A senior official from the Biden administration has stepped in to clear the air, stating that the U.S. Department of Education never intended to start forgiving student loans for up to 25 million Americans before the official final rule was published. This clarification comes amidst a heated legal battle, sparked last week when seven Republican state attorneys general succeeded in convincing a federal judge in Georgia to block President Joe Biden's new student loan forgiveness plan.
The heart of the controversy? The forgiveness plan, which has the potential to wipe out up to $147 billion in federal student loans, was alleged to be on the brink of implementation before the final regulatory guidelines were formally issued. According to these Republican attorneys general, the Department of Education had quietly directed loan servicing companies to begin canceling loans prematurely—a move they claimed violated regulations that stipulate the final rule must be established first.
The Biden administration official, speaking with CNBC, strongly refuted these claims. The official emphasized that the Department of Education was strictly in a preparatory phase. "We would not implement a rule before it's final," the official assured, clarifying that any actions taken were simply to get ready for the forthcoming debt relief program.
Supporting this stance, a source close to the loan industry corroborated the administration's position. The source revealed that the Department of Education had only instructed loan servicers to prepare for the impending debt relief, which involved briefings for customer service representatives and updating online resources. “It’s the preparatory work that is required and necessary,” the source explained, likening it to the lead-up to a major product launch. Importantly, the source emphasized, “Servicers have not been given files to forgive.”
Despite this clarification, the Missouri Attorney General's Office, one of the plaintiffs in the lawsuit, pushed back. They asserted they have evidence countering the Biden administration's claims, although this evidence remains sealed. According to their spokesperson, the Department’s reluctance to make this proof public is telling.
This legal skirmish is part of a larger pattern. The Biden administration’s student debt relief efforts have faced multiple hurdles from Republican-led legal challenges. In June 2023, the Supreme Court ruled that the administration's first major attempt to forgive up to $400 billion in student loans, executed without Congressional approval, was unconstitutional. More recently, a federal appeals court put a temporary halt to Biden's affordable repayment plan, known as SAVE. Some Republican-led states argued that this new plan was merely a roundabout method to achieve the same end after the Supreme Court's decision.
The latest lawsuit challenges the third iteration of the relief program, which was filed in U.S. District Court in Augusta, Georgia. The states involved—Missouri, Alabama, Arkansas, Florida, Georgia, North Dakota, and Ohio—argue that the new forgiveness plan breaches the U.S. Constitution’s separation of powers by attempting to cancel billions in debt without Congress’s blessing.
On Thursday, U.S. District Judge Randal Hall issued a temporary restraining order that blocks the new program from going into effect. Judge Hall cited documents that allegedly reveal Education Secretary Miguel Cardona was moving forward with the plan in a manner inconsistent with established procedures. Hall noted that the states show a “substantial likelihood of success” in their legal challenge, suggesting that the Secretary's actions might have contravened normal regulatory processes.
A hearing is set for next week to delve deeper into the lawsuit. Meanwhile, experts weigh in on the issue. Mark Kantrowitz, a prominent higher education expert, told CNBC that it’s standard practice for executive branch agencies to prepare for new regulations. “Preparatory work does not violate the law,” Kantrowitz explained, adding that actual forgiveness cannot occur until the rule is officially finalized.
Nonetheless, there’s concern among consumer and legal advocates about how swiftly Judge Hall accepted the states' claims. Luke Herrine, an assistant professor of law at the University of Alabama, expressed worry that conservative judges might be increasingly inclined to make decisions that are not rooted in solid legal principles or precedents. “There’s an increased permission structure for conservative judges to just make stuff up,” Herrine noted, reflecting on the rapid acceptance of the states' arguments.
This ongoing legal drama underscores the complex intersection of executive power, regulatory procedures, and student loan debt relief. As the situation unfolds, the future of the student loan forgiveness plan—and the broader implications for debt relief policies—hangs in the balance.
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