Biden’s Student Loan Admission – WSJ

But the Administration has been trying to seize control of this small private market by encouraging FFELP borrowers to consolidate their debt into Direct Loans held by the federal government. Only borrowers with Direct Loans can take advantage of federal repayment plans that cap monthly payments at 10% of discretionary income and cancel their remaining balance after 10 to 20 years.

The Administration also restricted eligibility for its $10,000 to $20,000 in cancellation to borrowers with Direct Loans. This means, as the state lawsuit explains, the “inevitable result is that FFELP loan borrowers will likely consolidate into DLP [Direct Loan Program] loans en masse.” This could harm Missouri, Arkansas and Nebraska.

A Missouri state agency that holds and services FFELP loans will be deprived of “ongoing interest payments that those loans generate,” the lawsuit says. Prior to the Administration’s forgiveness announcement, an Arkansas state agency held $100 million in FFELP loans, which it financed by issuing bonds. Some $5 million have since been consolidated into Direct Loans.

If more borrowers consolidate, the Arkansas agency might generate less income from FFELP loans to repay bondholders. Nebraska could also lose interest income from student-loan securities that it owns. The lawsuit cites a

Bank of America

analysis that the Administration’s loan write-off could slash the FFELP securities market in half.

Four states also argue in the lawsuit that they could be harmed by a reduction in tax revenue. They base state tax liability on federal adjusted gross income, which normally includes loan cancellation. But the Democrats’ Covid relief bill last year waived tax liability on student loan forgiveness through 2025. As a result, these states could bring in less tax revenue.

This argument is more strained because the injury to the states stems from the Covid bill rather than the President’s loan write-off. But the Administration clearly believes the states’ other claims are compelling because last week it restricted access to loan forgiveness by FFELP borrowers. This could moot the states’ case as it proceeds in court.

Cynical doesn’t begin to describe this gambit. The White House concocted a legal justification for its presidential loan forgiveness, despite lacking permission from Congress. Now the White House is backing and filling as its illegality is challenged in court. Federal courts rarely look kindly on government defendants that try to moot legal challenges, especially when they do so this blatantly.