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Missouri leads in 8th Circuit loan forgiveness challenge

The 8th U.S. Circuit Court of Appeals granted standing to Missouri as a plaintiff against the Biden Administration’s student loan forgiveness program, leading to a nationwide injunction against the program.

Missouri is the lead plaintiff with standing against the federal student loan forgiveness program in the 8th U.S. Circuit Court of Appeals, which granted the injunction.

Judges Bobby E. Shepherd, Ralph R. Erickson and L. Steven Grasz wrote that they did not make lightly the decision to issue the injunction halting the program.

“Whatever the eventual outcome of this case, it will affect the finances of millions of Americans with student loan debt as well as those Americans who pay taxes to finance the government and indeed everyone who is affected by such far reaching fiscal decisions,” the court wrote.

Though it is not a party in the suit, the Missouri Higher Education Loan Authority (MOHELA) is one of the largest nonprofit student loan processing entities in the nation, and the state-created organization is what allowed Missouri’s standing to prevail. Missouri is one of six states that first sued in the U.S. District Court for the Eastern District of Missouri over alleged lost state revenue if federal loans were forgiven. The states appealed the decision.

MOHELA reported $168.1 billion in total student loan assets earlier this year. On Nov. 1, the United States filed with the 8th Circuit a letter that MOHELA had written to U.S. Rep. Cori Bush two days prior stating that MOHELA was a nonprofit state entity and did not initiate Missouri’s inclusion in the lawsuit.

It noted in the letter that it had increased its staff from 500 to 2,500 for its federal contract beginning July 1 to accommodate an increase in federal loans as well as process student loan forgiveness applications.

“… a principal reason for the increase in MOHELA loan volume is because it recently assumed the servicing of loans eligible for Public Service Loan Forgiveness (PSLF),” MOHELA wrote.

The 8th Circuit determined that the “debt discharge” would most impact Missouri due to its financial impact via MOHELA.

“This unanticipated financial downturn will prevent or delay Missouri from funding higher education at its public colleges and universities,” the court wrote.

Missouri Attorney General Office spokesman Chris Nuelle did not respond to an email requesting further comment.

“Millions of hardworking Americans have felt the pain of increasing inflation and rising prices due to the Biden Administration’s disastrous policies,” Attorney General Eric Schmitt stated in a Nov. 14 release.

The 8th Circuit opinion stated that tailoring an injunction for the other states — Arkansas, Iowa, Nebraska and South Carolina — was too broad to accomplish.

“And beyond Missouri, tailoring an injunction to address the alleged harms to the remaining States would entail delving into complex issues and contested facts that would make any limits uncertain in their application and effectiveness,” the court wrote.

Two Federalist organizations with goals of restricting the federal government according to their interpretations of the U.S. Constitution filed amicus briefs in support of the plaintiff states.

The Americans for Prosperity Foundation, a nonprofit supporting policy that limits government, claimed in its brief that the forgiveness program violates the major questions doctrine and oversteps on the U.S. Constitution’s direction not to delegate Congress’ legislative powers to other entities in its interpretation of the HEROES Act. Writing for the organization, Michael Pepson also stated the U.S. Department of Education overstepped its mission.

“The Department has no expertise in fiscal policy,” Pepson wrote. “Nor does the Department have authority to handle appropriations — a task the Constitution exclusively reserves to Congress.”

The amicus brief from the New Civil Liberties Alliance (NCLA) made a similar argument to its sister amici, claiming the interpretation of the HEROES Act to pave the way for student loan forgiveness violates the Constitution’s vesting clause and appropriations clause. John J. Vecchione also stated that the current benefit of Public Service Loan Forgiveness (PSLF), which encourages borrowers to work in public service for 10 years before their student loans are forgiven, would become moot.

“Moreover, once Defendants cancel hundreds of billions of dollars in student debt, the toothpaste cannot be put back in the tube, and therefore belated injunctive relief from this or another court cannot replace the lost PSLF incentives,” Vecchione wrote.

NCLA also represents the Cato Institute in a similar set of allegations against the USDE’s implementation of the HEROES Act before the U.S. District Court for the District of Kansas.

The 8th Circuit injunction remains until further order from the 8th Circuit or the U.S. Supreme Court. The U.S. Department of Justice Civil Division, from which a team of nine attorneys is assigned to the case, did not respond to a call requesting comment.

The case is Nebraska et al. v. Biden et al., 22-3179.