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Legal challenges are already threatening -2-

Still, it's become more common -- and controversial --- in recent years for lower federal court judges to enact a nationwide injunction in cases like these, Rubenstein said. "A single judge can have that much power over something that is as significant as affecting millions of people across the country," he said.

In the past that kind of action would be extraordinary and instead lower court judges might have typically limited the injunction to the parties in the case, for example the six states that filed this lawsuit, Rubenstein said. Now, "it's become much more common in high-profile cases" for lower courts to issue nationwide injunctions and tee up "appellate level review not of the merits," but of the geographic scope of the injunction instead.

If that happens or if the case continues to wind through the legal system in other avenues, borrowers seeking relief could be left in limbo, said David Bergeron, a former Department of Education official who has supported debt cancellation, but preferred it be done through Congress.

"Hopefully it's resolved quickly, hopefully it's resolved to the benefit of the borrowers and hopefully at that point the people who filed the lawsuit will not decide to go ahead and appeal it and drag it out even longer," he said. "My fear all along has been that borrowers could get stuck in a holding pattern for an extended period of time if there's litigation and the litigation results in appeals."

The threat of litigation and the changes to the requirements to deal with that threat also increases the risk of "operational failures," said Scott Buchanan, the executive director of the Student Loan Servicing Alliance, which represents student loan servicers.

"It creates uncertainty," he said. "We're perhaps planning for an outcome that won't occur." Still, he said servicers will continue getting ready to deliver debt relief. "Servicers work for the federal government," he added, "that is our client and that is our boss and we do what they tell us to do until a judge intervenes and tells us not to."

Servicers say they will be taking those steps even as the interests of one of their own is implicated in the state attorneys general suit. Though MOHELA isn't a plaintiff in the case, the alleged harm the debt relief would cause to the organization is at the suit's core.

In a statement, Abdullah Hasan, a White House spokesperson, noted the role student loan organizations' bottom line play in the case. "Republican officials from these states are siding with special interests, and fighting to stop relief for borrowers buried under mountains of debt," he said. "The President and his Administration are lawfully giving working and middle class families breathing room as they recover from the pandemic and prepare to resume loan payments in January."

Shortly after the Biden Administration announced the debt relief plan, Buchanan said it was unlikely that servicers would sue to block it. "We've been focused on working with the Department to try to figure out a way to navigate providing this loan forgiveness directly to borrowers," he said. Nonetheless, "it's factually the case that servicers and holders of these loans are being harmed financially," he added. "If the AG makes that assertion, they ain't wrong."

Though the suit largely centers around the threat the debt relief poses to student loan organizations, the rhetoric surrounding it has also been political.

To Arkansas residents expecting to receive debt relief, Leslie Rutledge, the Republican attorney general, had a message: "You took out that loan with the promise that you would pay it back," she said during a press conference Thursday. "Do what I did and pay that loan back. Don't put your loan on the backs of someone else who didn't benefit from a college degree like you did."

Tom Miller, a Democrat and the Iowa attorney general, didn't sign onto the suit, though the state's Republican governor joined on its behalf. In his decades-long career as Iowa's top law enforcement official, Miller has focused on student loan-related issues, including for-profit college enforcement.

"The governor has a statutory right to join these lawsuits, and our office has the responsibility to assist her in doing so," Miller said in a statement. "Had she not made this request, our office would not have joined this lawsuit in any way. As a policy matter, I believe student loan forgiveness will provide much needed relief to thousands of Iowans who have felt the enormous crush of student debt."

-Jillian Berman

 

(END) Dow Jones Newswires

10-01-22 1327ET

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