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    Biden v. Nebraska & Department of Education v. Brown

    STUDENT LOAN FORGIVENESS

    Does the Secretary of Education Have Authority to Grant Partial Forgiveness for Federal Student Loans, and Do States and Individuals Have Standing to Challenge the Secretary’s Action?

    Preview in the Classroom Lesson Plan >>

     CASE AT A GLANCE

    To ensure that federal student loan borrowers were not “in a worse position financially as a result of the COVID-19 pandemic,” the secretary of education granted up to $20,000 in student loan forgiveness to eligible federal student loan borrowers who met certain income standards. Six states and two student loan borrowers (who did not qualify for maximum relief) sued in separate lawsuits, arguing that the secretary lacked authority for his action. The secretary countered that the plaintiffs lacked standing, and that relief was authorized by the federal Higher Education Relief Opportunities for Students Act of 2003, the HEROES Act.

      Biden v. Nebraska
    Docket No. 22-506 

    Argument Date: February 28, 2023 From: The Eighth Circuit

    and

    Department of Education v. Brown
    Docket No. 22-535

    Argument Date: February 28, 2023 From: The Fifth Circuit

    by Steven D. Schwinn
    University of Illinois Chicago School of Law, Chicago, IL 

     Introduction

    The Higher Education Relief Opportunities for Students Act of 2003, or HEROES Act, authorizes the secretary of education to “waive or modify any statutory or regulatory provision applicable” to federal student loan programs in order to ensure that individuals who “suffered direct economic hardship as a direct result of ” a “national emergency,” as declared by the president, or who live or work in a “disaster area…in connection with a national emergency…are not placed in a worse position financially in relation to” their federal student loans. Secretary Miguel Cardona argues that his action falls squarely within this provision; the states and two borrowers argue that they do not. However, before the Court gets to that question, it must first determine whether the plaintiffs have standing to lodge their claims in federal court.

    Issues

    1. Do states and individual borrows have standing to challenge the secretary’s action granting forgiveness for federal student loans?
    2. Did the HEROES Act authorize the secretary to forgive portions of federal student loans for eligible borrowers so that they would not be in a “worse position” in light of the COVID-19 pandemic?

    Facts

    In August 2022, Secretary of Education Miguel Cardona adopted a two-part plan to target relief for individuals who were at a heightened risk of delinquency and default on their federal student loans because of the COVID-19 pandemic. First, Secretary Cardona directed the Department of Education to end the preexisting, across-the-board pause on all payments for all federal student loan borrowers on December 31, 2022. The secretary determined that the pause was no longer justified for all borrowers. But he also determined that when repayments resumed, lower-income borrowers would be at a heightened risk of delinquency and default because of the ongoing economic effects of the COVID-19 pandemic. So, he adopted the second part of his plan: he directed the Department of Education to issue up to $10,000 in student loan relief to borrowers with an adjusted gross income under $125,000 (or $250,000 for borrowers filing jointly) and up to $20,000 in student loan relief for qualifying Pell Grant borrowers (who have fewer resources and are at substantially greater risk of default).

    In support of the move, Secretary Cardona invoked his authority under the HEROES Act. That act authorizes the secretary to “waive or modify any statutory or regulatory provision applicable” to federal student loan programs in order to meet certain statutory objectives. One of those objectives is that an individual who “resides or is employed in” a natural disaster area or who “suffered direct economic hardship as a direct result of ” a “national emergency,” as declared by the president, “are not placed in a worse position financially in relation to” their federal student loans. 20 U.S.C. §§ 1098bb and 1098ee.

    The analysis by the Department of Education showed that relief was necessary to ensure that federal student loan borrowers would not be “in a worse position financially as a result of the COVID-19 pandemic.” The department reviewed data about borrowers transitioning back to repayment after a period of forbearance and data specific to the COVID-19 pandemic and its effects on borrowers. Those data showed rising delinquency rates on borrowers’ repayment obligations for commercial debt and private educational loans, a high percentage of borrowers who anticipated difficulty in meeting loan obligations, and “acute inflationary pressures” based on rising prices of basic household necessities. Moreover, the department noted that borrowers faced substantial financial penalties for delinquency or default on student loan payments, which only exacerbated the problems. The department concluded that loan relief for eligible borrowers would ameliorate these harms and ensure that delinquency and default rates would not rise above prepandemic levels.

    This was not the first time that the federal government provided relief for borrowers affected by the COVID-19 pandemic. In March 2020, then-Secretary of Education Betsy DeVos paused repayment obligations for federal student loans. Congress later directed the secretary to extend the pause through September 2020. Both the Trump administration and the Biden administration then extended pauses on repayment obligations (though the government did not grant forgiveness until August 2022). More generally, according to the government, “[s]ince 2003, the Secretary has repeatedly invoked the HEROES Act to provide categorical relief to borrowers affected by [other] emergencies….” But the government had never granted outright forgiveness of student loan debt under the HEROES Act, either because of the COVID-19 pandemic or any other emergency or disaster.

    Six states and two individuals, Myra Brown and Alexander Taylor, student loan borrowers who did not qualify for maximum forgiveness, sued in separate lawsuits. In the states’ suit, the district court dismissed the case for lack of standing. The United States Court of Appeals for the Eighth Circuit reversed, ruled for the states against the secretary’s forgiveness, and issued a nationwide injunction halting forgiveness. In the individuals’ suit, the district court ruled for the borrowers and similarly halted forgiveness nationwide. The United States Court of Appeals for the Fifth Circuit denied a stay pending appeal.

    The Supreme Court agreed to hear the two cases and set them for separate oral arguments on the same day.

    Case Analysis

    These cases raise two issues that will be discussed separately below.

    Standing

    In order to bring a case in federal court, a plaintiff must demonstrate that they suffered an injury that was caused by the defendant’s conduct and that would be redressed by the plaintiff’s requested relief from the court. The Court must determine that at least one plaintiff has standing in order to address the second issue, whether Secretary Cardona has authority to grant forgiveness. The two cases raise very different theories of standing, and thus will be addressed separately. (Although the government will argue before the plaintiffs, we summarize the plaintiffs’ arguments first, © 2023 American Bar Association 22

    so that you can see their theories of standing before we summarize the government’s responses.)

    The States’ Case

    The states argue first that forgiveness “threatens the direct loss of income from taxing student-loan discharges.” They point to the fact that their own tax laws follow federal tax law, which does not treat student loan discharges between 2021 and 2025 as taxable income. (This is a temporary measure. After 2025, federal law is set again to treat loan discharges as taxable income.) The states say that they “are set to begin taxing those discharges after 2025,” but that the secretary’s action “will reduce the number and amount of those loans now, which will inevitably decrease the States’ future tax revenue.” They say that this harm is sufficient to establish standing.

    The states argue next that when they first sued, the secretary’s action prompted borrowers to consolidate Family Education Loans—which are held by states and private lenders—into federal Direct Loans in order to qualify for forgiveness. Because the states hold Family Education Loans, they claimed that they would lose interest and revenue from their holdings when borrowers consolidated those loans into Direct Loans. The states say that the government’s move to drop the consolidation requirement has no impact on their harm (which they established when they first sued), and, in any event, the government could again prompt borrowers to consolidate at any time. (The Family Education Loan program ended in 2010, but there are still several million borrowers with outstanding debt.) 

    Finally, the states argue that forgiveness “will inflict substantial financial losses on MOHELA,” the Missouri Higher Education Loan Authority, a state-created entity that services student loans, and that those losses will also injure Missouri. The states say that Missouri created and controls MOHELA, and that MOHELA “performs essential public functions for the State.” “As such, MOHELA is part of Missouri,” and Missouri can sue to redress MOHELA’s harms. Moreover, the states contend that MOHELA’s harms from forgiveness “threaten[] to reduce, delay, or otherwise hinder MOHELA’s financial contributions to the State Treasury and the State financial-aid programs.”

    The government counters that the states lack standing based on any of their several theories. First, the government says that the states lack standing on the basis of their anticipated lost tax revenue. The government contends that this harm is self-inflicted (because the states voluntarily incorporate federal tax law into their own tax laws); that a federal policy’s incidental effects on state tax revenues are not cognizable harms for standing purposes; and that the secretary’s forgiveness would not be the direct cause of any loss in tax revenue.

    Next, the government says that the states lack standing on the ground that forgiveness encourages borrowers to consolidate Family Education Loans into federal Direct Loans. The government asserts that the department specifically prohibited borrowers with federal student loans not held by the department (which includes Family Education Loans) from receiving forgiveness by consolidating their loans into Direct Loans. (The government made this decision before the states sued and announced it the day they sued.) The department says that even if it allowed consolidation of Family Education Loans into Direct Loans, the states’ harm would result from the independent decision of borrowers (to consolidate), and not the secretary’s plan.

    Third, the government says that Missouri lacks standing on the ground that MOHELA will stop receiving servicing fees and fail to meet its obligation to contribute a specified amount of money to the state treasury. The government contends that nothing about federal loan forgiveness will cause MOHELA to default on its obligations to Missouri, and, in any event, MOHELA could independently decide to meet its obligations by cutting other expenditures.

    Finally, the government says that Missouri lacks standing on the basis that financial harms to MOHELA are financial harms to Missouri. The government asserts that Missouri established MOHELA as a separate corporation, apart from the state, and that Missouri lacks standing to sue on MOHELA’s behalf. (MOHELA, as an entity distinct from Missouri, wrote to a member of Congress late last year that it has no involvement in the case.)

    The Individuals’ Case

    Brown and Taylor argue that they both suffered injuries from the secretary’s action that would be redressed by judicial relief. In particular, Brown says that under the secretary’s action she is ineligible for relief because her loans are held by private entities, not the department; Taylor claims that he is eligible for only $10,000 in forgiveness, not $20,000, because he did not receive a Pell Grant. As to redressability, Brown and Taylor contend that a Court ruling against the secretary would cause the secretary to reconsider his decision to withhold full forgiveness from them, and that there is “some possibility” that the secretary would forgive their debts under different statutory authority.

    The government counters that Brown and Taylor lack standing because their requested relief (a ruling that forgiveness is unlawful) would not redress their injury. In fact, the government points out that if Brown and Taylor received their requested relief, nobody (including Brown and Taylor) would get forgiveness.

    The Secretary’s Authority

    The government argues that the HEROES Act authorizes forgiveness. The government states that forgiveness “respond[s] to the devastating economic consequences of the COVID-19 pandemic by granting targeted relief to borrowers at higher risk of delinquency and default due to the pandemic,” which falls squarely within the plain language of the act (quoted above). Moreover, the secretary contends that the purposes and history of the act support forgiveness. The secretary asserts that the major questions doctrine does not bar forgiveness, because forgiveness “involves no assertion of regulatory authority at all”; the HEROES Act provides plain authorization for forgiveness; and forgiveness is not a surprising or unusual action by the department. (The major questions doctrine says that an agency lacks regulatory authority when that authority concerns a question of “vast economic and political significance” and when Congress has not clearly authorized the agency to regulate.)

    The government argues next that the secretary’s action is reasonable, and that the secretary reasonably explained it. The government says that “the Secretary examined the available economic and historical data and tailored the relief to the relevant statutory objective.” 

    Finally, the government argues that the secretary’s action was procedurally proper. It says that the HEROES Act expressly exempts the secretary from the notice-and-comment procedures required by the Administrative Procedure Act. And it claims that the Education Act’s rulemaking procedures do not apply to waivers and modifications of student loans.

    The states and Brown and Taylor (hereafter referred to as the respondents) counter that forgiveness violates the major questions doctrine. They say that forgiving “almost a half-trillion dollars” in student loan debt is “undoubtedly a matter of economic and political significance” and represents a “breathtaking and transformative power beyond [the secretary’s] institutional role and expertise.”

    The respondents contend that the HEROES Act does not provide the kind of clear authority necessary for this kind of action. In particular, they say that the HEROES Act only authorizes the secretary “to keep borrowers from a ‘worse position’ by maintaining the status quo,” not to put borrowers in a better position. Moreover, they say that the act only authorizes the secretary to “waiv[e] or modif[y]” student loans—to make “moderate” and “minor” changes to borrowers’ loans—not to cancel them. (They note that “despite ample opportunity over the past two decades, the Department has never cancelled a single student’s debt through the HEROES Act.”) And they contend that the secretary did not sufficiently connect forgiveness with the COVID-19 emergency. (Instead, they say that the secretary’s invocation of the HEROES Act “mask[s] his true purpose—to fulfill the President’s campaign promise on student-loan forgiveness.”) They say that the secretary’s plan “includes all but the top five percent of earners,” including “most eligible borrowers” who “do not expect to need the relief given.”

    Finally, they argue that the secretary’s plan is arbitrary and capricious, in violation of the Administrative Procedure Act. They claim that the secretary failed to consider any alternatives to the plan, and that the secretary neglected to consider the states’ interests. They also contend that the secretary “fail[ed] to explain the abrupt shift in the consolidation pathway to eligibility.”

    Significance

    The secretary’s plan would have undoubtedly sweeping economic implications for millions of federal student loan borrowers. According to the White House, the plan could provide relief to 43 million student loan borrowers. It could outright cancel the full remaining balance for about 20 million borrowers. About 27 million Pell Grant recipients—who typically experience more challenges repaying their debts—would be eligible to receive up to $20,000 in relief. (About 93 percent of Pell Grant recipients earn less than $60,000 a year.) Other borrowers, except individuals who earn up to $125,000 or couples who earn up to $250,000, could receive up to $10,000 in relief. (Under the income qualifications, no borrower in the top 5 percent of incomes would receive relief.) In all, nearly 90 percent of the relief would go to those earning less than $75,000 a year. At the same time, the plan could cost the government nearly half a trillion dollars. And as the states argue, it could have a downstream effect on state tax receipts and other revenues.

    In short, there’s a lot at stake.

    But even if the Court ends this plan, it won’t necessarily end any relief plan. That’s because the government probably has authority to adopt this plan or a similar one pursuant to a different statute, the Higher Education Act. But before the government adopts a relief plan pursuant to the Higher Education Act, it must engage in notice-and-comment procedures under the Administrative Procedure Act. (This may be why the secretary didn’t rely upon the Higher Education Act in the first place.) Brown and Taylor seem to push this solution as a way to force the government to reconsider excluding them (and others similarly situated) from full relief. (Remember: they argue for standing purposes that a Court ruling striking the secretary’s plan could impel the secretary to consider even greater relief under the Higher Education Act.)

    In other words, the Court’s ruling in this case likely won’t end the government’s efforts to provide some form of loan forgiveness. But unless Congress specifically authorizes loan forgiveness—which seems extremely unlikely, given Republican control of the House and their desire to frustrate President Biden’s agenda (especially priorities such as loan forgiveness, a campaign promise)—any effort by the Biden administration, under any existing authority, will almost certainly get caught up in litigation. Unless the Court hands the administration an outright win, it will be a long while until we see any form of student debt forgiveness. (The Biden administration announced in late January that it would end the COVID-19 national emergency and public health emergency on May 11, 2023. This will likely come up at oral argument, and it could complicate the government’s defense of the secretary’s plan. The government says that it should have no effect on the plan, however, because many student loan borrowers will continue to suffer financial hardships—including a risk of student loan default—because of COVID, even if the formally declared emergencies end in May.)

    Of course, the Court need not address any of this. The first issue, standing, gives the Court a clear way to avoid it. And the Court may gravitate toward this option. After all, all of the plaintiffs’ theories of standing bend and break the Court’s existing standing doctrine. A ruling for the plaintiffs on standing could have sweeping implications that will invite all manner of federal litigation against federal executive actions, potentially hamstringing federal agencies across the board.

    Steven D. Schwinn

    Professor of law at the University of Illinois Chicago School of Law

    Steven D. Schwinn is a professor of law at the University of Illinois Chicago School of Law and coeditor of the Constitutional Law Prof Blog. He specializes in constitutional law and human rights. He can be reached at 312.386.2865 or [email protected].

    PREVIEW of United States Supreme Court Cases 50, no. 3 (November 28, 2022): 42–48. © 2022 American Bar Association 

    ATTORNEYS FOR THE PARTIES

    For Petitioners Joseph R.Biden, President of the United States, et al.(Elizabeth B. Prelogar, Solicitor General, 202.514.2217)

    For Respondents Nebraska, et al.(James A. Campbell, 402.471.2682)

    AMICUS BRIEFS

    In Support of Petitioners Joseph R.Biden, President of the United States, et al.

    • American Federation of Teachers; American Association of University Professors; and American Federation of State, County and Municipal Employees (Yelena Konanova, 212.390.9010)
    • Arch City Defenders and Legal Services of Eastern Missouri (Seth E. Mermin, 510.393.8254)
    • Atlantic Legal Foundation (Lawrence S. Ebner, 202.729.6337)
    • Borrower Advocacy and Legal Aid Organizations (Joshua David Rovenger, 216.297.7973)
    • Former Representative George Miller (Brianne Jenna Gorod, 202.296.6889)
    • Lawyers’ Committee for Civil Rights Under Law and 21 Other Organizations (David G. Hinojosa, 202.662.8600)
    • Legal Scholars (Jeffrey Benjamin Dubner, 202.383.0794)
    • Local Governments (Jonathan B. Miller, 646.831.6113)
    • Massachusetts, et al. (Elizabeth Napier Dewar, 617.963.2204)
    • National Association for the Advancement of Colored People (Andrew D. Silverman, 212.506.3727)
    • National Education Association (Alice Margaret O’Brien, 202.822.7035)© 2023 American Bar Association 25
    • Samuel L. Bray and William Baude (Melissa Arbus Sherry, 202.637.2200)
    • Six Veterans’ Organizations (Boris Bershteyn, 212.735.3000)
    • Student Loan Experts (Christopher J. Wright, 202.730.1325)

    In Support of Respondents Nebraska, et al.

    • 128 U.S. Representatives, Including 25 Members of the House Committee on Education and the Workforce (R. Trent McCotter, 202.706.5488)
    • America First Policy Institute (Craig William Trainor, 202.684.8361)
    • American Center for Law and Justice (Jay Alan Sekulow, 202.546.8890)
    • Americans for Prosperity Foundation and Advancing American Freedom (Michael David Pepson, 571.329.4529)
    • Buckeye Institute (David Christian Tryon, 614.244.4422)
    • Cato Institute (Anastasia Paulinna Boden, 202.216.1414)
    • Chamber of Commerce of the United States of America (Robert Edward Dunn, 408.889.1690)
    • Citizens United, Citizens United Foundation, and the Presidential Coalition LLC (William Jeffrey Olson, 703.356.5070)
    • Elisabeth Devos, Margaret Spellings, Roderick Paige, Lamar Alexander, Dr. William Bennett, and Defense of Freedom Institute for Policy Studies (Alex Akerman, 213.576.1000)
    • Empire Center for Public Policy, Inc. and Government Justice Center, Inc. (Misha Tseytlin, 608.999.1240)
    • Foundation for Government Accountability (Stewart Lee Whitson, 202.903.6741)
    • Hamilton Lincoln Law Institute and Committee for Justice (Theodore Harold Frank, 703.203.3848)
    • Liberty Justice Center (Daniel Robert Suhr, 312.637.2280)
    • Michael W. McConnell, William P. Barr, John Cogan, Mitch Daniels, Christopher DeMuth, C. Boyden Gray, James C. Miller III, John Michael “Mick” Mulvaney, Michael B. Mukasey, John B. Taylor, and Peter J. Wallison (William Ranney Levi, 202.736.8756)
    • New Civil Liberties Alliance (Markham Sterling Chenoweth, 202.869.5209)
    • Pacific Legal Foundation, Rep. Howard McKeon, Rep. John Kline, Rep. John Boehner (Caleb Joseph Kruckenberg, 202.888.6881)
    • Prof. Jed Handelsman Shugerman (Brian Himanshu Pandya, 202.776.7807)
    • Protect Democracy Project (Justin Grant Florence, 202.774.4234)
    • Senator Marsha Blackburn and 42 Other Members of the United States Senate (Steven Andrew Engel, 202.261.3369)
    • Utah, Ohio, and 15 Other States (Melissa Ann Holyoak, 801.538.9600)

    In Support of Neither Party

    • Former Representative George Miller (Brianne Jenna Gorod, 202.296.6889)
    • Professor Lawrence A. Stein (Lawrence A. Stein, 312.929.5741)

    ATTORNEYS FOR THE PARTIES IN 22-535

    For Petitioners Department of Education, et al.(Elizabeth B. Prelogar, Solicitor General, 202.514.2217)

    For Respondents Myra Brown, et al.(John Michael Connolly, 703.243.9423)

    AMICUS BRIEFS

    In Support of Petitioners Department of Education, et al.

    • American Federation of Teachers; American Association of University Professors; and American Federation of State, County and Municipal Employees (Yelena Konanova, 212.390.9010)
    • Atlantic Legal Foundation (Lawrence S. Ebner, 202.729.6337)
    • Borrower Advocacy and Legal Aid Organizations (Joshua David Rovenger, 216.297.7973)
    • Lawyers’ Committee For Civil Rights Under Law and 21 Other Organizations (David G. Hinojosa, 202.662.8600)
    • Legal Scholars (Jeffrey Benjamin Dubner, 202.383.0794)
    • Massachusetts, et al. (Elizabeth Napier Dewar, 617.963.2204)
    • National Education Association (Alice Margaret O’Brien, 202.822.7035)
    • Samuel L. Bray and William Baude (Melissa Arbus Sherry, 202.637.2200)
    • Six Veterans’ Organizations (Boris Bershteyn, 212.735.3000)

    In Support of Respondents Myra Brown, et al.

    • 128 U.S. Representatives, Including 25 Members of the House Committee on Education and the Workforce (R. Trent McCotter, 202.706.5488)
    • America First Policy Institute (Craig William Trainor, 202.684.8361)
    • American Center for Law and Justice (Jay Alan Sekulow, 202.546.8890)
    • Americans for Prosperity Foundation and Advancing American Freedom (Michael David Pepson, 571.329.4529)
    • Buckeye Institute (David Christian Tryon, 614.244.4422)
    • Cato Institute (Anastasia Paulinna Boden, 202.216.1414)
    • Chamber of Commerce of the United States of America (Robert Edward Dunn, 408.889.1690)
    • Elisabeth Devos, Margaret Spellings, Roderick Paige, Lamar Alexander, Dr. William Bennett, and Defense of Freedom Institute for Policy Studies (Alex Akerman, 213.576.1000)
    • Empire Center for Public Policy, Inc., and Government Justice Center, Inc. (Misha Tseytlin, 608.999.1240)
    • Hamilton Lincoln Law Institute and Committee for Justice (Theodore Harold Frank, 703.203.3848)
    • Landmark Legal Foundation (Michael James O’Neill, 703.554.6105)
    • New Civil Liberties Alliance (Markham Sterling Chenoweth, 202.869.5209)
    • Pacific Legal Foundation, Rep. Howard McKeon, Rep. John Kline, and Rep. John Boehner (Caleb Joseph Kruckenberg, 202.888.6881)
    • Prof. Jed Handelsman Shugerman (Brian Himanshu Pandya, 202.776.7807)
    • Protect Democracy Project (Justin Grant Florence, 202.774.4234)
    • Senator Marsha Blackburn and 42 Other Members of the United States Senate (Steven Andrew Engel, 202.261.3369)
    • Utah, Ohio, and 15 Other States (Melissa Ann Holyoak, 801.538.9600)

    In Support of Neither Party

    • Professor Lawrence A. Stein (Lawrence A. Stein, 312.929.5741)