- The Biden administration has filed its full legal defense of its student debt relief plan with the Supreme Court.
- Student loan company MOHELA is at the heart of the lawsuit brought by six GOP-led states.
- The DOJ said ruling in favor of the states’ argument could set a strange legal precedent.
A Missouri-based student loan company has found itself at the center of a lawsuit blocking a Biden student loan forgiveness — and President Joe’s administration has said its role could set a strange legal precedent in the future.
It’s a critical year for millions of student borrowers as Biden’s plan to forgive up to $20,000 in student debt will have its day in the Supreme Court. February 28. For more than two months, the implementation of the relief has been stalled due to two lawsuits against the administration. One was Deposited by two student borrowers who was not eligible for the full $20,000 relief, and another by six Republican-led states who said the relief would hurt their state’s tax revenue, as well as that of the MOHELA student loan company.
While the administration pushed back on arguments in both cases and asserted that neither had standing to sue, the latter – involving MOHELA – is complex, given that the company itself denied having any involvement in the case in November following the 8th Circuit’s ruling that blocked the remedy.
Adding to this complexity, the Department of Justice wrote in a legal case On Wednesday evening, upholding the 8th Circuit’s ruling would mean that “banks could sue anyone who causes financial harm to their borrowers, credit card companies could sue anyone who causes financial harm to their customers, and governments could sue anyone cause financial harm to their customers.” their taxpayers.
Dalie Jimenez, a law professor at the University of California, Irvine and director of the Student Loan Law Biden Initiative, told Insider that his legal defense “has done a very good job of saying that if A causes financial harm to B and B owes C money, then C can sue…and that’s crazy.”
She added that the states’ position is questionable and that she is concerned about the legal precedent it would set if the Supreme Court rules in their favor.
“I think it’s a big deal,” Jimenez said. I’m a little scared of what’s to come more for the broader implications of what the Supreme Court does, what its purpose, role and legitimacy is.
Favoring the case of GOP-led states has ‘surprising implications’
Since the start of the trial, Biden’s Justice Department has argued that MOHELA is a separate entity from the state and can sue and be sued on its own, and the department has responded to the states’ assertion. that the relief would result in MOHELA ceasing to receive service fees, which would harm the company’s “ability to meet its legal obligation to pay a specified sum of money to the public purse”.
“But the states have never alleged that the plan would cause MOHELA to default on its obligations to the state,” the Justice Department wrote. And it’s pure speculation that if the plan results in a reduction in MOHELA’s income, MOHELA will respond by defaulting on its obligations rather than, say, reducing its other expenses.
Steve Vladeck, a professor at the University of Texas School of Law, said in a press call Wednesday that every case filed in federal court must show that the plaintiff would be harmed by the policy, that the injury may be directly related to the accused, and that the remedy they seek would address those injuries.
But the harm MOHELA might suffer is unknown, and “Missouri itself is not directly affected, and…the indirect harm Missouri suffers from the harm to MOHELA is speculative at best,” Vladeck said. .
And, as the Justice Department wrote in its filing, four of the states — Iowa, Kansas, Nebraska and South Carolina — said debt relief would also hurt their tax revenues because their tax codes elected to include debt relief in gross income, even though federal law prevents debt relief from being taxed until 2025.
“Any harm to the states’ treasuries here is also self-inflicted,” the filing said, adding that “any resulting reduction in their tax revenue is quite traceable not to the Secretary’s plan, but rather to their own choices about how to structure their tax laws.
If the Supreme Court rules in favor of the states, it would have “surprising implications,” according to the filing.
“Virtually every federal action — from prosecuting crimes to imposing taxes to managing assets — has side effects on state finances,” he said. “If such side effects are enough to act on, every state would have standing to challenge almost any federal policy.”
While Biden’s education department widened Student loan payments stop 60 days after June 30 or when lawsuits are resolved — whichever comes first — Jiménez said if the Supreme Court ends up overturning debt relief, it’s vital that the administration finds another way to grant cancellation of the student loan before the resumption of payments.
“I think even if they end up finding this particular cancellation program inappropriate, there are other ways the administration can and should do it,” she said. .
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