On June 30, 2023, the U.S. Supreme Court announced long-awaited opinions in two cases challenging the Biden Administration’s authority to proceed with its plan to forgive approximately $430 billion in federal student loans.  Most significantly, in Biden v. Nebraska, the Court held that the state of Missouri had standing to challenge the federal action, and that the Biden Administration’s loan cancellation plan was not authorized under the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act).

The Court’s 6–3 ruling, authored by Chief Justice John Roberts, tracked the sentiment expressed at oral argument in February 2023, during which members of the Court’s six-member conservative majority expressed skepticism of the Administration’s authority to proceed with its forgiveness plan.  The Court first held that Missouri had standing to file suit based on harm to the Missouri Higher Education Loan Authority (MOHELA), a state instrumentality whose revenue stood to be adversely affected by the loan cancellation plan.  The Court explained that the Biden plan “harms MOHELA in the performance of its public function and so directly harms the State that created and controls MOHELA,” resulting in an injury-in-fact sufficient to give rise to Article III standing.

On the merits, the Court held that the HEROES Act, which permits the Secretary to “waive” or “modify” elements of federal student lending law during a national emergency, did not authorize the Secretary to “rewrite” the Higher Education Act (HEA) “from the ground up.”  Citing precedent, the Court emphasized that “modify” means “to change moderately or in minor fashion”; the Biden plan, by contrast, would create “a novel and fundamentally different loan program.”  Noting that the Secretary of Education had also failed to “identify any provision that he is actually waiving,” the Court concluded “that language cannot authorize the kind of exhaustive rewriting of the statute that has taken place here.”

As an additional ground for the holding, the Court noted the applicability of the “major questions” doctrine, as recently discussed in West Virginia v. EPA, which provides that the Court will look for “clear congressional authorization” to justify executive action on questions of substantial economic or social significance.  Applying that doctrine here, the majority observed that “the ‘economic and political significance’ of the Secretary’s action is staggering by any measure,” and concluded that the Secretary had not pointed to sufficient clarity under the HEROES Act.  Justice Amy Coney Barrett filed a concurring opinion in which she discussed her view that the “major questions” doctrine is not inconsistent with the premises of textualism because it embodies only “the familiar principle that we do not interpret a statute for all it is worth when a reasonable person would not read it that way.”

Justice Kagan, joined by Justices Sotomayor and Jackson, dissented on both questions presented.  With respect to standing, the dissent argued that the state attorneys general “are classic ideological plaintiffs: They think the plan a very bad idea, but they are no worse off because the Secretary differs.”  Justice Kagan emphasized her view that MOHELA is “a legally and financially independent public corporation,” such that any injury to MOHELA did not lead to standing for the state of Missouri. MOHELA itself, Justice Kagan observed, was “[a]s far from this suit as it can manage”—not “even a rooting bystander.”  And as to Missouri, Justice Kagan quipped: “Is there a person in America who thinks Missouri is here because it is worried about MOHELA’s loss of loan-servicing fees? I would like to meet him.”

As to the merits, the dissent argued that the majority had engaged in “stilted textual analysis” by “pick[ing] the statute apart piece by piece in an attempt to escape the meaning of the whole.”  According to the dissent, Congress authorized the Secretary to take sweeping action in response to national emergencies; the COVID pandemic qualifies; and the loan cancellation plan fell squarely within the scope of modifications and waivers permitted by the statute.  Justice Kagan also challenged the majority’s application of the major-questions doctrine, arguing that the holding improperly took the issue of student-loan forgiveness away from the “political branches” and thereby “depart[ed] from the demands of judicial restraint.”  Justice Kagan noted her view that if the loan cancellation plan was impermissible under the HEROES Act, so too were the interest waiver and payment pause—a point the majority expressly reserved decision on.

In Department of Education v. Brown, Justice Alito wrote for a unanimous court in holding that two individual plaintiffs—who alleged that the Secretary of Education had announced the loan cancellation program without engaging in a mandatory notice-and-comment period, and lacked authority to promulgate the cancellation plan under the HEROES Act but might have had such authority under the HEA—did not have standing to bring the suit.  In a short analysis, the Court observed that “[d]escribing respondents’ claim illustrate how unusual it is.”  The Court held that, other potential problems notwithstanding, the plaintiffs failed primarily in establishing traceability, i.e., that any action by the Department on the HEROES Act would affect the benefits delivered to plaintiffs separately under the HEA.  In vacating the district court ruling in favor of the plaintiffs, the Court concluded: “Contesting a separate benefits program based on a theory that it crowds out the desired one . . . is an approach for which we have been unable to find any precedent.”

Within hours after the opinions being released, President Biden and Secretary of Education Miguel Cardona addressed the ruling by announcing three initiatives relating to student loan relief.  First, they emphasized that although payments would resume in October, borrowers would have a twelve-month “on ramp” to start making payments, during which time they will not be reported as delinquent or in default for missing payments (although interest will continue to accrue).  Second, they discussed a forthcoming income-driven repayment plan, the SAVE plan, that will, among other things, reduce monthly payments to five percent of discretionary income over specified thresholds and cease interest accruals over amounts actually paid.  Third, and perhaps most ambitiously, the Biden Administration committed to pursue widespread loan forgiveness for a second time, now relying on forthcoming regulations to be issued after negotiated rulemaking under the HEA–a structured, time-consuming process in which agency representatives meet with members of affected interest groups to negotiate the terms of proposed administrative rule before publication followed by a standard notice-and-comment period.

The Administration’s effort to forgive loans under the HEA has already been the subject of substantial debate and analysis over the last three years.  Senator Elizabeth Warren commissioned an analysis in 2020 from the Legal Services Center at Harvard Law School, which concluded authority for such a plan existed.  Months later, in January 2021, the Department of Education’s General Counsel concluded that no such authority existed (and also accurately predicted that such authority did not exist under the HEROES Act).  The Administration ultimately opted to develop its initial plan under the HEROES Act, potentially because doing so ostensibly avoided the need for protracted notice-and-comment or negotiated rulemaking.  Although this new effort will rely on different statutory authority, one might reasonably expect the initiative to again reach the Supreme Court (potentially in the 2023 Term, for decision in June 2024)—and to face a similarly skeptical audience.

Tomorrow, we will release a new episode of our Consumer Finance Monitor Podcast in which we discuss the Supreme Court’s decisions.