CASE PREVIEW

In a pair of challenges to student-debt relief, big questions about agency authority and the right to sue

While campaigning for president in 2020, then-candidate Joe Biden pledged to cancel at least $10,000 in federal student-loan debt for each borrower. More than two years later, Biden announced a debt-relief program that would forgive up to $20,000 in loans for borrowers who qualify. On Feb. 28, the Supreme Court will hear oral arguments in a pair of challenges to the program.

With a price tag for the program estimated at $400 billion, the justices’ ruling will obviously have a significant practical and economic effect. But the court’s decision could also have a legal impact well beyond this case, as the justices weigh issues such as when states can go to court to contest federal policies and how courts should interpret laws giving power to federal agencies.

Loan relief, the HEROES Act, and the path to the Supreme Court

When the justices hear arguments later this month, student-loan repayments will have been on hold for nearly three years. At the start of the COVID-19 pandemic in March 2020, then-Secretary of Education Betsy DeVos suspended both repayments and the accrual of interest on federal student loans. She relied on the HEROES Act, a law passed after the Sept. 11 attacks that gives the secretary of education the power to respond to a “national emergency” by “waiv[ing] or modify[ing] any statutory or regulatory provision” governing the student-loan programs so that borrowers are not “placed in a worse position financially” because of the national emergency.

Both the Trump administration and the Biden administration later extended the original repayment pause. In August 2022, the Biden administration announced both that it would end the pause and that it would cancel up to $10,000 in federal loans for borrowers who meet income limits; borrowers who also received Pell Grants, which are available for undergraduate students from low-income families, can have up to $20,000 in federal loans canceled. Again relying on the HEROES Act, Secretary of Education Miguel Cardona explained that the program was a response to the economic effects of the pandemic and would provide relief to borrowers who are more likely to default on their loan repayments because of the pandemic.

Two different challenges to the debt-relief program are now before the Supreme Court. The first case, Biden v. Nebraska, was filed by six states with Republican attorneys general. They argued that the HEROES Act does not give the secretary of education the power to implement the debt-relief program and, moreover, that the plan violated the laws governing federal agencies.

U.S. District Judge Henry Autrey, a George W. Bush appointee, threw out the case. He reasoned that the states do not have a legal right to sue, known as standing. But a three-judge panel, made up of one George W. Bush appointee and two Trump appointees, of the U.S. Court of Appeals for the 8th Circuit reversed Autrey’s ruling and put the program on hold nationwide to maintain the status quo while litigation continued.

The Biden administration then came to the Supreme Court in November, asking the justices to step in. In a brief unsigned order on Dec. 1, the court left the 8th Circuit’s ruling in place but agreed to take up the case and hear argument on an expedited schedule.

The second case, Department of Education v. Brown, was filed in Texas by two student-loan borrowers, Myra Brown and Alexander Taylor. Brown is not eligible for any relief under the Biden plan because her loans are not federal loans but are instead held by commercial lenders; Taylor is eligible for $10,000 in relief but cannot obtain the full $20,000 in relief available under the plan because he did not receive a Pell Grant.

U.S. District Judge Mark Pittman also put the debt-relief plan on hold in November. He agreed with Brown and Taylor that the HEROES Act does not give the government the power to adopt the debt-relief plan. After the U.S. Court of Appeals for the 5th Circuit declined to freeze Pittman’s ruling, the justices agreed to fast-track the case for oral argument at the same time as Biden v. Nebraska.

Legal standing: Do the challengers have a right to sue?

Before the justices can reach the central question in both cases – whether the plan complies with federal law – they must first decide an important threshold issue: whether any of the challengers have standing to sue.

A plaintiff in federal court generally has standing if the plaintiff faces concrete harm from the defendant’s conduct. When a lawsuit has multiple plaintiffs, only one plaintiff needs to establish standing for the lawsuit to go forward. The states’ main argument – and the argument on which the 8th Circuit relied in reinstating their challenge – is that Missouri has standing because it created and controls the Missouri Higher Education Loan Authority, one of the largest holders and servicers of student loans in the United States. By eliminating debt for nearly half of all borrowers, the states say, the relief program could cost MOHELA as much as $44 million each year, which will in turn affect MOHELA’s ability to contribute funds to support the state’s higher-education programs.

The Biden administration counters that it is “pure speculation” that, if it loses revenue as a result of the debt-relief plan, MOHELA will not be able to contribute to state funds. For example, the administration suggests, the agency might also respond to the reduction in revenue by cutting its other expenses. But in any event, the administration stresses, any harm to MOHELA cannot serve as the basis for Missouri to file a lawsuit because MOHELA is a separate corporation. If it could, the administration warns, “banks could sue anyone who causes financial harms to their borrowers, credit-card companies could sue anyone who causes financial harms to their customers, and governments could sue anyone who causes financial harms to their taxpayers.”

Four states – Nebraska, Iowa, Kansas, and South Carolina – next assert that they have standing because the program will reduce their tax revenues. Those states calculate taxable income based on a taxpayer’s federal adjusted gross income. Although the federal AGI normally includes discharged student loans, they explain, a federal law excludes them until 2026. This means that any loans discharged now as a result of the program will not count toward AGI later.

The Biden administration pushes back, arguing that any injury to the states from their inability to tax the discharges is “self-inflicted,” and therefore does not give them a right to sue. It was the states’ decision to rely on the federal tax code’s definition of “gross income,” the administration reasons. Moreover, the states’ contention that they will lose tax money because borrowers would otherwise have their loans forgiven after 2026 is also too speculative to give them a right to sue, the administration insists.

The states claim a third injury that gives them a right to sue: They argue that the Biden administration’s program encouraged borrowers who were not eligible for debt relief to consolidate their loans into loans that are eligible. As a result, the states say, the administrative fees that state agencies receive for servicing the original loans are reduced.  

The Department of Education, the Biden administration counters, has made clear that borrowers cannot become eligible for relief by consolidating their loans. But even if they could, the administration continues, the states’ injury would come from the borrowers’ decision to consolidate those loans, rather than the debt-relief plan itself.

The Biden administration is equally dismissive of the individual challengers’ right to sue. Even if Brown and Taylor prevail, the administration explains, they won’t receive any debt relief. Instead, a ruling in their favor simply “would mean that nobody gets any debt relief at all.”

Brown and Taylor respond that if the Biden administration had followed proper procedures when it enacted the plan, they would have had an opportunity to submit comments on the plan, in which they would have urged the government to enact a different and more expansive plan.

They argue that they don’t have to show that they would have benefitted if the Department of Education had adhered to those procedures. Rather, they contend, they can bring their lawsuit as long as they can show that there is a chance that the department will reconsider its decision.

Legal substance: Did the administration overstep its authority?

Turning to the plan’s legality, the Biden administration emphasizes that it is authorized by the plain text of the HEROES Act, which gives the Department of Education broad power to respond to a national emergency by “waiv[ing] or modify[ing] any statutory or regulatory provision” governing the student loan programs so that borrowers are not worse off financially because of the national emergency.

The states (as well as the individual borrowers) allege that the administration’s reliance on the HEROES Act is unfounded. Instead, they say, the debt-relief program violates the “major questions doctrine,” a principle of statutory interpretation at the center of last term’s ruling in West Virginia v. Environmental Protection Agency that rests on the idea that, if Congress wants to give an administrative agency the power to make “decisions of vast economic and political significance,” it must say so clearly.

Here, the states write, there is no real dispute that the Biden administration’s discharge of $430 billion in student-loan debt is “a matter of economic and political significance.” But Congress did not clearly give the Department of Education the power to adopt such a massive debt-relief program, the states say. To the contrary, they suggest, Congress in 2020 specifically rejected legislation that would have discharged up to $10,000 in student-loan debt per borrower. And although the HEROES Act allows the department to alter student-loan provisions to keep borrowers from becoming worse off because of a national emergency, the Biden administration’s program actually places over 40 million borrowers in a better position by cancelling some or all of their debt.

Moreover, the states continue, before COVID, the Department of Education never relied on the HEROES Act to discharge student loans. Instead, it merely made minor changes to the program, such as extending the time for borrowers to start repaying their loans or temporarily pausing efforts to collect loans that were defaulted.

The Biden administration pushes back against the idea that the court should apply the major-questions doctrine to the debt-relief program at all. The doctrine, it writes, only applies in a specific kind of case, in which there is a mismatch between the extremely broad regulatory power that an agency is asserting and the text on which the agency relies, which gives “reason to hesitate before concluding that Congress” intended to provide that authority. Here, by contrast, the administration says, there is no such mismatch because the HEROES Act clearly authorizes the debt-relief program, by giving the secretary of education the specific power to waive or modify laws and regulations governing student loans. Indeed, the Biden administration notes, “a central purpose of the HEROES Act is to authorize the Secretary to grant student-loan debt relief to mitigate economic harms borrowers face from national emergencies.”

The states also contend that the debt-relief program must fall for an entirely separate reason: It is “arbitrary and capricious,” a normally deferential standard of review that instructs courts to look at whether an agency’s decision is reasonable and reasonably explained. They argue that the Biden administration failed to consider any more incremental options to help borrowers, such as extending repayment periods.

The administration insists that the decision to adopt the debt-relief program is precisely the kind of reasonable decision that passes muster under the “arbitrary and capricious” standard. The Department of Education, it writes, “examined the available economic and historical data and tailored the relief to the relevant statutory objective: ensuring that borrowers affected by the pandemic would not be in a worse position financially with regard to their student-loan obligations.”

The individual borrowers also challenge what they characterize as the department’s failure to follow the procedural requirements that normally apply to federal agencies, including providing the public with an opportunity to submit comments on the proposed plan, in adopting the debt-relief program. The Biden administration argues that the HEROES Act exempts the government from these requirements, but the borrowers counter that the department can sidestep procedural requirements only when the changes that it is making to the student-loan programs are authorized by the HEROES Act – which, they say, the debt-relief program is not.

One other issue that will almost certainly draw the justices’ attention at the Feb. 28 oral argument is the Biden administration’s recent announcement that, as of May 11, it will no longer classify COVID-19 as a national emergency. Even before the announcement, the states had already questioned the Biden administration’s reliance on the pandemic to justify the debt-relief program, calling it a pretext and suggesting that the real purpose of the program is to fulfill then-candidate Biden’s campaign promise. Although the White House insists that, even without the national emergency, the Department of Education still has the power to cancel student loan debt, the announcement may “add ammunition” to the challengers’ argument.

This article was originally published at Howe on the Court.