The Volokh Conspiracy

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Loan Forgiveness Litigation Roundup

This post covers significant developments in cases challenging Biden's loan-forgiveness plan other than the one Supreme Court has decided to hear.

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Silhouettes of students wearing caps. The students are made out of money.

In this post, I provide a long-promised round-up of developments in the litigation over Biden's massive $400 billion loan forgiveness program, other than the case the Supreme Court recently decided to hear (a lawsuit brought by six GOP-controlled state governments). For those who just want to focus on the Supreme Court case,  I have gone over it and the associated lower court decisions here, here, here, here, and here. For my more general critique of the legal rationale for the loan forgiveness program – which has much in common with Donald Trump's attempt to divert funds to build his border wall – see here. For an overview of the issue of standing, which may be the main obstacle to getting courts to strike down the plan, see here.

Probably the most significant of the other cases challenging the loan forgiveness program is one brought by the conservative Job Creators Network (JCN) on behalf – somewhat ironically – of  two plaintiffs who contend the program isn't generous enough. In what was likely an effort to forestall lawsuits by ensuring there are no potential plaintiffs with standing, the administration excluded from its plan borrowers whose federal student loans are held by private commercial lenders. The latter were seen as more likely to sue than other student loan servicers.

One of plaintiffs in the JCN case is among the borrowers excluded from the Biden plan as a result of this move. The other qualifies for only $10,000 in relief, as opposed to the $20,000 he would get if he were a Pell Grant recipient. They argue they have standing because administration adopted the plan without going through the "notice and comment" procedure normally required by the Administrative Procedure Act, which would have given them an opportunity to criticize their exclusion, and urge that the program be broader in scope. The plaintiffs cite precedent indicating that deprivation of a procedural right can sometimes qualify as an "injury" for standing purposes, even if that deprivation doesn't automatically lead to the loss of any material benefit.

In a ruling issued on November 10, federal District Court Judge Mark T. Pittman accepted this procedural rights standing theory. He therefore addressed the merits of the case – becoming the first judge to do so. On the merits, he concluded that the 2003 HEROES Act, the legislation the Biden Administration relies on, does not authorize the program:

The Constitution vests "all legislative powers" in Congress. This power, however, can be delegated to the executive branch. But if the executive branch seeks to use that delegated power to create a law of vast economic and political significance, it must have clear congressional authorization. If not, the executive branch unconstitutionally exercises "legislative powers" vested in Congress. In this case, the HEROES Act… does not provide the executive branch clear congressional authorization to create a $400 billion student loan forgiveness program. The Program is thus an unconstitutional exercise of Congress's legislative power and must be vacated…

Judge Pittman concludes that, under current Supreme Court precedent, the loan forgiveness program qualifies as a policy addressing a "major question" and therefore requires clear congressional authorization, which the HEROES Act doesn't grant:

The major-questions doctrine applies if an agency claims the power to make decisions of vast "economic and political significance…" It is unclear what exactly constitutes "vast economic significance." But courts have generally considered an agency action to be of vast economic significance if it requires "billions of dollars in spending." King v. Burwell, 576 U.S. 473, 485 (2015).  For example, the Supreme Court in Alabama Association of Realtors v. Department of Health & Human Services reasoned that an economic impact of $50 billion was of vast economic significance. 141 S. Ct. 2485, 2489 (2021). Similarly, the Fifth Circuit in BST Holdings, L.L.C v. OSHA held that $3 billion in compliance costs was enough to trigger the major-questions doctrine. 17 F. 4th 604, 617 (5th Cir. 2021). Because the Program will cost more than $400 billion—over 100 times more than the amount in BST Holdings and 20 times more than the amount in Alabama Association of Realtors—it has vast economic significance.

I am not convinced that the expenditure of even a few billion dollars is enough to qualify as a "major question." But $400 billion is surely sufficient by any plausible standard. I think Judge Pittman is also right that the HEROES Act does not provide anything approaching clear authorization for the program. I made a similar argument here.

On the basis of this reasoning, Judge Pittman issued a ruling vacating the loan forgiveness policy, thereby effectively barring its implementation nationwide (this vacatur is separate from the nationwide injunction ordered by the Eighth Circuit in the case currently before the Supreme Court).

Judge Pittman is on more questionable ground in his ruling on standing. Even if deprivation of a procedural right is potentially a sufficient injury, it's not clear that a ruling holding that the program is unconstitutional provides redress for that injury ("redressability" is one of the requirements for standing, in addition to injury and causation). Judge Pittman concedes that the HEROES Act doesn't require the use of the APA notice and comment provision, and that – therefore – there is no violation of the APA if the administration was justified in relying on the HEROES Act.  If I understand him correctly, he gets around this problem by arguing that, if the court strikes down the HEROES Act rationale for the policy, the Biden administration might go back to the drawing board and try to find some other way to implement loan forgiveness, perhaps one that is subject to the APA, and therefore will give the two plaintiffs a chance to participate in the notice and comment process.

This strikes me as highly speculative. But I admit I am not expert on the highly specialized doctrine of procedural rights standing.  So perhaps I'm missing something. It's worth noting that the US Court of Appeals for the Fifth Circuit recently refused to set aside the District Court order while the appellate process proceeds. That's hardly a definitive decision on the matter. But it does suggest that the three judges on the panel (including a Democratic appointee, Judge James Graves) believe there is some validity to Judge Pittman's reasoning on both standing and the merits. The Biden Administration has asked the Supreme Court to stay Judge Pittman's order, or – alternatively – to hear the case on the merits, as it has already decided to do with the case filed by the six states.

The other notable case challenging the program is that brought by the Pacific Legal Foundation on behalf of one of their own attorneys, Frank Garrison. I have previously written about this case and its standing theory here and here. As previously noted, PLF is also my wife's employer, though she is not one of the attorneys working on the case.

PLF's clever rationale for standing is that Garrison will actually lose money if he is covered by the Biden plan, because the state of Indiana (where he lives) will tax the resulting gains, but exempts from taxation loan forgiveness he will soon qualify for under another federal program (if he doesn't previously get loan forgiveness under the Biden plan).

On October 21, a US district court ruled that Garrison nonetheless lacks standing, because the real cause of his injury is not the Biden plan but Indiana's tax law. I think that ruling is dubious, for reasons described here. Since then, the US Court of Appeals for the Seventh Circuit denied Garrison's motion for a temporary injunction against the program, pending appeal, and he was also unsuccessful in an attempt to get the Supreme Court to institute such an injunction.

In addition to the causation issue, the Garrison case also faces the problem that the Biden administration has – likely in reaction to his lawsuit – created an opt-out from the loan forgiveness program. Whether that eliminates his injury is an issue currently before the Seventh Circuit. In my view, whether the opt-out solves the problem depends in large part on how costly and difficult it is to take advantage of it. That issue is before the Seventh Circuit, as well.

There have also been a number of cases dismissed by lower courts for lack of standing, because they ultimately relied on some version of the "taxpayer standing": the injury they claimed was that the vast expenditure of funds under the plan would saddle them and other taxpayers with a higher federal debt burden or other similar costs. this is in fact the biggest injury created by the plan. I think it's ridiculous that taxpayers lack standing to challenge massive potentially illegal diversions of federal funds. But that's what current Supreme Court precedent says. And the justices are unlikely to change it anytime soon. So I will not analyze these cases in detail unless the Court unexpectedly reverses the relevant precedent (which I do not expect).

Meanwhile, the Biden Administration has extended the moratorium on student loan payments (first enacted at the start of the Covid crisis) until June 30. This is not loan forgiveness (borrowers still have to repay the principal), but does free borrowers from having to pay interest during the time of the freeze. If the administration loses the loan forgiveness litigation, it may be tempted to extend the moratorium still further. At that point, there could perhaps be new litigation over whether such indefinite extensions are themselves legal.

Ultimately, for reasons I summarized here, the fate of the other cases challenging the loan forgiveness program is now tied to the one before the Supreme Court:

If the Court reaches the merits, that will effectively render the other cases irrelevant [as the Court will have decided the issue they seek to litigate]. If they refuse to do so because they conclude the plaintiffs lack standing, that makes it unlikely that anyone else can ever get standing to challenge the plan, because the plaintiffs here have a stronger rationale for standing than any others so far….

The one exception to the generalization about standing is that the newly Republican-controlled House of Representatives could potentially get standing to file a suit even if the state plaintiffs can't. See my discussion of the relevant precedent  here. If the Court dismissed the six-state lawsuit on standing grounds, I would expect the GOP-controlled House to file their own lawsuit – following the precedent set by the then-Democratic-controlled House when it challenged Trump's border wall diversion, and the DC Circuit ruled they had standing to do so. Or at least I expect congressional Republicans to do so if they can get their act together and elect a Speaker of the House (which, at this point, is by no means certain).

While the Supreme Court's intervention in the Eighth Circuit case has reduced its significance, Judge Pittman's ruling could potentially serve as a partial roadmap for a Supreme Court decision on the merits. Pittman's explanation of why the major questions doctrine applies is particularly relevant, though the Court could well conclude that the HEROES Act doesn't authorize Biden's massive program, even aside from that rule.

The standing issues in the other cases challenging the loan forgiveness program are also potentially significant. Their resolution could set precedents for standing in other situations, including ones with no connection to loan forgiveness. As a longtime advocate of broad standing rights, I hope the plaintiffs prevail on standing, even their doing so no longer has much significance for the loan forgiveness issue.

UPDATE: I have made minor additions to this post.