On November 10, 2022, a federal district court in the Northern District of Texas entered judgment in favor of two plaintiffs on an Administrative Procedure Act (APA) claim seeking vacatur of the Biden administration’s plan to forgive approximately $400 billion in federal student loans under the HEROES Act of 2003. The court, citing a rarely used provision in Rule 65 of the Federal Rules of Civil Procedure, converted the plaintiffs’ motion for a preliminary injunction into a motion for summary judgment over the Biden administration’s objection, and then entered a final ruling on the merits that will (along with the still-pending administrative stay entered by the Eighth Circuit) prohibit the Biden administration from moving forward with its loan forgiveness plan—at least unless and until the administration obtains a stay and/or reversal of the court’s judgment in the Fifth Circuit Court of Appeals, which it has already sought.

The complaint in the Texas action was grounded on the assertion that the administration failed to provide requisite opportunity for notice and comment by the public on the proposed rulemaking, which, according to the student-loan-borrower plaintiffs, might have allowed them to influence the loan forgiveness program’s parameters in such a way that it would benefit them, or benefit them to a greater extent. As with several other legal challenges to the loan forgiveness plan, the threshold question was whether the plaintiffs had standing that would allow the court to exercise jurisdiction.

In a detailed analysis, the court rejected the Biden administration’s contention that no plaintiff has standing to challenge government action where the government is conferring a benefit, citing Supreme Court case law where such challenges had been entertained in other instances. From there, turning to the plaintiffs’ specific contentions as to standing, the court concluded that the plaintiffs suffered an injury-in-fact based on the denial of their procedural notice-and-comment rights. Although the HEROES Act itself is exempt from notice-and-comment obligations, the Court credited plaintiffs’ argument that if the loan forgiveness plan is not authorized by the HEROES Act, then the rule-making would be subject to an ordinary notice-and-comment period, which did not occur. That, according to the court, supported plaintiffs’ claim of a concrete injury based on their loss of an opportunity to pursue greater loan forgiveness benefits through the deliberative rule-making process. The court concluded that other key elements of standing, such as causation and redressability, were also satisfied.

On the merits of the converted motion for summary judgment, the court relied heavily on the Supreme Court’s recent ruling in West Virginia v. EPA, 142 S. Ct. 2587 (2022), in which the Court offered “crystallization of the long-standing major-questions doctrine,” which allows courts to review for whether executive action on matters of “economic and political significance” is supported by “clear congressional authorization.” The Texas court concluded that the loan forgiveness plan easily qualified as a matter of vast economic and political significance based on, among other things, its $400 billion price tag and the several failed congressional bills relating to loan forgiveness. As to the existence of “clear congressional authorization,’ the court observed that (1) the HEROES Act “does not mention loan forgiveness,” (2) “the portions of the HEROES Act” relied upon by the Biden administration “fail to provide clear congressional authorization” for the loan forgiveness plan, and (3) the Department of Education had never relied on the HEROES Act or any other authority for blanket cancellation of student loan balances in the past. In closing, the court characterized the plan as a “complete usurpation of congressional authorization implicating the separation of powers required by the Constitution,” and on that basis opted to vacate the plan entirely rather than remand for further development.

The ruling represents the first major setback for the Biden administration—and potentially a dispositive one—in its efforts to begin implementation of the loan forgiveness plan. Although the Eighth Circuit has entered an administrative stay pending consideration of whether to grant a stay pending appeal in a different matter, the circumstances there were flipped: a coalition of state attorneys general had lost in the district court and sought extraordinary and atypical relief on appeal. In Texas, by contrast, the plaintiffs have prevailed at the district court level, and the Fifth Circuit is likely to leave the ruling in place until the appellate court—potentially en banc, given the matter’s significance—issues a ruling on the merits after full briefing and argument. That outcome of that process, in turn, could lead to a highly consequential appeal to the Supreme Court.