Student loan forgiveness halted again, back stimulus payments blocked

Government stimulus programs are generally enacted to increase economic activity during difficult financial times. One example is the payments that were sent to individuals and businesses during the Covid pandemic, when the health emergency caused global trade to be blocked.

But other government actions can also result in economic stimulus, even when the stated purpose of a program is explained in terms of solving a different problem.

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Consider the federal action sought by President Joe Biden to enact a student loan forgiveness program, for example. The plan is designed to provide relief to millions of borrowers who are struggling to meet their financial obligations because of burdensome student loan debt payments.

But one positive financial impact of freeing large numbers of Americans from debt obligations is likely: a boost to the home buying market.

That’s because many people have put off buying a home until their student loan debt is paid off. The thought of combining those monthly bills with new mortgage payments is too much of a financial strain for many to want to consider.

With that in mind, the student loan forgiveness program can be viewed as a stimulus plan that could help stimulate activity in the housing market.

But there is one major problem: Due to ongoing legal maneuvers, the debt relief program has been facing years of delays.

Related: Student loan forgiveness to give millions of Americans a stimulus payment

Student loan forgiveness program blocked by federal judge

On October 1, a federal judge in the Southern District of Georgia allowed an existing restraining order on Biden’s student loan forgiveness program to expire, temporarily allowing it to move forward.

The restraining order was in place because a number of states claimed the program was illegal and would cause them harm. But the judge, Randal Hall, ruled that the state of Georgia had not provided enough evidence of that potential harm.

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• Biden’s student debt relief plan will remain blocked, judge orders

On October 3, Judge Matthew Schelp of the Eastern District of Missouri intervened, issuing a preliminary injunction that was requested by the states involved in the lawsuit. This lawsuit once again successfully blocked the student loan forgiveness plan.

The states claim that the Missouri Higher Education Loan Authority (MOHELA), a student loan servicer that administers both federal and private loans, faces a large potential loss. That, the states say, gives Missouri a legal basis to sue.

A man is seen calculating his finances. The Biden Administration’s student loan forgiveness program has been blocked by a preliminary injunction from a Missouri District Court judge.

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The previous student loan forgiveness plan failed at the Supreme Court in 2023

Missouri Attorney General Andrew Bailey had been part of a challenge to an earlier student loan forgiveness plan that the US Supreme Court struck down in June 2023.

That lawsuit also alleged that MOHELA would be “adversely impacted” by the student debt relief program.

Related: Biden White House wipes out another $1.2 billion in student debt

“The Missouri lawsuit argues that creating a roughly half-trillion-dollar loan cancellation program that extends to nearly all borrowers is an astonishing exercise of power and a matter of great economic and political importance,” Bailey said in a statement at the time.

“The balancing of harm and prejudice, fused with the public interest, easily leads the Court to conclude that preliminary injunctions should issue,” Judge Schelp wrote in the Oct. 3 order. “The public has a huge interest in their own government following the law.”

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