Supreme Court wrestles with $400B question in student loan case

While the Supreme Court’s dominant conservative wing appears highly skeptical of the Biden administration’s expansive student debt relief plan, some of its members are equally dubious about a step they would have to take before overturning it.

To wit, determining that the parties contesting the plan actually have the legal standing necessary to challenge the law.

It’s a core tenet of the U.S. legal system that parties such as the groups behind two cases argued before the high court in late February must show a verifiable injury that would be remedied by a verdict in their favor.

U.S. Solicitor General Elizabeth Prelogar, representing the administration, said neither group can. The plan, announced in late August, would cancel up to $20,000 of student loan debt for borrowers who received a Pell Grant, a subsidy for needy applicants trying to further their education, and up to $10,000 in debt for others.


Making good on one of Biden’s campaign pledges, the program relies on authority granted to the education secretary under the HEROES Act of 2003 to waive or modify student loan requirements in times of military conflict or a national emergency.

Education Secretary Miguel Cardona cited debilitating fallout from the coronavirus pandemic, which shut down large swaths of the U.S. economy in 2020, as justification for the initiative, which the Congressional Budget Office estimates will cost as much as $400B.

Conservatives, however, quickly lambasted it as a giveaway that would benefit high-income borrowers, even though single borrowers making more than $125,000 a year and couples making more than $250,000 are ineligible.

More than 40 Republican senators subsequently urged the court in an amicus brief to block the program. Sen. Marsha Blackburn, a Tennessee Republican who was the lead signer on the document, argued that Biden was depriving the U.S. Treasury of nearly “half a trillion dollars” in a blatant infringement on Congress’s constitutionally derived power of the purse.

'Why Not Strong-Arm Them?'

The administration decided on the end run, she continued, to appease Democratic voters after trying unsuccessfully to win Congressional backing for student loan forgiveness before mid-term elections that threatened party’s majorities in both houses of Congress.

When the elections were held a little more than two months after the program was announced, Republicans failed to achieve the “red wave” they had predicted. The GOP gained only a slim majority in the House, and its minority in the Senate actually shrank.

Efforts since then by party loyalists and other critics to fight the Biden plan have suffered a series of setbacks in court over whether they have legal standing – the same question that loomed large during oral arguments before the Supreme Court.

In the first case, Nebraska v. Biden, the justices noted that the Missouri student-loan servicing corporation MOHELA, which stood to lose money under the plan, had declined to challenge it in court.

Instead, the attorney general of Missouri, the state that set up the firm with the evident aim of insulating itself from any liability over its operations, was bringing a claim on its behalf.

“It would be hard to see how a win for the state would benefit MOHELA or how a win for MOHELA would benefit the state if the assets are completely separate,” Justice Amy Coney Barrett told the attorney representing Missouri and a coalition of five other states.

Barrett, a conservative appointed by former President Donald Trump only a month before he lost a bid for reelection, has previously rejected at least two requests to intervene in cases contesting the Biden plan.

“If MOHELA is an arm of the state, why didn’t you just strong-arm MOHELA and say, ‘You’ve got to pursue this suit?’” she asked.

“It’s a question of state politics,” replied James Campbell, the solicitor general of Nebraska, who was representing his own state as well as Missouri, Arkansas, Kansas, Iowa and South Carolina. “We believe that the state, as a matter of law, has the authority to assert its interests.”

First, he noted, the state set up MOHELA to provide an “essential public function.” Further, Missouri stands to lose future contributions to its scholarship program – which so far have totaled $65M – if the company’s revenue is cut by 40 percent because of the debt-relief program.

Most casual observers would say that if you’re going to give up that amount of money, if you’re going to affect the obligations of that many Americans on a subject that’s of great controversy, that’s something for Congress to act on.

MOHELA, meanwhile, says it wasn’t involved with the decision by Missouri’s attorney general to try to block the Biden plan and that its only communication with the attorney general’s office over student debt relief has involved sunshine requests seeking information about MOHELA’s federal loan servicing contract.


It’s difficult to understand how Missouri can claim an injury, said Justice Sonia Sotomayor, “when it’s not responsible for the debts of MOHELA, it’s not responsible for the contracts it enters into and it doesn’t own the assets of that corporation. There is on paper no financial obligation by the state or loss to the state by anything MOHELA does or anything it gets.”

As for the scholarship contributions, the court typically hasn’t allowed suits by a plaintiff who has a relationship with a third party and “would like it very much if that third party represented its own interests better,” Justice Elena Kagan noted.

If a majority of justices overcome the hurdle posed by standing, it appears likely they would deem the debt-relief plan a “major question” under a recent doctrine that rejects regulatory action when it involves matters of “vast political and economic significance” under a grant of Congressional authority that was less than clear.

“Most casual observers would say that if you’re going to give up that amount of money, if you’re going to affect the obligations of that many Americans on a subject that’s of great controversy, that’s something for Congress to act on,” said Chief Justice John Roberts. “And if they haven’t acted on it, then maybe that’s a good lesson for the president or the administrative bureaucracy that maybe that’s not something they should undertake on their own.”

Standing proved equally thorny in the second case, brought by two student loan holders dissatisfied with the debt relief program. One of them, Myra Brown, doesn’t qualify for the program because it isn’t offered to commercially held student loans that aren’t in default.

Alexander Taylor, the second borrower, qualifies for only $10,000 of relief because he didn’t receive a Pell Grant.

The only way you can win is if you strike down this program completely. Your $10,000 student is going to get nothing – he’s not going to get $20,000. 

The two argue that a rejection of the existing debt-relief program by the high court would prompt the education department to offer one under the Higher Education Act of 1965.

Unlike the Heroes Act, the Higher Education Act would require a notice-and-comment period on a debt-relief initiative, giving Brown and Taylor an opportunity to argue for a structure that would forgive their loans altogether.


Their position was met with a degree of skepticism.

“There are many, many programs out there that people say, ‘I ought to be covered by that and I wasn’t,’” Chief Justice John Roberts told Michael Connolly of Consovoy McCarthy, the lawyer representing the two. "We certainly don’t allow everyone to come in and say, 'Just because I would have the right to comment if this law were struck down, I therefore have a right to bring a suit.'"

Barrett, meanwhile, questioned the limits of Connolly’s theory. “Could someone who finished paying their loans off last year sue because they were disappointed that they weren’t included for reimbursement?” she asked.

No, Connolly said, because there’s no mechanism for the Department of Education to write a check to them.

Therefore, “their injuries are not redressable,” he said. “There is a mechanism under which the secretary can give Ms. Brown’s debts, forgive Mr. Taylor’s debts, and that’s the difference.”

The creation of the program the two want, however, is far from a certainty, both Sotomayor and Kagan pointed out.

“The only way you can win is if you strike down this program completely,” Sotomayor told Connolly. “Your $10,000 student is going to get nothing – he’s not going to get $20,000. If we strike it down, he gets nothing. Neither does your person who wants something.”


For that matter, neither would the 16.5 million people whose applications for relief were approved before the program was stayed – or the 26 million more who applied or were deemed automatically eligible, according to White House figures.

Which of them benefit the most depends on how the term “benefit” is defined, says Katharine Meyer, a governance studies fellow at the Brookings Institution. Those with higher balances might receive a larger dollar amount of loan forgiveness, but those with lower balances would have a greater likelihood of becoming debt-free.

“Advanced degree graduates are more likely to have loans and higher balances – graduate school is expensive – but are also on average higher income and less likely to qualify for the policy’s income cap,” she added. “A small share of individuals who never completed college hold loans – but those that do also never received the benefits of a college credential, and between 39 percent and 67 percent of those borrowers would become debt-free.”

The stakes for the court are significant, too, Meyer says.

Do justices “want to establish that the potential loss of state tax revenue or ineligibility to benefit from a policy is sufficient to meet the constitutional standing requirement?" she asked. “Or do they wish to set the precedent that the HEROES Act provides the broad authority for student loan cancelation? The second precedent is less likely to occur again – the HEROES Act is closely tied to national emergencies,” and the current emergency declaration expires May 11.