• The full legal defense of the plan was filed with the Supreme Court.

  • Six GOP states have filed a lawsuit against a student loan company.

  • A ruling in favor of the states could set a strange precedent.

A Missouri-based student-loan company is at the center of a lawsuit that is blocking student-loan forgiveness.

It's a critical year for millions of student-loan borrowers as Biden's plan to cancel up to $20,000 in student debt will have its day in court. Implementation of the relief has been held up due to two lawsuits. One was filed by two student-loan borrowers who did not qualify for the full $20,000 amount of relief, and another by six Republican-led states who said the relief would hurt their state's tax revenues.

Adding to that complexity, the Justice Department wrote in a legal filing on Wednesday night that if the 8th Circuit's ruling is upheld, banks, credit card companies, and governments could all be sued.

According to Insider, a law professor at University of California Irvine and director of the Student Loan Law Initiative told them that Biden's legal defense "did a really good job in saying that if A causes financial harm to B, and B owes money to C, then C can file a lawsuit

Should the Supreme Court rule in the state's favor, she is concerned about the legal precedent it would set.

Jiménez thinks this is an important case. I'm afraid of what is going to happen more for the larger implications on what the Supreme Court does, what its purpose is, and its role and legitimacy."

Favoring the GOP-led states' case has "startling implications"

Biden's Justice Department has argued that MOHELA is a separate entity from the state and that the relief would cause it to stop receiving servicing fees.

According to the Justice Department, the States have never said that the plan will cause the state to default. It is thought that if the plan causes a reduction in MOHELA's revenues, it will respond by not paying its bills.

According to a professor at the University of Texas School of Law, every case that is filed in a federal court has to demonstrate that the injury can be traced back to the defendants.

Missouri is not harmed directly by the harm to MOHELA.

Four states said debt relief would hurt their tax revenues because their tax codes included debt relief as gross income, even though federal law prevents debt relief from being.

"Any harm to the States' treasuries here is self-destructive, and any resulting reduction in their tax revenues is tied to their own choices about how to structure their tax laws," the filing said.

The filing said that if the Supreme Court ruled in favor of the states, there would be repercussions.

"Virtually all federal actions have some effect on state finances," it said. Every state would have the right to challenge almost any federal policy if the effects were enough for standing.

Jiménez said that if the Supreme Court strikes down the debt relief, the administration needs to find another way to deliver student loans.

Even if the cancellation program isn't proper, there are other ways that the administration can do it.

Business Insider has an article on it.