Temporary restraining order on student loan forgiveness plan set to expire

A federal judge will let expire a temporary restraining order against the Biden administration’s sweeping new student loan forgiveness plan, which could deliver relief to tens of millions of Americans.

The plan could benefit as many as three in every four federal student loan holders, when combined with the administration’s previous efforts, according to an estimate by the Center for American Progress. U.S. District Judge Randal Hall in Georgia, appointed by Republican former President George W. Bush, delivered the win for the Biden administration late Wednesday.

The ruling means President Joe Biden may move forward with his administration’s student loan forgiveness plan, just weeks before the November election.

The administration proposed the regulation in April after previous plans were blocked by the courts. Biden as a candidate in 2020 pledged to bring debt relief to millions of Americans who turned to federal student loans to fund their costly higher education.

The draft regulation, according to court papers, would allow the government to provide full or partial debt relief to an estimated 27.6 million borrowers.

The latest development stems from a lawsuit against the aid package brought by seven GOP-led states. The states — Alabama, Arkansas, Florida, Georgia, Missouri, North Dakota and Ohio — said the U.S. Department of Education’s new debt cancellation effort is illegal.

However, Hall found that Georgia, which along with Missouri had led the lawsuit, failed to show it would be harmed by the administration’s plan to forgive $73 billion in student loan debt held by millions of Americans.

The judge removed Georgia from the case for lack of legal standing despite the state’s claim of potential tax revenue losses, and transferred the litigation to federal court in Missouri.

“There is no indication that the rule is being implemented to attack the states or their income taxes, so any loss of ... tax revenue is incidental and insufficient to create standing for Georgia,” Hall wrote.

The judge had previously ruled that Missouri did have standing to sue because that state operates a nonprofit student loan servicer — Mohela, or the Missouri Higher Education Loan Authority — that stands to directly lose millions of dollars in funding under the debt forgiveness plan.

On Thursday, the Republican-led states asked a federal judge in Missouri to decide if the plan will stay blocked.

The offices of the attorneys general of Georgia and Missouri did not respond to requests for comment from Reuters.

A spokesperson for the U.S. Department of Education said it appreciated the judge’s ruling that Georgia had “no legal basis” to bring the case, but slammed the GOP movement to stop the relief.

“The fact remains that this lawsuit reflects an ongoing effort by Republican elected officials who want to prevent millions of their own constituents from getting breathing room on their student loans,” they said. “We will not stop fighting to fix the broken student loan system and provide support and relief to borrowers across the country.”

Biden’s plan would forgive student debt for four groups of borrowers:

• Those who owe more than they originally took out.
• Those who’ve been in repayment already for decades.
• Students from schools with a low financial value.
• Those who qualify for loan forgiveness under an existing program, but haven’t applied for it yet.

The still has not been finalized. The fact that the rule has not yet been finalized was cited by the U.S. Justice Department in arguing there was no final agency action for the judge to review in the first place. The states argued that the administration was laying the groundwork to immediately cancel loans once the rule became final before anyone could sue to stop it.

The White House has called the current student loan system broken and has said debt relief is necessary to ensure that borrowers are not financially burdened by their decision to seek higher education.

Republicans counter that the Democratic president’s student loan forgiveness approach amounts to an overreach of authority and an unfair benefit to college-educated borrowers while others receive no such relief.

CNBC and Reuters contributed to this report.