The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
Supreme Court Decides to Hear Second Case Challenging Legality of Biden's Loan Forgiveness Plan
Like the first case, it will be argued in February. In the meantime, the plan remains blocked.
Today the Supreme Court decided to hear Department of Education v. Brown, a second case challenging the legality of President Biden's $400 billion loan forgiveness plan. In a brief order, the Court indicated that the case will be argued in February, probably at the same time as the the other loan forgiveness case accepted by the justices: Biden v. Nebraska, a lawsuit brought by six Republican-controlled state governments. In the meantime, as in the other case, the Supreme Court refused to stay the lower court ruling against the plan, thereby ensuring it will remain blocked, at least until the oral argument, and probably until the Court issues a final decision on the merits. For reasons explained in my post about Biden v. Nebraska, the Justices' refusal to stay the lower-court decisions probably doesn't bode well for the Biden Administration.
The two cases are also similar in that both involve a dispute over standing, as well as one over the merits (the Supreme Court will consider both issues). But Brown is notable for being the only a case—so far—in which a court has reached a decision on the merits:
I summarized the Brown case here:
[Brown was] 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….
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…
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….
On the basis of this reasoning, Judge Pittman issued a ruling vacating the loan forgiveness policy, thereby effectively barring its implementation nationwide….
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…. 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….
As noted in my previous post discussing Brown, I think the plaintiffs' standing argument in this case is weaker than the one in Biden v. Nebraska. But perhaps a majority of Supreme Court justices disagrees. Regardless, I think it likely they will conclude that at least some of the plaintiffs in at least one of these cases do have standing. If so, I think it is also likely (though not certain) the Court will rule against the Biden Administration on the merits.
I have previously discussed Biden v. Nebraska 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 has, at least to this point, been the main obstacle to getting courts to strike down the plan, see here.
Some defenders of the program have argued that it can be better justified under the 1965 Higher Education Act, instead of the HEROES Act. I criticized this alternative rationale (which—so far, at least—has not been adopted by the Biden Administration) here.
To get the Volokh Conspiracy Daily e-mail, please sign up here.
Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Comments may only be edited within 5 minutes of posting. Report abuses.
Please
to post comments
The loan forgiveness plan is so brazenly illegal that I suspect the justices might give benefit of the doubt on the standing issue in order to reach the merits. Or maybe that’s just me wishcasting.
All are harmed when the president spends massive amounts of money without Congressional authorization. We have slid a little more towards dangers of the weasels and the power hungry, which was the whole point of the experiment.
Yea, there is something ugly about the whole pen-and-phone form of governance i.e., “if there is no plantiff, then it’s legal.” Particularly here, where the Biden Administration changed the program several times specifically to remove plaintiffs.
When they took the first case I said that the program was toast. Now I guess it is toasted on both sides.
Good. This detestable traitorous piece of shit needs to be reined in.
“Reined in”?? needs to be put in a Goddamn bottle and sent out with the Japanese current, like (Dr.) Hunter S. Thompson said about Hubert Horatio Hornblower, I mean Humphrey (remember when Jimmuh Cartuh said that? and he was only 55 at the time)
Frank
Really? An executive order providing debt relief arguably beyond what Congress authorized is treason? Do you even know what the word means?
If you would consider removing your head from its present location, perhaps you might see fewer pieces in your life.
No, the student debt transfer payments are not treason. Letting in millions of third world migrants for votes is.
And what would you call pandering to the masses, so you are now the embodiment of vox populi vox dei?
We don’t need no stinking constitution!
What is the definition of treason?
It’s not treason, but it’s a suspension of the Constitution. To use a phrase that has been current in the news.
That’s an interesting question. What defines “Treason?”
There are several definitions. One consists of three elements. “Three key elements enter into the crime of treason: an obligation of allegiance to the legal order, and intent and action to violate that obligation.”
It’s pretty clear that Biden has an obligation to the legal order. That should be without question.
Does his order to go around the US Congress to deliver $400 Billion worth of free money to select people represent an “intent and action” to violate that obligation?
An argument can be made that yes, it does. Biden very well knew that according to the legal order, such a massive dispersement needed to go through Congress. But he deliberately violated that obligation to go through Congress.
As much as I don’t like it, it doesn’t meet the legal definition of Treason.
“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.”
This is interesting….
Back in the 1950s, when you took out, say, a 20 year mortgage, the bank calculated out how much interest would be involved (over the 20 years) and considered that part of the debtor’s obligation. You could pay it off early, but the bank still demanded all 20 years worth of interest.
The bank argued “contract” and the debtors argued “unjust enrichment” and while I don’t know exactly why it changed, by the mid ’60s, banks weren’t allowed to do this anymore — and today people are encouraged to pay extra on their mortgage so as to pay it off early and thus save the interest charges.
IANAA but I believe this is true of all term loans — and as to credit cards, the statement explicitly states how much you will save in interest if you pay it all off sooner.
So why would the student loan servicers sue — how would they be harmed? My guess is that they are getting a monthly servicing fee that they wouldn’t be getting if the loan was paid off early. Which then raises the question of a pre-payment penalty — why isn’t that legal for student loans when it isn’t for any other loan?
It’s an understatement to say that student loans are byzantine, and student loan servicers are NOT nice people, but where is the harm that they could sue over? Who would be paying them the money (service fee or whatever) that they wouldn’t be getting if the loan were cancelled? And what is the difference between Brandon cancelling the loans and Brandon giving each debtor the total amount of the loan in restricted cash that could only be used for that purpose?
What am I missing here?
The other thing I’ve heard mentioned is that a forgiven loan is considered to be taxable income while something like the 10-year income based repayment for public service employment is not.
So your average public interest lawyer who is saving the world for $86,518 would be in the 22% Federal tax bracket and hence have to pay an extra $2,200 for a forgiven $10,000 loan, $4,400 if $20,000 were forgiven. And then Massachusetts would ask her for another $500 or $1000 — it varies by state.
This isn’t extra money the person is receiving in pay — let alone having withheld — and may not have handy, but I digress.
The suit I heard mention of involved a student who would be harmed by the cancellation because he would be liable for income taxes on the amount cancelled where he wouldn’t be under the terms of the income based repayment plan, and hence he would come out ahead financially (after taxes) if his student loan was NOT cancelled.
That one I’d love to see Brandon defend — his change in the rules will cost the student more.
Ed 2 – Section 108(f)(5) has a special provision that the student loan forgiveness will excluded from taxable income if discharged in 2021 through 2025. This is no provision in section 108 that would distinguish the discharge as being required to be discharged under a valid statute (as opposed by unconstitutional executive action).
Most state tax codes starting point for determining the states taxable income is the federal tax code with adjustments specific to each state. While I havent researched various states tax provisions, I would be doubtful that any state would have separate statute address the exclusion of the debt discharge income if not valid under applicable statute.
That being said, some states will have provisions that the starting point for their definition of taxable income is the the federal tax law as of a specific data (20xx for example). Texas partially uses that definition for their franchise tax. So it is possible that some states will tax the student loan forgiveness even if excluded from federal taxable income. (with the caveat that I havent heard any discussion of that issue so there may not be any states where that conflict arises)
Massachusetts probably will — or will try to.
Remember when (during Covid) the New Hampshire residents who were commuting to Boston instead worked from home — and MA *still* insisted they pay MA income taxes?
I didn’t know about Section 108(f)(5) — that may be why this suit didn’t get filed.
The other thing to remember is that student loan payments have been paused between March of 2020 and the summer of 2023 — that’s over three years!
So if you are only talking about a 10 year repayment, that has become a 6.75 year repayment (so far) and if you paid a few years BC (Before Covid) then what you would have to pay to reach 10 years under an income-based public-service plan well may be less than the taxes on the $10K/$20K forgiveness.
But what’s more likely is the $10K/$20K being deducted from a much larger loan. In this case the student will (a) still have to pay (the same amount) through the end of the 10 years AND pay the taxes on the forgiven portion of the loan — and come out behind. (This is because it doesn’t matter to the student how much is left after 10 years, it’s gone — and it doesn’t matter how much is gone.
So they’re getting “forgiven” for money they’re not even paying back in the first place, but it’s bad because it might hurt their credit score when they borrow even more money.
Paid cash for every car I’ve ever owned, (they were cheap cars until I made it) and cash for my McMansion, just the way I am (rich)
Frank
Paid cash for every single thing I own except for the house, and I’m about the pay that off in one lump sum.
Check your credit rating — you might be surprised.
A fisherman I know who only paid cash was surprised to learn how bad his credit rating was because he’d never borrowed money for anything.
I’m not saying this is right, only that it is.
“…but it’s bad because it might hurt their credit score when they borrow even more money.”
Well, if it hurts their credit rating — and if they can document that it would — isn’t that real harm that gives them grounds to sue?
IIRC, a plaintiff was in your first situation. The Administration added an opt-out provision.
Side note: It’s not relevant to your point, but everyone should remember that while the payments were suspended, the 10 year end-of-payments date was not changed. The net effect is that we’ve already de-facto forgiven a substantial amount of debt.
We need taxpayer standing for major expenses.
The JCN plaintiffs claimed that the plan had unfairly excluded them, that this was unlawful under the APA, and that if the court required APA public notice and comment, this could result in an including them.
Instead, the court found the program unlawful on constitutional grounds and enjoined it entirely.
The plaintiffs alleged they were injured in fact. But they didn’t claim to be injured by the program’s existence. Quite the opposite. They claimed they were injured by its being too narrow. And the striking the program down entirely did nothing whatsoever to relieve their injuries. With no program at all, they were still excluded, just like before. Their victory got them bupkus.
So while there was injury in fact, there was causality and no redressability. There was no standing to challenge the existence of the program itself. There had been standing to challenge the program’s excluding them, and the court could have ordered further APA review if it found their APA claim meritorious. But there was no standing to strike down the program in its entirety.
No causality and no redressability.