(CN) — The Eighth Circuit placed a preliminary injunction on the Biden administration's student debt relief plan Monday, the latest development in a case brought by six states that oppose forgiving federal student loan debt.
While not as far-reaching as the calls for universal student debt dismissal that progressives like Vermont Senator Bernie Sanders have championed, President Joe Biden's proposal would still forgive between $10,000 and $20,000 in college loan debt for those eligible, which the White House estimates to be over 40 million borrowers.
The attorneys general of Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina sued Biden and the Department of Education in September, asking a federal judge in Missouri to enjoin the debt relief plan. They argue in their complaint that it is "economically unwise and downright unfair," saying the cost of eating those forgiven debts would disproportionally fall on the states' low-income residents.
"The burden of the economic loss and price increases will hit those who can least afford it—the working class and the poor," the states argue.
The states also object to the Education Department's assertion that the proposed debt relief was authorized by the Higher Education Relief Opportunities for Students Act of 2003. The law dubbed the Heroes Act says the education secretary may "waive or modify any statutory or regulatory provision applicable to student financial assistance programs” when it is deemed "necessary in connection with a war or other military operation or national emergency.”
The Education Department said the Covid-19 pandemic is a suitable emergency to justify canceling debt under the 2003 law, but the states claim this is a deliberate misreading of a provision meant to benefit members of the U.S. military amid the Iraq War.
"It is evident... that the Covid-19 pandemic is mere pretext and a post hoc rationalization for the political goal of mass debt cancellation," the lawsuit states.
U.S. District Judge Henry Edward Autrey, a George W. Bush appointee, wasn't persuaded. In late October, he rejected the states' request for an injunction against the debt relief plan and dismissed the case, finding all six states lacked standing to sue. The judge found none of them had shown how they would suffer concrete injuries if the mass debt forgiveness went forward.
"While Plaintiffs present important and significant challenges to the debt relief plan, the current Plaintiffs are unable to proceed to the resolution of these challenges," Autrey wrote.
Last month, the St. Louis-based Eighth Circuit issued an administrative stay blocking the student loan forgiveness plan pending the states' appeal.
In a six-page ruling handed down Monday, a three-judge panel of the appeals court reversed the district court and granted the preliminary injunction. The unsigned opinion was unanimously joined by U.S. Circuit Judges Bobby Shepherd, Ralph Erickson and Leonard Grasz, a George W. Bush appointee and two Donald Trump appointees, respectively.
The trio based their decision on the view that Missouri has demonstrated a potential for injury via the Missouri Higher Education Loan Authority.
The agency, more commonly known as Mohela, is one of the largest federal student loan servicers in the U.S. As of June, it services over 5.2 million federal student loan accounts with over $1.4 billion in total current assets. It was created by the Missouri General Assembly in 1981 as "a public instrumentality" and is administered by a board whose seven members consist of two state commissioners and five people appointed by the governor.
Neither Autrey nor the appellate panel disagreed with Missouri that Mohela would suffer financially from so many of the student loans it holds suddenly being reduced or dismissed. But Autrey considered Mohela a separate entity from Missouri, and thus ruled that the state could not claim the agency's financial losses as its own. The panel thought otherwise.
"Mohela may well be an arm of the State of Missouri under the reasoning of our precedent," the ruling states. "In fact, a number of district courts have concluded that Mohela is an arm of the state."
An August 2007 Missouri law directed Mohela to contribute $350 million to a fund in the state treasury called the Lewis and Clark Discovery Fund by September 2013. The fund's purpose, among other things, is to finance capital projects at public universities. Despite Mohela receiving multiple extensions from the Missouri Legislature on its LCD payments, as of this past June it still owes the state over $105 million.
This is the state's largest potential for injury, the Eighth Circuit found.
"Even if Mohela is not an arm of the State of Missouri, the financial impact on Mohela due to the Secretary’s debt discharge threatens to independently impact Missouri through the LCD Fund," the panel wrote, also adding, "This unanticipated financial downturn will prevent or delay Missouri from funding higher education at its public colleges and universities. After all, Mohela contributes to the LCD Fund but has not yet met its statutory obligation."
The preliminary injunction will apply nationwide, despite the Education Department's request that the ruling be tailored to only affect the six plaintiff states. The panel cited Mohela's sheer financial size to support their decision.
"Mohela is purportedly one of the largest nonprofit student loan secondary markets in America. It services accounts nationwide and had $168.1 billion in student loan assets serviced as of June 30, 2022," the ruling states. "Given Mohela's national role in servicing accounts, we discern no workable path in this emergency posture for narrowing the scope of relief."
The order will remain in place until further order from either the Eighth Circuit or the U.S. Supreme Court.
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