President Joe Biden
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Six GOP-led states filed a Missouri-based lawsuit against Biden’s student-loan forgiveness.
Missouri houses student-loan company MOHELA, which recently took over some federal borrowers’ accounts.
The lawsuit argued MOHELA faces a loss of revenue due to the debt relief.
As a student-loan company works to take over millions of new borrower accounts, it’s also playing a role in suing President Joe Biden’s recently announced student-loan forgiveness.
Last week, six GOP-led states filed a lawsuit in Missouri against Biden’s up to $20,000 in federal debt cancellation announcement — a state that houses student-loan company MOHELA. Long before Biden announced any broad debt relief, the student-loan industry was facing a shakeup as three loan companies announced they would be ending their federal contracts, and that required the transfer of millions of accounts over to new entities that would service the loans.
FedLoan Servicing, which previously held loans within the Public Service Loan Forgiveness (PSLF) program, was one of the companies ending its federal servicing, and those accounts were transferred over to MOHELA — which appears to be the focus of the GOP-led lawsuit. Per the filing, the states argued that the loan servicer is facing a “number of ongoing financial harms” to its business, referring specifically to the Federal Family Education Loan (FFEL) program which is a privately-held loan guaranteed by the government and would not qualify for Biden’s debt relief without consolidation into the direct loan program.
The lawsuit argued that pushing FFEL borrowers to consolidate would result in a loss of revenue for MOHELA. In response to those claims, Biden later decided that borrowers within that program would not be able to qualify for his one-time student-loan forgiveness.
While that decision did make it more difficult for the GOP attorneys general to prevail, they also argued in the suit that canceling direct student loans — federal loans that qualify for Biden’s relief plan — will also harm MOHELA’s business operations.
“MOHELA faces the imminent loss of revenue in its role as a servicer of DLP (Direct Loan Program) loans,” the lawsuit said. “MOHELA’s revenue as a servicer of DLP loans is a function of the number of accounts it services. So when student loan balances go to zero, as they will en masse under the Mass Debt Cancellation, MOHELA will lose the revenue from servicing those loans.”
Leading up to Biden’s announcement, there was speculation regarding the entities, or individuals, that would pursue legal action on the debt relief. Jack Remondi, the CEO of major student-loan company Navient, said last month that he wouldn’t sue the administration even though his company “clearly has standing.” And Abby Shafroth, staff attorney at the National Consumer Law Center, told Insider that it would be difficult for loan companies to sue given they make their money through contracts with the federal government.
For now, the lawsuit is set for a hearing in front of a federal judge this month to determine next steps — but advocates and Democratic lawmakers are confident nothing will come of it.
“This suit is just the latest chapter in a long history of student loan companies like MOHELA and their Republican allies cheating people with student debt out of their rights,” Mike Pierce, executive director of advocacy group Student Borrower Protection Center, said in a statement.
“Governments have given billions of dollars to companies like MOHELA since they were created by state legislatures decades ago,” Pierce added. “This must end now. As President Biden cancels student debt for tens of millions, state governments need to pull the plug on their failed experiments with student lending and unwind student loan companies like MOHELA.”