

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Some of the suing states are home to quasi-state agencies that handle these types of loans.

Initially, Biden’s plan encouraged borrowers to consolidate their loans so they would be eligible for loan forgiveness. The federal government abruptly ended this option, removing up to 800,000 FFEL borrowers from the debt relief plan. The Biden administration noted in court filings that it removed the incentive for consolidation before states even filed their lawsuits. As a result, the federal government said there was no continuing harm to the states.

President Joe Biden talks about the beta test of the student debt forgiveness request earlier this month.

Several states have also argued that they could lose future revenue. For example, they said loan servicers with state ties, like the State of Missouri Higher Education Loan Authority (MOHELA), would lose money if the loans they service, Direct or FFEL , were suddenly cancelled.

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Nebraska, Iowa, Kansas and South Carolina also said they generally tax student debt relief, but can’t until 2025, so they could not impose this debt relief. This loss of income, they say, is due to the American Rescue Plan Act of 2021, which prevents student loan debt discharges from being included in a taxpayer’s adjusted federal gross income until 2025. These four States use the federal adjusted gross income of taxpayers as a base to determine their state level taxes.

“Under current law, states are expected to impose a substantial amount of student debt forgiveness after 2025,” according to the states’ initial appeal to the court. “Because cancellation will immediately reduce the pool of debts to be discharged in the future, there will be less for states to tax.”

How is the federal government advocating for student debt relief?

In response, the federal government said loan servicers had no guaranteed income for student debt management. They further stated that states can define and modify their tax codes as they see fit.

Before this case reached the Eighth Circuit Court of Appeals, judges dismissed legal challenges to the president’s plans, largely because the plaintiffs were unable to prove they would be harmed in any way. continue with the cancellation of the debt.

Monday, the the administration criticized the states for their efforts to block the student debt relief plan. Federal prosecutors argued that if the appeals court found it necessary to intervene, only the suing states would be affected by the court’s injunction. If the courts ultimately bar citizens of these states from receiving debt relief, an estimated 2.8 million people would be affected.

After:White House hits back in court over student debt cancellation block

Across the country, about 40 million people are eligible for some or all of their student loan debt.

Contact Chris Quintana at (202) 308-9021 or [email protected] Follow him on Twitter at @CQuintanadc.

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