A federal appeals court has formally blocked the Biden administration’s student debt cancellation plan, meaning borrowers who expected to see up to $20,000 in loan cancellation this fall must now wait indefinitely for a resolution in the lawsuit.
The issue at hand is, in part, how the plan could affect tax revenue and funding for higher education in Missouri. The state is home to MOHELA, one of the largest student loan holders and servicers in the country, which would lose significant revenue if the federal government closed its accounts through debt forgiveness.
“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.
In Mississippi, Biden’s plan, if enacted, could be a boon in tax revenue as the state plans to tax student debt cancellation as income – the way it typically taxes all forms of debt cancellation. It remains to be seen, however, how the Mississippi Department of Revenue will carry out this plan as servicers are not furnishing the tax forms that borrowers need to file student debt cancellation.
Nearly 439,000 Mississippians have federal student loans that are eligible for debt cancellation, according to the Education Data Initiative, and therefore taxable in Mississippi.
This week’s decision is the result of a lawsuit that made its way to the 8th Circuit Court of Appeals, filed by six conservative states (Mississippi is not a plaintiff in this lawsuit). The news followed a ruling from a Trump-appointed federal judge in Texas that the program, enacted under the Biden administration’s executive authority, is unconstitutional. It is likely the plan will wind up before the U.S. Supreme Court.
The slew of Republican-led lawsuits have already forced the Biden administration to disable the online application and make some changes to its plan. In court filings, the department is now signaling it could extend the moratorium on student loan repayment – scheduled to sunset on Dec. 31 of this year – as it expects a “historically large increase in the amount of federal student loan delinquency and defaults as a result of the COVID-19 pandemic.”
The department has said it will continue to defend the plan in court. U.S. Supreme Court Justice Amy Coney Barrett has twice rejected emergency challenges to the plan.
In a statement, U.S. Secretary of Education Miguel Cardona said that the plan is “lawful and necessary to give borrowers and working families breathing room as they recover from the pandemic and to ensure they succeed when repayment restarts.”
According to the White House, more than half of the 26 million Americans eligible for debt relief were approved. In Mississippi, the plan would have benefited primarily Black, brown and low-income borrowers, who nationally and in Mississippi have higher averages of student debt than white, wealthier borrowers.
The department had initially said it would start approving forgiveness as early as mid-November.