How Student Loan Forgiveness Could Win at the Supreme Court

If the Biden administration’s debt-relief plan survives the U.S. Supreme Court, some legal experts say it will likely be because of standing—or rather, the plaintiffs’ lack of it.

The question of standing has been a key theme in the recent legal battle over the Biden administration’s plan to forgive up to $20,000 in federal student loans for eligible Americans. Critics have to first find plaintiffs who could challenge the plan in federal court, though several federal judges have rejected many of standing theories presented.

Article III of the U.S. Constitution limits the kinds of cases that can be brought through the federal court system in order to prevent the judicial branch from overstepping its bounds, and a series of court opinions has clarified the doctrine of standing. In order to sue in federal court, plaintiffs have to show that they’ve been injured by the policy they are challenging, that the government is responsible for that harm and that the relief sought would redress those injuries. The standing threshold, which is generally higher when suing the federal government, must be cleared first before the court can consider the merits of the case.

In one of two lawsuits to reach the Supreme Court so far, six states—Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina—allege that the debt-relief plan will harm state revenues and agencies that hold student loans. In the other, two Texas residents challenged the debt-relief plan because they wouldn’t benefit from all the provisions and didn’t have the chance to comment on the proposal. The administration called the arguments for standing “highly speculative” and “convoluted” in court filings.

In an effort to shield the debt-relief program from legal challenges, the administration has worked to weaken the standing arguments rather than change the program or the legal justification for it—as some have called on the administration to do. The focus on standing is essentially an effort to cut the lawsuits off at the knees. If the parties challenging the plan can’t clear the standing threshold, then the justices shouldn’t consider the other arguments arguing that the debt-relief plan is illegal.

Legal experts caution that the Supreme Court can do what it wants, though.

“The Supreme Court has not always been a model of consistency when it comes to application of the [standing] doctrine,” said Stephen Vladeck, a professor at the University of Texas School of Law, at a virtual press conference hosted by We The 45 Million, a debt cancellation advocacy group, last month. “It is entirely possible that for justices who want to reach the legality of the student loan program, they will nevertheless find ways, however inconsistently with their prior decisions, to justify standing in these cases.”

Vladeck said the two cases before the court “have pretty serious standing problems” and face “an uphill battle.”

Still, he doesn’t expect the court’s final decision to come down to the lack of standing.

“I think it’s probably likely that the court wants to reach the merits and at least one of these cases, but at least based on the Supreme Court’s existing jurisprudence, there should not have been Article III standing in either of these cases,” he said.

Two conservative law professors at the University of Notre Dame and the University of Chicago argued in an amicus brief that though they think the debt-relief program is unlawful, the court should toss the lawsuits because of lack of standing.

“The standing theories that have been thrown at the wall in these cases are wrong, and many of them would have dangerous implications,” wrote Samuel Bray, the Notre Dame professor, and William Baude, who is at the University of Chicago.

The amicus briefs in support of the states and Texas residents are due at the end of the week.

The Supreme Court will hear oral arguments Feb. 28, and whether the parties have standing to challenge the debt-relief plan will be one of the two questions before the justices. Experts say they will be listening for how much of the questioning focuses on the different theories of standing that have been outlined in court filings as a way to see which way the court is leading.

The States

Much of the states’ standing argument focused on how Missouri Higher Education Loan Authority (MOHELA), a state-created entity and federal loan servicer, would be affected by the debt-relief program.

In filings, lawyers representing the states argue that the debt-relief plan threatened half of the direct loans in MOHELA’s portfolio, which would hurt the agency’s bottom line and hinder its ability to contribute to state funds. The agency’s revenue is based in part on the number of accounts it services. Last fiscal year, MOHELA brought in $88.9 million, which accounts for about three-quarters of its revenue, from servicing 5.2 million direct loan accounts, according to the states’ brief.

MOHELA contributes money to state funds that go toward construction projects at public colleges and universities in Missouri, though it’s about $105.1 million short of its $350 million obligation. It also transfers money to state scholarship and grant programs.

“By hindering MOHELA’s contributions to the state, the program risks financial injury to Missouri,” the states’ brief says. “The government also argues that accepting this standing theory would allow ‘banks [to] sue anyone who causes financial harm to their borrowers.’ Yet unlike a bank’s arms-length [sic] relationship with borrowers, Missouri created MOHELA, selects its members, tasked it with performing essential functions for the state, and directed it to return funds to the state.”

The Biden administration has argued the MOHELA and Missouri are separate entities, and that the state can’t claim an injury on behalf of the loan servicer, which is not involved with the lawsuit.

A federal judge sided with the administration and tossed the case in late October, but the U.S. Court of Appeals for the Eighth Circuit determined that the student loan forgiveness plan would threaten Missouri financially, giving the state standing to sue. The court didn’t weigh in on the states’ other standing arguments when it issued an opinion blocking the program.

“It is pure speculation that, if the plan causes a reduction in MOHELA’s revenues, MOHELA will respond by defaulting on its obligations rather than, say, cutting its other expenditures,” the administration’s brief says. “In any event, the Eighth Circuit cited no authority for the proposition that, if A causes financial harm to B, and B owes money to C, C has standing to sue A.”

The Texas Lawsuit

In Texas, Myra Brown and Alexander Taylor sued to block the debt-relief plan because they wouldn’t benefit from it and didn’t have a chance to comment on the proposal. Brown does not qualify for debt relief under the plan because she has commercially held federal loans, while Taylor doesn’t qualify for the additional $10,000 for Pell Grant recipients because he didn’t receive a Pell Grant.

The Job Creators Network Foundation, which is run by Republican donor Bernie Marcus, is backing Brown and Taylor’s suit, which hinges largely on procedural rights.

A federal judge in Texas sided with Brown and Taylor, finding that they had standing because the program wasn’t lawful under the Higher Education Relief Opportunities for Students Act of 2003. The HEROES Act allows the administration to waive or modify provisions of student loan programs to provide relief for borrowers affected by war, military operation or national emergency without going through the negotiated rule-making or public comment process. Brown, Taylor and the states have taken issue with the administration’s use of the HEROES Act to justify the loan-forgiveness program.

Brown and Taylor’s attorneys argued that if they had been able to weigh in on the debt-relief plan, then the administration might have changed the terms of the proposal to include them.

“That [Brown and Taylor] have no legal entitlement to debt forgiveness doesn’t mean that they lack concrete interests,” their brief says. “Individuals similarly have standing when they are deprived of an opportunity to pursue a benefit.”

The administration argued that vacating the debt-relief program wouldn’t address Brown and Taylor’s issues with the plan because “it would mean that nobody gets any debt relief at all.”

Brown and Taylor countered that the administration could use the Higher Education Act of 1965 to forgive student loans.

“The Government’s myopic focus on the HEROES Act makes sense only if that statute were the only authority for student-loan forgiveness,” their brief says. “But that premise isn’t correct. The HEA gives the Secretary the power to ‘compromise, waive, or release any right, title, claim, lien, or demand.’ … A ruling that the program isn’t authorized by the HEROES Act wouldn’t preclude the Secretary from forgiving respondents’ debts under the HEA.”

Christopher Walker, a conservative law professor at the University of Michigan, said he expects standing to take up a lot of the court’s time. To have standing to sue, he said an individual or entity has to prove they’ve been directly harmed by a policy.

“A generalized grievance doesn’t give you standing,” he said. “There’s generalized harm for sure. They’re spending like $300 or $400 billion, but that’s not specific.”

Walker said he was surprised the lawsuits reached the high court, but he thought the states’ case was the strongest case.

“It’s hard to find standing for this,” he said. “It’s hard when the government is giving out money and not actually taking money from someone else.”

But, if the parties can clear the standing threshold, “the Biden administration is going to lose,” he said.