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States file lawsuit challenging Biden's student loan repayment plan

A group of 11 Republican-led states argue that the president's plan is just like another program that was rejected by the Supreme Court last year.
States file lawsuit challenging Biden's student loan repayment plan
Posted at 6:38 AM, Mar 29, 2024

A group of Republican-led states is suing the Biden administration to block a new student loan repayment plan that provides a faster path to cancellation and lower monthly payments for millions of borrowers.

In a federal lawsuit filed Thursday, 11 states led by Kansas argue that President Biden overstepped his authority in creating the SAVE Plan, which was made available to borrowers last year and has already canceled loans for more than 150,000.

It argues that the new plan is no different from President Biden's first attempt at student loan cancellation, which the Supreme Court rejected last year. “Last time Defendants tried this the Supreme Court said that this action was illegal. Nothing since then has changed,” according to the lawsuit.

The Education Department declined to comment on the lawsuit but noted that Congress in 1993 gave the department the authority to define the terms of income-driven repayment plans.

“The Biden-Harris Administration won’t stop fighting to provide support and relief to borrowers across the country — no matter how many times Republican elected officials try to stop us,” the department said in a statement.

SEE MORE: Student loan borrowers facing hardships could have debt forgiven

President Biden announced the SAVE repayment plan in 2022, alongside a separate plan to cancel up to $20,000 in debt for more than 40 million Americans. The Supreme Court blocked the cancellation plan after Republican states sued, but the court didn’t examine SAVE, which was still being hashed out.

The new lawsuit was filed this same week the White House hosted a “day of action” to promote the SAVE Plan. The Biden administration says more than 7.7 million borrowers have enrolled in the plan, including more than 5 million who have had their monthly payments reduced to $100 or less because they have lower yearly incomes.

The challenge was filed electronically in federal court in Kansas by Kansas Attorney General Kris Kobach, who requested that any trial be in Wichita, the state's largest city. The lawsuit asks a judge to halt the plan immediately. Along with Kansas, the suit is backed by Alabama, Alaska, Idaho, Iowa, Louisiana, Montana, Nebraska, South Carolina, Texas and Utah.

“In a completely brazen fashion, the president pressed ahead anyway,” Kobach said during a news conference at the Kansas Statehouse. “The law simply does not allow President Biden to do what he wants to do.”

SEE MORE: Student loan borrowers are struggling to make repayments

President Biden’s new repayment plan is a modified version of other income-based repayment plans that the Education Department has offered since the ’90s. The earliest versions were created by Congress to help struggling borrowers, capping payments at a portion of their income and canceling any remaining debt after 20 or 25 years.

The new plan offers more generous terms than ever, offering to reduce monthly payments for more borrowers and canceling loans in as little as 10 years. Unlike other plans, it prevents interest from snowballing as long as borrowers make their monthly payments.

The plan’s provisions are being phased in this year, and the quicker path to cancellation was originally scheduled to take effect later this summer. But the Biden administration accelerated that benefit and started canceling loans for some borrowers in February.

President Biden said it was meant “to give more borrowers breathing room so they can get out from under the burden of student loan debt.”

Instead of creating a new plan from scratch, the Education Department amended existing plans through federal regulation. Supporters saw it as a legal maneuver that put the plan on firmer grounding, anticipating a challenge from Republicans.

SEE MORE: FTC issuing refunds to scammed student loan borrowers

But in the new lawsuit, Kobach argues that Biden needed to go through Congress to make such significant changes.

The states argue that President Biden's plan will harm them in many ways.

With such a generous repayment plan, fewer borrowers will have an incentive to go into public service and pursue the Public Service Loan Forgiveness program, the states argue. They predict more state employees will leave their jobs, and it will worsen public schools' struggles to recruit and retain teachers.

They argue the plan will inject hundreds of billions of dollars in loan relief into the U.S. economy, which would require states to increase fraud protection efforts. The plan “will create enormous opportunities for fraudsters to exploit student debt borrowers that would not otherwise exist,” according to the suit.

If successful, it would effectively kill the last remnant of President Biden’s first attempt at widespread student loan relief. After the Supreme Court blocked his wider plan last year, President Biden ordered the Education Department to craft a new plan using a different legal justification. The agency is now pursuing a more limited plan for mass cancellation.

 


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