GOP-led states urge judge to block Biden's student loan forgiveness

U.S. President Joe Biden speaks about administration plans to forgive federal student loan debt during remarks in the Roosevelt Room at the White House in Washington, U.S., August 24, 2022. REUTERS/Leah Millis
  • States claim they would lose investment income, tax revenue
  • U.S. defends forgiveness authority under COVID relief bill

(Reuters) - A lawyer for six Republican-led states on Wednesday urged a federal judge to block the U.S. government from implementing its sweeping student loan forgiveness program.

At a hearing in St. Louis, Missouri federal court, James Campbell of the Nebraska Attorney General's office called the forgiveness plan, announced by Democratic U.S. President Joe Biden in August, an "increasingly crumbling escapade of lawlessness" and said it would harm states' investments and future tax revenue.

Brian Netter of the U.S. Department of Justice countered that the plan was within the government's authority under the Health and Economic Recovery Omnibus Emergency Solution (HEROES) Act, the COVID-19 economic relief bill passed under former Republican President Donald Trump.

U.S. District Judge Henry Autrey, who is presiding over the case, did not indicate how he would rule.

Under Biden's plan, the government will forgive $10,000 in federal student loans for millions of debt-saddled former college students.

Nebraska, Missouri, Iowa, South Carolina, Kansas and Arkansas sued the administration on Sept. 29. Arizona also filed a lawsuit, which is pending in the District of Arizona.

The same day, the administration closed the forgiveness program to borrowers with loans issued by private banks but guaranteed by the federal government. The move was seen as an attempt to avoid lawsuits by state entities that invest in such loans, including public entities in Arkansas, Missouri and Nebraska.

However, the states said that, because borrowers with such loans who had applied for forgiveness before that new guidance was issued remained eligible, they still faced financial harm.

They also said that some of the states would lose future tax revenue because they normally tax student loan discharges as income but cannot do so for the forgiveness program.

Campbell said Tuesday that the forgiveness program went far beyond what was authorized by the HEROES Act, which he said was intended to help people specifically impacted by the pandemic.

"This is a massive use of federal agency power," he said, estimating the price tag at about half a trillion dollars and accusing the administration of trying to "go around Congress."

Netter said that rising debt delinquencies among holders of student loans, even as payments are currently frozen by pandemic emergency measures, showed that there was a widespread problem justifying the measure.

"It is the very design of the statute for the magnitude of available relief to rise and fall with the magnitude of the national emergency," he said.

The case is State of Nebraska v. Biden et al, U.S. District Court, Eastern District of Missouri, No. 4:22-cv-01040.

For the states: James Campbell of the Nebraska Attorney General's office

For the federal government: Brian Netter of the U.S. Department of Justice Civil Division

Read more:

Biden administration changes student loan guidance, as Republican-led states file lawsuit

Biden forgives millions of student loans; critics fear inflation

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Brendan Pierson reports on product liability litigation and on all areas of health care law. He can be reached at brendan.pierson@thomsonreuters.com.