Why a federal court blocked Biden's student-debt cancellation even after a major loan company undermined a key argument in the GOP-led lawsuit

• The 8th Circuit blocked Biden's student-debt relief in response to a lawsuit filed by six GOP-led states.
• It said the states' argument that the relief would hurt student-loan company MOHELA has standing.
• But a district judge previously dismissed that argument, and MOHELA said it wasn't involved in the case.

A federal court blocked President Joe Biden's student-loan forgiveness because it would harm revenue of as student-loan company — even after that company denied any involvement in the lawsuit.

On Monday, the 8th Circuit Court of Appeals ruled that the temporary stay it placed on Biden's debt relief at the end of October will remain in place indefinitely. This was in response to a lawsuit filed by Missouri and five other Republican-led states who argued the loan forgiveness would hurt the states' tax revenues, along with that of Missouri-based student-loan company MOHELA. At the time, a district court dismissed the case because it said the states could not rely on harm to MOHELA, which has said it was not involved in the suit. The 8th Circuit ruled otherwise.

"It is alleged MOHELA obtains revenue from the accounts it services, and the total revenue MOHELA recovers will decrease if a substantial portion of its accounts are no longer active under the Secretary's plan," the ruling said, referring to Biden's Education Secretary. "This unanticipated financial downturn will prevent or delay Missouri from funding higher education at its public colleges and universities."

The ruling went on to say, "Due to MOHELA's financial obligations to the State treasury, the challenged student loan debt cancellation presents a threatened financial harm to the State of Missouri," adding that "Missouri, therefore, likely has legal standing to bring its claim." 

Leading up to this decision, some lawmakers and advocates scrutinized the role MOHELA was playing in the lawsuit, given that it actively services millions of borrowers' accounts. This prompted Missouri Rep. Cori Bush to send a letter to MOHELA's CEO on October 18 requesting information on the company's involvement in the legal proceedings, saying that it "is unconscionable that your company—as one of the largest student loan companies in the world—would be involved in overtly political efforts to rob millions of their right to student loan debt relief."

On November 2, MOHELA responded — and denied any involvement in the lawsuit.

"MOHELA's executives were not involved with the decision of the Missouri Attorney General's Office to file for the preliminary injunction in federal court on September 29, 2022," the company wrote.

That admission was not referenced by the 8th Circuit, even after District Judge Henry Edward Autrey said the states didn't have standing.

"Missouri has not met its burden to show that it can rely on harms allegedly suffered by MOHELA. MOHELA, not the State, is legally liable for judgments against it," Autrey wrote in his opinion dismissing the case, adding that "MOHELA can sue and be sued in its own name and retains financial independence from the state."

Biden's Justice Department is set to appeal this decision, as it has already done with a Texas judge who blocked the debt relief last week in a different lawsuit brought on by two student-loan borrowers who didn't qualify for the full amount of relief. For now, the department is not accepting any new applications and the 26 million borrowers who already applied have to wait and see what the courts will ultimately decide.