The ruling comes after a recent hearing before U.S. District Judge Henry E. Autrey of the Eastern District of Missouri.
The ruling is likely to be appealed, sending the case to a conservative panel of judges on the U.S. Court of Appeals for the 8th Circuit. The states may request an emergency stay from the appellate court to prevent the administration from moving forward in the interim.
The ruling by Autrey, a George W. Bush appointee, has cleared the way for the administration to begin erasing the debts of borrowers. It arrives days after the Education Department officially released the application for Biden’s debt relief plan.
Twelve million people have applied to date, according to the White House, while 8 million more have been notified of their eligibility for automatic cancellation. The administration said people should complete the form by Nov. 15 to have them processed before federal student loan payments resume in January.
Biden’s loan relief plan will cancel up to $10,000 in federal student debt for borrowers who earn up to $125,000 annually, or up to $250,000 for married couples. Borrowers who received Pell Grants are eligible for an additional $10,000 in forgiveness.
The Biden administration has been adamant that its debt cancellation plan is legal. The Justice Department released a 25-page memo in August justifying the policy under a 2003 law authorizing the secretary of education “to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies.”
It is the same law, known as the Heroes Act, the Trump administration used at the outset of the coronavirus pandemic to pause payments on federal student loans as Americans faced the economic fallout of the national health crisis. Justice Department attorney Brian Netter recently reminded the court of that and noted there were no attempts to challenge the legality of the payment moratorium.
“This is a statute about emergencies,” Netter said during a recent court hearing on the injunction. “It seems hard to fathom that Congress wouldn’t have understood at the time that a larger national emergency is going to prompt and necessitate a larger action by the secretary of education.”
Judge Autrey at the hearing questioned whether the scale of loan cancellation, at a cost of roughly $300 billion, warranted explicit authorization from Congress because of the economic and political significance, a legal idea known as the “major questions” doctrine. The Supreme Court invoked that doctrine earlier this year to limit the Environmental Protection Agency’s power to combat climate change. Higher education experts had expected the doctrine to be used to invalidate Biden’s debt relief program.
Netter said the debt relief program was designed to respond to the scale of the national emergency and avoid an anticipated wave of delinquencies when the pause on federal student loan payments lifts. The pause was extended through Dec. 31.
“The way that this Supreme Court has analyzed agency action could pose a threat [to the administration] if this case got that far,” said Kate Elengold, assistant professor of law at the University of North Carolina School of Law. “I think the department has a really strong argument, but that’s what I’m watching most closely.”
The coalition of states involved in the lawsuit — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — argue the administration has no right to take action on this scale without congressional approval. Moreover, they say the policy would impose economic harm on state investment entities and student loan companies that own debt from the defunct Federal Family Education Loan (FFEL) program.
After Biden unveiled his cancellation plan in August, many commercial FFEL borrowers consolidated their there loans into Direct Loans to qualify for relief. The states have argued the plan enticed borrowers to consolidate, which deprives their related entities of interest income.
But hours before the case was filed, the Biden administration scaled back eligibility for the debt relief program, saying commercial FFEL borrowers could no longer consolidate to qualify for the one-time relief. Justice Department attorneys said the decision undercut the states’ claims.
The Missouri lawsuit is one of several aiming to block Biden’s debt relief program. In one of those cases, the conservative legal outfit Wisconsin Institute for Law and Liberty, working on behalf of a taxpayer’s association, has asked the Supreme Court to intervene. The U.S. Court of Appeals for the 7th Circuit recently denied the group’s request to pause the program while it appealed.
Among the other ongoing cases is one filed by the conservative Job Creators Network Foundation on behalf of a commercial FFEL borrower who is ineligible for relief and an eligible borrower who does not qualify for the full $20,000 in debt relief. The suit alleges the administration denied borrowers the opportunity to voice their opinions on the policy by forgoing a comment period. Justice attorneys have argued in other cases raising similar claims that the Heroes Act doesn’t require notice and comment, said Elengold at UNC School of Law. A hearing on the group’s request for an injunction is set for Oct. 25.