Judge Greenlights Lawsuit Over Student Debt Relief With Limitations

U.S. Department of Education building in Washington on July 6, 2023. Madalina Vasiliu/The Epoch Times

A federal judge has allowed a multistate lawsuit challenging the Biden administration’s “most generous” student loan repayment option to proceed, but only after dismissing most plaintiff states from the case.

Republican attorneys general of Kansas and 10 other states sued the U.S. Department of Education in late March.

In a response issued on June 7, U.S. District Judge Daniel Crabtree of the District of Kansas said that only three states—South Carolina, Texas, and Alaska—“just barely” have standing to sue.

At the center of the suit is an income-driven repayment plan dubbed SAVE.

The 11-state coalition claims that the program, under which millions of federal student loan borrowers have qualified for a $0 monthly payment, represents just another version of the large-scale debt cancellation initiative the U.S. Supreme Court struck down last summer.

“Last time Defendants tried this the Supreme Court said that this action was illegal. Nothing since then has changed, other than introducing more legal errors into this Rule’s underlying analysis,” the complaint reads.

The states also claimed that SAVE hurts their finances in different ways. Specifically, they alleged that SAVE would reduce income tax revenue, reduce revenue for nonprofit state corporations that own and service student loans, and make it less lucrative for college graduates to apply for government jobs.

Attorneys representing the Biden administration have called on the court to throw out the suit. They argue that the states rely on “merely speculative” claims of reduced revenues and thus lack a standing to sue.

“Plaintiffs clearly have policy and legal disagreements with the [Education] Secretary’s approach to student loans, but their standing theories give them no basis to air those grievances in federal court,” the Biden administration wrote.

Judge Crabtree partially agreed with the Biden administration, ruling that eight of the 11 states ​​“have no skin in the game.”

The eight states claimed that they have standing because SAVE would reduce their income tax revenues.

“But this is an incidental effect of the SAVE Plan, traceable to plaintiffs’ own decisions about how to tax revenue,” the judge wrote.

“Alternatively, these eight plaintiffs also assert that the SAVE Plan harms them directly because it reduces their ability to recruit staff to public service within state agencies. No court has ever bought into this theory, and this court declines to become the first.”

Meanwhile, South Carolina, Texas, and Alaska are allowed to sue because there are public instrumentalities in those states participating in the student loan market.

Judge Crabtree said the trio had presented “just barely” enough facts to establish that SAVE reduced the number of outstanding loans, and, as a result, reduced the service fees their public instrumentalities would collect.

“As a result, South Carolina, Texas, and Alaska have suffered an injury in fact, fairly traceable to the SAVE Plan,” wrote the judge, who was appointed by President Barack Obama.

Bypassing Congress?

The June 7 decision didn’t address the validity of the states’ other claims, such as whether the Education Department could write off billions of dollars in federally held debt without first obtaining Congress’s approval.

Pointing to SAVE’s estimated $430 billion price tag, the suing states argued that it’s unlawful for the Education Department to bypass Congress to make a decision with such a significant economic impact.

They also took issue with the timing of the first round of debt relief, characterizing the action as an attempt to “buy votes with federal funds.”

The Education Department and the office of Kansas Attorney General Kris Kobach didn’t respond by press time to a request by The Epoch Times for comment.

The SAVE plan is facing a separate challenge from a seven-state coalition led by Missouri Republican Attorney General Andrew Bailey.

That case is pending before U.S. District Judge John Ross of the Eastern District of Missouri, who heard oral arguments on June 3 and has indicated he would rule in the coming weeks.

The Education Department has maintained that its efforts to provide debt cancellations to “as many borrowers as possible as quickly as possible” are well within its authority. The agency is also in the process of implementing another wide-ranging student debt discharge plan to replace the one the Supreme Court struck down.

The new plan, popularly called “Plan B,” is estimated to cost $147 billion over 10 years.

If implemented, according to the White House, Plan B will fully eliminate accrued interest for 23 million borrowers, cancel the full amount of student debt for more than 4 million borrowers, and provide more than 10 million borrowers with at least $5,000 in debt relief or more.