Biden’s Latest Student Debt Relief Plan Blocked by Federal Court

President Joe Biden’s latest effort to lower student debt burdens faced a setback Thursday with a federal court saying the plan’s likely unconstitutional and putting it on ice.

The US District Court for the Eastern District of Missouri granted a GOP-led coalition’s request for a preliminary injunction.

“Balancing the harm and the injury, merged with the public’s interest, easily leads this Court to the conclusion that preliminary injunctive relief should issue,” said Judge Matthew T. Schelp in a memorandum order. “The public has an immense interest in its own government following the law.”

Schelp’s ruling temporarily blocks the US Education Department from implementing a proposed rule that would cancel debt for some 27 million borrowers. Eligible borrowers include those with outstanding undergraduate debt that’s at least 20 years old or graduate debt at least 25 years old, according the administration’s proposal. The administration said in court filings the plan was set to take effect sometime this fall.

A coalition of seven Republican-led states sued to block the rule from taking effect Sept. 3., arguing the plan’s an unconstitutional overreach of executive power. Judge J. Randal Hall, appointed by former President George W. Bush, has since issued a temporary restraining order twice in the US District Court for the Southern District of Georgia, pausing the plan while he considered the states’ request for a preliminary injunction.

Georgia was axed from the lawsuit on Wednesday after Hall found it lacks standing to challenge the SAVE plan, according to an order. The lawsuit was also transferred to the US District Court for the Eastern District of Missouri since Georgia can’t provide proper venue for the suit.

The American Rescue Plan Act delayed further taxes on student loan debt until Jan. 1, 2026, according to the order. With the proposed loan forgiveness, Georgia says this would cause it to lose out on at least two years of taxable income from its residents’ student loan discharges.

But since it was Georgia’s decision to write its tax laws to base the state’s taxable income off of a resident’s federal taxable income or federal adjusted gross income as a baseline, the alleged injury is self-inflicted, Hall said in the order.

“Any loss of state income-tax that Georgia alleges is caused by the rule’s forgiveness of debt is tied to Georgia’s own legislative decisions,” Hall said.

Missouri was found to have standing in the suit since its Higher Education Loan Authority suffered an injury by its plan’s instrumentality, according to Hall.

The preliminary injunction halts the plan from taking effect as the court considers the states’ request for the court to permanently strike the rule as unconstitutional.

The ruling marks another setback for the president’s 2020 campaign promise to pare down student debt.

The US Supreme Court ruled down ideological lines in 2023 to strike his initial plan to slash student debt for some 40 million people.

The high court on Aug. 28 then declined to reinstate a separate plan that allows zero-dollar monthly payments and speeds up the path to debt forgiveness for some borrowers. That plan, called “SAVE,” was temporarily halted in August by the US Court of Appeals for the Eighth Circuit, which is weighing a permanent block on it.

The states’ respective attorney general offices represent them.

The case is Missouri v. U.S. Dep’t of Educ., E.D. Mo., No. 2:24-cv-00103, 10/3/24.