8th Circuit Rules States Have Standing to Challenge Biden's Loan Forgiveness Plan [Updated]

The decision overrules a trial court ruling and likely paves the way for a decision on the merits striking down the program.

Earlier today, a three-judge panel of the US Court of Appeals for the Eighth Circuit unanimously concluded that at least some of the six states challenging the legality of President Biden's plan to forgive some $400 billion in student loan debt have standing to challenge the program. This decision reversed a badly flawed district court ruling going the other way. In my post criticizing the lower court decision, I  said that "it is likely that the US Court of Appeals for the Eighth Circuit will overturn this decision." They have now done exactly that. Here is the key part of today's ruling:

This case centers on the plaintiff States' request to preliminarily enjoin the United States Secretary of Education ("Secretary") from implementing a plan to discharge student loan debt under the Higher Education Relief Opportunities for Students Act of 2003…

Key to the district court's rationale was its conclusion that the State of Missouri could not rely on any harm the Missouri Higher Education Loan Authority ("MOHELA") might suffer on account of the Secretary's cancellation of debt. The States appealed and moved for a preliminary injunction pending appeal….

The district court's analysis began and ended with standing….We begin by examining the standing of the State of Missouri and, like the district court, focus on MOHELA. MOHELA's unique mix of legal attributes and authority have led to differing opinions as to whether it is an "arm of the state" of Missouri for purposes of being entitled to sovereign immunity. The core issue before this court, however, is whether the alleged harm from the Secretary's debt discharge plan, considering the role of MOHELA, is sufficient to meet the requirements for Article III standing for Missouri.

The relationship between MOHELA and the State of Missouri is relevant to the standing analysis. MOHELA was created by the General Assembly of Missouri. See Mo. Rev. Stat. § 173.360. It is governed by a seven-member board composed of five members appointed by the Governor of Missouri, as well as the Missouri State Commissioner of Higher Education and a member of the Missouri State Coordinating Board of Higher Education. Id. After its creation, the Missouri General Assembly expanded MOHELA's purpose to include "support[ing] the efforts of public colleges and universities to create and fund capital projects." Id. Relatedly, the General Assembly established the Lewis and Clark Discovery Fund ("LCD Fund") from which the General Assembly may annually appropriate moneys for certain purposes, including "funding of capital projects at public colleges and universities." Id. § 173.392. Most significantly, Missouri law, id. § 173.385.2, specifically directs MOHELA to distribute $350 million "into a fund in the State Treasury" for this program…..

Given this statutory framework, MOHELA may well be an arm of the State of Missouri under the reasoning of our precedent. See Pub. Sch. Ret. Sys. of Mo. v. St. Bank & Trust Co., 640 F.3d 821, 826–27, 833 (8th Cir. 2011) (applying the test to determine whether sovereign immunity applies and holding Missouri public school employment retirement systems were arms of the state). In fact, a number of district courts have concluded that MOHELA is an arm of the state…..

But even if MOHELA is not an arm of the State of Missouri, the financial impact on MOHELA due to the Secretary's debt discharge threatens to independently impact Missouri through the LCD Fund. It is alleged MOHELA obtains revenue from the accounts it services, and the total revenue MOHELA recovers will decrease if a substantial portion of its accounts are no longer active under the Secretary's plan. This unanticipated financial downturn will prevent or delay Missouri from funding higher education at its public colleges and universities. After all, MOHELA contributes to the LCD Fund but has not yet met its statutory obligation.

Due to MOHELA's financial obligations to the State treasury, the challenged student loan debt cancellation presents a threatened financial harm to the State of Missouri…. Consequently, we conclude Missouri has shown a likely injury in fact that is concrete and particularized, and which is actual or imminent, traceable to the challenged action of the Secretary, and redressable by a favorable decision. Missouri, therefore, likely has legal standing to bring its claim. And since at least one party likely has standing, we need not address the standing of the other States.

This is exactly right. The Biden Administration's loan forgiveness plan would cause MOHELA and other loan servicers to lose revenue from servicing the loans they administer. And this in turn will cause financial losses to Missouri's treasury. Because MOHELA is a state agency, I think a loss to MOHELA is necessarily a loss to the state, even aside from the special LCD arrangement described by the 8th Circuit. But the latter makes the case for standing even stronger.

These points render irrelevant MOHELA's recent statement that they were not involved in the decision to bring a case against the loan forgiveness program. Even if MOHELA's leadership isn't taking part in the lawsuit - and, indeed, even if they oppose it- the fact remains that MOHELA is owned by the state of Missouri, and its financial losses are necessarily also losses to the state. Indeed, the very same letter in which the agency disclaims involvement in the lawsuit also indicates that MOHELA is "a government entity" and "a public instrumentality of the State of Missouri." If so, any financial injury the Biden loan forgiveness program inflicts on MOHELA also qualifies as a financial injury to the state.

In addition to ruling that the state of Missouri has standing to bring this case, the 8th Circuit also granted the plaintiffs' motion for a preliminary injunction blocking implementation of the loan forgiveness program until such time as the court resolves the appeal on the merits:

Having addressed the threshold standing issue, we turn to the balancing of the equities and the probability of success on the merits. Not only do the "merits of the appeal before this court involve substantial questions of law which remain to be resolved," Walker, 678 F.2d at 71, but the equities strongly favor an injunction considering the irreversible impact the Secretary's debt forgiveness action would have as compared to the lack of harm an injunction would presently impose. Among the considerations is the fact that collection of student loan payments as well as accrual of interest on student loans have both been suspended. We conclude "the equities of this case require the court to intervene to preserve the status quo pending the outcome" of the States' appeal, id., and that the States have satisfied the standard for injunctive relief pending review…

Here, I think the court needed to say more. As the above passage suggests, the standard for granting a preliminary injunction includes the requirement that the plaintiffs prove they are likely to succeed on the merits. It is not enough to say merely that the issue before the court is a "substantial question of law." For whatever reason - perhaps a desire to issue this ruling as quickly as possible - the Eighth Circuit panel essentially skipped this part of the analysis.

However, with the standing issue no longer blocking them, the plaintiffs are in fact likely to succeed on the merits, because the government's arguments for the legality of the loan forgiveness plan are extremely weak. I summarized the reasons why here. In a later post, I  explained why the same is true of a possible alternative justification under the 1965 Higher Education Act.

Today's ruling is not a final decision on the merits. That will come later. However, despite their failure to include all the necessary reasoning, I think it's unlikely that the Eighth Circuit panel would have issued an injunction against the program if they did not think it likely they would ultimately strike it down.

It is also worth noting that this is actually the second nationwide injunction against the Biden loan forgiveness program. A federal district court in Texas issued an injunction against last week in a ruling that actually reached the merits. But the state lawsuit before the Eighth Circuit is more likely to ultimately succeed, because at least some of the states have a stronger argument for standing.

It is worth emphasizing that the Biden Administration and its supporters in this litigation have adopted what once would have been considered extremely conservative positions on standing. Traditionally, liberals have argued for permissive standing rules, so as to make it easier to vindicate constitutional rights against abusive governments, while many conservatives have claimed that standing restrictions are a valuable tool for combating judicial "activism." While this is not the first-ever role reversal on standing issues, it's a particularly dramatic example.

For those keeping score, I have long taken the traditionally "liberal" view on standing restrictions, and indeed gone still further by advocating  their complete abolition.  Loan servicers like MOHELA have a strong case for standing even under the Supreme Court's current relatively restrictive standards.

In addition, if standing requirements are so tight that no one has the ability to bring suit against a massive potentially illegal $400 billion executive branch raid on the Treasury, that would be a grave menace to the constitutional separation of powers. Even if you believe Biden can be trusted with such sweeping unilateral authority over the federal budget, you might not feel the same way about the next GOP president.  Biden's actions here actually have much in common with Donald Trump's effort to use emergency powers to divert funds to build his border wall.

I will have more to say about recent developments in the Texas case and other lawsuits challenging the Biden loan forgiveness program later this week. Because of the press of competing commitments, I have not had a chance to comment on these developments since late October. But I hope to make up for that in the near future.

UPDATE: As justification for not considering the plaintiffs' likelihood of success on the merits, the court in this case cites a 1982 Eighth Circuit ruling holding that "where the movant has raised a substantial question and the equities are otherwise strongly in his favor, the showing of success on the merits can be less." But saying that the likelihood of success on the merits "can be less" is not the same thing as concluding that it can be ignored completely. In addition, since 1982, the Supreme Court has repeatedly reiterated that a "plaintiff seeking a preliminary injunction" does in fact have to "establish that he is likely to succeed on the merits." It has not recognized any exceptions for situations where there is a "substantial question" of law at stake. Indeed, it applied the "substantial likelihood" standard in last year's eviction moratorium case, where there undeniably was a "substantial question" of law on a important issue. This intervening Supreme Court precedent supersedes any previous lower court precedent to the contrary - including the 1982 Eighth Circuit decision.