Loan company distances itself from GOP-led states’ student debt suit


A student loan servicer cited in a lawsuit that temporarily blocked President Biden’s debt forgiveness plan is distancing itself from one of the claims raised by six Republican-led states challenging the program.

The states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — claim that the president overstepped his authority in creating the forgiveness plan and that the move threatened the revenue of state entities that profit from federal student loans, including the Missouri Higher Education Loan Authority. The quasi-state entity commonly known as MOHELA is not a named party to the lawsuit but nonetheless drew the ire of advocacy groups and Rep. Cori Bush (D-Mo.), who questioned its perceived involvement.

On Tuesday, Justice Department attorneys alerted the U.S. Court of Appeals for the 8th Circuit which is weighing an injunction against the forgiveness plan to a letter MOHELA sent Bush last week clarifying that it played no role in the decision by Missouri Attorney General Eric Schmitt (R) to sue.

“The only communications between MOHELA and [the Missouri attorney general’s office] as it relates to student debt relief, is that the Office recently filed a series of sunshine law requests on MOHELA seeking copies of documents relative to MOHELA’s federal loan servicing contract,” the company wrote in its letter to Bush.

The lawsuit filed by Schmitt and leaders in the other five states said MOHELA, which owns and services debt from the defunct Federal Family Education Loan program, would be deprived of interest payments if borrowers consolidated out of FFEL to take advantage of Biden’s forgiveness plan. It said the company, which funds state scholarships, would also lose revenue from servicing Direct Loans — those made and owned by the federal government — that are wiped away.

Bush had asked MOHELA whether the company is supporting efforts to block Biden’s plan to preserve its profits. In response, MOHELA said it is “faithfully fulfilling its obligations pursuant to its federal loan servicing contract.”

The company said it is “a public instrumentality of the state. As a governmental entity it does not have shareholders and does not exist to make profits. Any available funds above reasonable operating needs and reserves are devoted by MOHELA to student financial aid.”

In their case, the states argued that Missouri had a right to sue on MOHELA’s behalf because it “performs ‘an essential public function’” and “its board is comprised of public officials and people appointed by the governor.”

U.S. District Judge Henry E. Autrey, who dismissed the states’ case for lack of standing, questioned that premise. Autrey said that while the governor does appoint five members of the company’s board, its revenue and liabilities are independent of the state.

The states appealed, sending it to the 8th circuit. The court issued an administrative stay last month temporarily barring the Education Department from discharging any debt under the new forgiveness program.

Until now, MOHELA has remained silent on the states’ lawsuit. The company did not respond to requests for further comment on Wednesday.

MOHELA is the primary servicer for borrowers pursuing Public Service Loan Forgiveness, a federal program for teachers, firefighters and other public servants. The company services roughly $59 billion in federal direct loans as well as loans from the defunct FFEL program, according to court filings.

In the wake of the states’ lawsuit, the American Federation of Teachers and the nonprofit Student Borrowers Protection Center last month sent MOHELA a cease-and-desist letter. The group’s accused the company of violating California’s Student Borrower Bill of Rights, which prohibits student loan servicers from interfering with borrowers’ rights to loan forgiveness. The Student Borrowers Protection Center said it was prepared to take legal action if the company failed to stand down on the lawsuit.

On Wednesday, SBPC executive director Mike Pierce said: “It appears that these states just got caught misleading a federal appellate court in a ham-fisted effort to score political points against the president. This is the clearest sign yet that the right-wing state challenge to student debt relief has no legal basis and will prove fruitless in the end.”

Read More: Loan company distances itself from GOP-led states’ student debt suit

2022-11-02 16:31:55

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