A senior Biden administration official said the U.S. Department of Education does not plan to start forgiving up to $147 billion in student debt for 25 million Americans before it issues a final rule on the program, despite claims from seven Republican state attorneys general. general.
Last week, those AGs persuaded a judge in Georgia to temporarily block President Joe Biden’s new federal student loan forgiveness plan, arguing that the Education Department tried to secretly implement the plan before a final rule was issued in October.
In a lawsuit challenging the legality of the program, the AGs alleged that Education Secretary Miguel Cardona “quietly sent orders to loan servicers to begin mass loan cancellations this week,” which would violate rules that require the final rule to be issued first.
But a Biden administration official told CNBC that the Department of Education has only instructed loan servicers to prepare for debt cancellation.
“We will not impose a rule until it is final,” the official said.
A person close to the loan industry confirmed the account to CNBC, saying the DOE only told servicers to prepare for the debt relief program.
These preparations include briefing customer service agents on how to tell borrowers when assistance is available and developing new website information.
“Preparatory work is required and necessary,” said the source. “It’s like any kind of product launch.”
“The services have not been given the files to be donated,” the source said.
But a spokeswoman for the Missouri Attorney General’s Office, one of the plaintiffs in the lawsuit, told CNBC in an email when asked about the comments from the Biden official and the source, “We have evidence to the contrary that we filed under seal.”
“It remains under seal until the department agrees to unseal it,” the spokesman said. “It says the Department has so far refused to consent to the release of this evidence.”
The program is the third effort by the Biden administration to end Republican-led legal challenges to forgive student debt.
In June 2023, the Supreme Court ruled that the administration’s attempt to write off up to $400 billion in student debt without prior authorization from Congress was unconstitutional.
Two months ago, a federal appeals court temporarily halted Biden’s new affordable repayment plan for student loan borrowers, known as SAVE. Some Republican-led states argued that with SAVE, the Department of Education was essentially trying to find a roundabout way to forgive student debt after the Supreme Court decision.
In new lawsuits challenging the third bailout program filed in U.S. District Court in Augusta, Georgia, seven states are demanding billions of dollars in debt cancellation, arguing that the Biden administration’s debt relief plan violates the U.S. Constitution’s separation of powers. Congressional approval.
In addition to Missouri, the states that have filed suit are Alabama, Arkansas, Florida, Georgia, North Dakota and Ohio.
On Thursday, when he issued a temporary restraining order blocking the new program from taking effect, US District Judge Randal Hall wrote that the AGs “have obtained documents that reveal that the Secretary has been implementing this amnesty plan … since May.”
Hall wrote that the states have “demonstrated a reasonable likelihood of success” in their claims, given the Secretary of State’s “attempt to impose a rule contrary to normal procedures.”
Hall scheduled a hearing on the lawsuit next week.
Mark Kantrowitz, an expert on higher education, told CNBC that it is normal for executive structures to take steps to prepare for the new regulation.
“Preparatory work does not violate the law,” Kantrowitz said. He also said, “Until the rule is definitive, forgiveness cannot happen.”
Hall could still strike down the debt-relief plan on unconstitutional or other grounds even if he finds that the Biden administration has not broken the timeline of the regulatory process.
But consumer and rights advocates were concerned about how quickly Hall accepted the states’ contention that the Biden administration did not rush the plan through properly.
“Conservative justices have an increasing permission structure to just fix something without even basing it on sound principles or precedents,” said Luke Herrine, associate professor of law at the University of Alabama.
