A consortium of Republican-led states is suing the Biden administration to prevent the implementation of a new student loan repayment scheme that would allow millions of borrowers to cancel their loans faster and pay less each month.
In a federal complaint filed Thursday, 11 states, led by Kansas, claim that Biden overstepped his authority in developing the SAVE Plan, which was made available to borrowers last year and has already canceled loans for more than 150,000.
It claims that the current scheme is no different from Biden’s initial attempt at student loan cancelation, which the Supreme Court rejected last year. “The last time the defendants tried this, the Supreme Court ruled that the activity was illegal. The lawsuit states that nothing has changed since then.
The Education Department declined to comment on the case, but did highlight that Congress granted the department authority to determine the conditions of income-driven repayment plans in 1993.
“The Biden-Harris Administration won’t stop fighting to provide support and relief to borrowers across the country — no matter how many times Republican elected officials try to stop us,” the Treasury Department said in a statement.
Biden introduced the SAVE repayment scheme in 2022, coupled with a second plan to forgive up to $20,000 in debt for over 40 million Americans. The Supreme Court halted the cancelation plan after Republican states sued, but it did not consider SAVE, which was still being worked up.
The latest complaint was filed the same week that the White House held a “Day of Action” to promote the SAVE Plan. According to the Biden administration, more than 7.7 million borrowers have registered in the plan, with over 5 million having their monthly payments lowered to $100 or less due to lower annual wages.
Kansas Attorney General Kris Kobach filed the challenge electronically in federal court in Kansas, requesting that any trial take place in Wichita, the state’s largest city. The complaint wants a judge to block the scheme immediately. Alabama, Alaska, Idaho, Iowa, Louisiana, Montana, Nebraska, South Carolina, Texas, and Utah join Kansas in supporting the complaint.
“In a completely brazen fashion, the president pressed ahead anyway,” Kobach said at a press conference at the Kansas Statehouse. “The law simply does not allow President Biden to do what he wants to do.”
Biden’s new repayment plan is a modified version of existing income-based repayment options that the Education Department has provided since the 1990s. The first versions were designed by Congress to assist struggling borrowers, capping payments at a percentage of their income and erasing any leftover debt after 20 or 25 years.
The new plan has more favorable conditions than ever before, proposing to cut monthly payments for more borrowers and eliminate loans in as short as ten years. Unlike other programs, it keeps interest from compounding as long as borrowers complete their monthly payments.
The plan’s features are being phased in this year, and the quicker cancellation path was initially intended to go into effect later this summer. However, the Biden administration hastened the benefit and began canceling loans for some borrowers in February.
Biden stated the goal was “to give more borrowers breathing room so they can get out from under the burden of student loan debt.”
Rather than developing a new plan from the start, the Education Department updated previous plans using federal regulations. Supporters saw it as a legal strategy that strengthened the plan in anticipation of a Republican lawsuit.
However, in the latest complaint, Kobach claims that Biden needed to go through Congress to make such big changes.
The states claim that Biden’s plan will affect them in a variety of ways.
The states claim that with such a generous repayment plan, fewer borrowers will be motivated to work in public service and apply for the Public Service Loan Forgiveness program. They estimate that more state personnel will leave their employment, exacerbating public schools’ problems in attracting and retaining instructors.
They say that the plan will infuse hundreds of billions of dollars in debt forgiveness into the US economy, requiring governments to step up fraud prevention efforts. The scheme “will create enormous opportunities for fraudsters to exploit student debt borrowers that would not otherwise exist,” according to the lawsuit.
If successful, it would effectively eliminate the last vestige of Biden’s first attempt at broad student loan relief. After the Supreme Court halted his larger proposal last year, Biden directed the Education Department to develop a new plan with a different legal justification. The agency is now seeking a more limited approach to bulk cancelation.