(WASHINGTON) — Critics of the Biden administration’s plan to cancel federal student loan debt for more than 40 million Americans say it’s expensive, unfair and an abuse of executive power.
But when a group of six GOP-led states on Tuesday challenges the program before the U.S. Supreme Court, they’ll have to first answer the critical question of how, exactly, they are harmed.
“You can’t just go to the court and say I don’t like this, or I think this might be a problem,” said David Nahmias, a staff attorney with the Berkeley Center for Consumer Law and Economic Justice. “In order to sue, you have to show that you are going to be threatened with a certain impending injury.”
The states have alleged a future financial injury from lost revenue on student-loan discharges; fewer loans on the books, they say, would mean fewer taxes to collect.
The state of Missouri argues that it would be uniquely harmed by the impact of large-scale debt cancellation on Missouri’s Higher Education Loan Authority, or MOHELA, which is the nation’s largest loan servicer.
The Biden administration says the states’ claims are highly speculative and indirect, undermining their legal standing to bring the case in the first place.
“The basic threshold issue is, is Missouri, is Nebraska – are these states injured today?” said South Texas College of Law professor Josh Blackman.
Lower courts and legal scholars from across the ideological spectrum have divided on the question of injury, setting the stage for the justices to have the final say on whether the Biden debt relief plan inflicts clear harm on state governments.
“The answer is tricky because in recent years the states have been given latitude,” said Blackman. “This might be a case of the court scaling back on that broad authority, although I’m not sure.”
The U.S. Education Department last year, citing a need to protect borrowers from excessive economic hardship during the pandemic, invoked emergency powers to waive repayment terms for some federal student loans. The agency offered to absolve as much as $20,000 of federal debt for more than 40 million eligible borrowers.
The move drew an immediate legal challenge from Republican attorneys general in six states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — who saw it as a costly bailout to college students at the expense of other American taxpayers.
“Joe Biden had no legal authority whatsoever. I think the larger issue is it’s unfair to people who paid off their loans. It’s unfair to people who didn’t take out loans,” Sen. Eric Schmitt, Missouri’s Republican former attorney general who first brought the case, told ABC News in an interview.
“It’s adding to our debt,” Schmitt added. “I think the reason why this case is before the Supreme Court and why Missouri and the other states are ultimately going to win is because Missouri has a loan servicing organization called MOHELA that derives revenue from interest.”
MOHELA, a state-created company which manages more than 5 million federal student loan accounts totaling $148 billion, is at the heart of Missouri’s case and what the federal appeals court singled out as a lynchpin in their decision.
The Eighth Circuit Court of Appeals based in St. Louis, which put the Biden debt relief plan on hold last year, cited “threatened financial harm” to Missouri explicitly because of its ties to MOHELA.
MOHELA has contributed $6 million to state student aid programs in the current fiscal year, a spokeswoman for the Missouri Department of Higher Education and Workforce Development told ABC.
State law also requires MOHELA to pay $350 million to help fund improvements to state colleges and universities.
“The court has identified it as a public entity that administers student loans. It provides college assistance programs for people across the state of Missouri and so the state has an interest in it,” MIssouri’s new attorney general Andrew Bailey told ABC in an interview.
But liberal and conservative legal scholars say financial fallout from a MOHELA-Missouri link is too weak and speculative to justify the states’ Supreme Court case.
“The relationship between Missouri and MOHELA, as our research has shown, in the law that created MOHELA, is such that harm just cannot, cannot happen,” said Nahmias, who filed an amicus brief in the case on behalf of Missouri consumer advocates.
“MOHELA is completely separate and distinct from the state of Missouri. Its operations are distinct from Missouri. Its treasury and finances are completely walled off from the Missouri treasury,” he said.
MOHELA, which did not respond to our repeated requests for comment or an interview, is notably not challenging the Biden loan forgiveness plan.
Missouri Rep. Cori Bush says the company is being used as a pawn and that allegations fewer MOHELA-serviced loans would financially harm her state is exaggerated.
“The money that [MOHELA is] supposed to be paying to the state – again, they owe over, what, about $105 million – they have not kept that up,” Bush said in an interview. “So to say that you have borrowers who need to pay what they owe. Well, MOHELA does not pay what they owe.”
MOHELA financial records reviewed by ABC News confirm the loan servicer has not made a payment to the state fund for higher education capital improvements since 2008 and may not make any future payments – even if the Biden debt relief plan is struck down.
“The states have shown no link between debt cancellation and the effect of debt cancellation on MOHELA’s effect to even pay into the fund, even if they wanted to,” said Nahmias.
Asked about MOHELA’s lack of contributions, Attorney General Bailey said it’s “an issue that the [Supreme] Court is going to have to sort out.”
“The Fifth Circuit [U.S. Court of Appeals] sided with us on this issue, and so we’re optimistic about our chances at the U.S. Supreme Court,” he said.
Some top conservative legal scholars, however, have warned the justices in court filings that – while they don’t like the debt cancellation plan – allowing Missouri to challenge it could set a dangerous precedent.
“If these states are granted standing here, it could lead to far broader ability of the states to haul the federal government into court,” Blackman said.
It’s a high-stakes decision that many say will turn on whether the justices believe debt relief for millions of Americans hurts MOHELA, which in turn hurts Missouri.
“The court may very well say, look, no money’s been paid out [by MOHELA] in a very long time. This is too speculative of an injury,” Blackman said. “Or, the court could say the chance that even $1 might be paid at some point in the future might be enough” to establish harm.
Meantime, many of nearly half a million Missourians with federal student loans who applied for relief under the Biden plan are watching the case with anticipation.
“I spend a lot of time worrying about how I’m going to pay that money back,” said Anna Bain, a sophomore journalism major at the University of Missouri-Columbia, holding $12,000 in student debt.
“The soaring costs of higher education these days is so insane and so unacceptable for so many people,” Bain said. “I think that everyone has a right to say how their taxes are being spent. But I feel like taxes are for the greater good and this is for the greater good.”
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