‘There’s a lot of people celebrating prematurely’: GOP could bring a legal challenge to block Biden’s student loan forgiveness plan

Personal finance

Arizona Attorney General Mark Brnovich suggested student loan borrowers shouldn’t bank on forgiveness yet, despite President Joe Biden’s announcement last month that he’d cancel up to $20,000 for many.

“I think there’s a lot of people celebrating prematurely,” Brnovich said. “A lot of other people are very upset about this, not only because of legal arguments, but because they believe it’s fundamentally unfair.”

The state’s Republican attorney general said he and others were looking to bring a legal challenge to the president’s plan. “If we can bring a challenge, we will bring a challenge,” Brnovich told CNBC in an interview Tuesday.

GOP attorneys general from states such as Missouri and Texas, as well as Sen. Ted Cruz, R-Texas, and those connected to conservative think tank the Heritage Foundation, have also been reported to be mulling over their options on attempting to block Biden‘s plan.

That is all sure to make anxious the tens of millions of Americans who were just weeks ago celebrating their debt forgiveness.

Student loan borrowers stage an Aug 25, 2022 rally in front of the White House to celebrate President Joe Biden canceling some federal student debt.
Paul Morigi | Getty Images Entertainment | Getty Images

A drawn-out legal challenge would threaten to throw the fate of an estimated 43 million people’s debts into limbo for the foreseeable future, and the issue could make its way to the Supreme Court.

“The uncertainty for borrowers in the meantime is, I’m afraid, considerable,” Laurence Tribe, a Harvard law professor, said in an interview last week.

No lawsuit has been filed yet, but Brnovich admitted that waiting too long could create problems.

“People’s expectations are starting to get set,” Brnovich said. “And I think that means that if we can file a lawsuit, we should file it sooner rather than later.”

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A White House spokesman, Abdullah Hasan, accused the GOP of double standards that punished the middle class.

“Let’s be clear about what they would be trying to do here: The same folks who voted for a $2 trillion tax giveaway for the rich and had hundreds of thousands of dollars of their own small business loan debt forgiven would be trying to keep millions of working middle-class Americans in mountains of debt,” Hasan told CNBC.

The Biden administration, along with its loan forgiveness announcement, released a 25-page memo by the U.S. Department of Justice making the case that debt cancellation is “appropriate” under the Heroes Act of 2003, which grants the president broad power to revise student loan programs.

That law was passed after the Sept. 11, 2001, terrorist attacks and permitted the executive branch to forgive student loans during national emergencies. The Trump administration declared the Covid-19 pandemic a national emergency in March 2020.

Opponents trying to block the forgiveness will likely argue that the Heroes Act doesn’t give the president the power to forgive student debt in the broad way he is trying to, said higher education expert Mark Kantrowitz.

“I think he’s on very, very shaky legal grounds right now,” Brnovich said, about the president.

The first obstacle for those hoping to bring a legal challenge against Biden’s plan will be finding a suitable plaintiff, Tribe said. It would likely have to be someone who can make the case that student loan forgiveness causes them “personal injury,” and that may not be easy.

“Such injury is needed to establish what courts call ‘standing,'” Tribe said. “No individual or business or state is demonstrably injured the way private lenders would have been if, for instance, their loans to students had been canceled.”

But Brnovich expressed confidence about finding a plaintiff. He said they were looking at ways in which loan forgiveness could hurt state costs and its taxpayers, for example, but suggested they had other options as well.

“There are all sorts of different legal theories as to how you get the standing,” Brnovich said. “But the big question will be, which is the best one?”

Abby Shafroth, an attorney at the National Consumer Law Center, said it would be a mistake for the states to try to block the president from fulfilling a campaign promise. Biden had vowed to cancel $10,000 per borrower in the 2020 presidential election.

“And people voted for him and endorsed this policy,” Shafroth said. “This is better worked out through democracy.”

 — CNBC’s Sharon Epperson and Stephanie Dhue contributed to this report.

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