The Legal Dilemma on Student Debt Relief

Conservative groups and Republican state attorneys general are exploring legal options that could throw a wrench in President Biden’s plan to cancel a third of the $1.7 trillion in federal student loan debt. They say the plan is an illegal use of executive authority, but proving that in court could be tricky, as groups scramble to search for a plaintiff with the legal standing to sue.

Biden announced Aug. 24 that he would cancel up to $10,000 in student debt for borrowers making under $125,000 a year, with up to $20,000 in relief for Pell Grant recipients. The announcement has come as a relief to many individuals who have been burdened by outstanding debt. However, others, especially those who have paid off their debt or did not go to college, view it as a handout at the expense of taxpayers.

Various lawmakers, including some Democrats, have said that Congress holds the authority to cancel student loan debt, as opposed to the president. Even House Speaker Nancy Pelosi said last year that “the president can only postpone, delay but not forgive student loans. It would take an act of Congress, not an executive order, to cancel student loan debt.” However, Pelosi has since changed her view, stating in August, “Now, clearly, it seems he has the authority to do this.”

Multiple Republican state attorneys general are exploring legal options as well. The Washington Post reported on Thursday that Republican attorneys general from Arizona, Missouri and Texas met privately to discuss legal strategies.

Other conservative groups, such as the conservative think tanks the Heritage Foundation and the Job Creators Network, a group run by Republican donor Bernie Marcus, are exploring legal options as well. Marcus said on Fox News recently that his group is “in the middle of lining up our plaintiffs.”

A successful legal challenge could upend Biden’s plan, which is expected to give both the president and the Democratic Party a boost heading into the midterm elections. Despite speculation, no official plans to file a lawsuit have been announced.

Who Could Sue?

Critics of Biden’s debt-relief plan are scrambling to find someone or an organization that could assert standing in a possible lawsuit. However, this has proven tricky.

In order to assert standing, a plaintiff needs to prove that they have been harmed in some way, and groups seeking to take legal action against Biden’s debt-relief plan say this has been difficult.

“There is a possible world in which the president’s actions would be legally vulnerable and yet no one would be able to stand up and in court and make the requisite challenges. So that’s still a bit of an unsettled question,” said Jack Fitzhenry, a legal policy analyst at the Heritage Foundation. “It’s really not clear at the moment that anybody else has standing.”

Legal analysts focused on the matter are considering multiple options for plaintiffs, including taxpayers or borrowers whose income is just above the $125,000 annual income threshold (or $250,000 for couples filing jointly), making them ineligible for relief. However, a court might not accept those as plaintiffs, and the idea of someone earning $126,000 could lead to the program being expanded.

It is not so simple for a taxpayer to assert that they have been harmed by Biden’s student debt-relief plan on the basis that they cannot benefit from the program. Fitzhenry explained, “There’s differential treatment here and there’s certainly an argument about fairness, but that’s not so much a legal argument as a political one.”

Senator Ted Cruz of Texas, a vocal Republican lawmaker opposed to debt cancellation, said in a radio interview that he was unsure if either of those arguments would stand up in court.

An alternative route could be loan servicers, who could say they are losing out on revenue. Fitzhenry said that loan servicers would be the most likely group to be able to assert standing because they have what he called a “credible claim of injury that would be concrete in particular to them and also directly traceable to the administration’s actions.”

However, no loan servicers have indicated that they are interested in a legal challenge.

Where Are the Plaintiffs?

Scott Buchanan, president of the Student Loan Servicing Alliance, said that he was unsure if loan servicers would have standing in this case. “I don’t know if anyone is thinking about it or what they’re thinking about it in terms of their own legal actions,” he said.

The Biden administration released a legal memo from the Justice Department that outlines its authority to cancel student loan debt through powers listed in the HEROES Act of 2003. The law gives the education secretary the authority to “waive or modify any statutory or regulatory provision applicable to” the federal student loan program if such action would alleviate hardship felt by borrowers as the result of a national emergency.

In Biden’s case, the administration is claiming it has the authority to cancel student debt through the HEROES Act because of the state of emergency that has been in place for the COVID-19 pandemic since January 2020. The state of emergency is currently set to lift on Oct. 13.

Last week, Bharat Ramamurti, the deputy director of the White House National Economic Council, told reporters, “We believe we’re on strong legal ground.” He said the administration holds that belief since the same authority was used previously by the Trump administration to extend the pause on student loan payments.

“That has not been challenged in court. It has not been found improper by a court. It’s the same statute that the previous administration used and that we’ve used, that we are now using for this action,” said Ramamurti. “Part of what the legal authority is being used to do here, in a targeted way, is to make sure that those borrowers who are at highest risk of distress after the restart happens, those are the people who are going to get the relief.”

John King Jr., education secretary in the Obama administration, said in an interview, “I think the authority to cancel student debt is very clear,” and added, “I think the president is using the tools that are available to him.”

Critics of Biden’s debt-relief plan, including prominent Republicans, have long held that the administration has overstepped its authority by canceling student loan debt and even making changes to student loan programs, which they say should only come from Congress. Legal action would potentially bring into question Biden’s use of executive authority, which is the first of its kind in history.

“The sheer size of this program is going to attract a lot of attention. But scale alone is not going to get you to major questions. The other consideration, an overlay on top of this, is that you have an unprecedented use of this statute,” said Fitzhenry.

The recent Supreme Court ruling in West Virginia v. Environmental Protection Agency stated that regulatory agencies must be able to prove that they have clear authority from Congress in order to use executive action in “extraordinary cases” of “political and economic significance.” If a lawsuit on Biden’s student debt plan materializes, it could throw the plan into the crosshairs of the Supreme Court.

“The administration is going to have to contend with that decision on the merit, and they’re going to lose,” said Lanae Erickson, senior vice president at Third Way, a center-left group that regards debt forgiveness as a “Band-Aid” solution. “There is no doubt that this is an action of economic and political significance.” Erickson said in an interview with Inside Higher Ed, ”I know there are folks that are [preparing] to file legal challenges as we speak. I think we’ll see the first of those coming out the door as soon as next week.”

Erickson said she believes that groups that were eager to sue the administration on its approach to student debt relief had to change their legal strategy at the last minute because they were expecting the administration to prove their legal footing with the Higher Education Act of 1965, not the HEROES Act.

The Biden administration said that it plans to have its debt-relief plan implemented by early October. Groups seeking legal action against the Biden administration do not have to race against the clock to file a suit. However, if the Biden administration begins to carry out its plan and is later obstructed by a legal dispute, a huge mess could be created for many borrowers who are now expecting their student debt to be canceled.

“If anyone out there who is running this analysis right now and they like the looks of their claims, I suspect they will try to file rather soon and certainly before the administrative wheels get rolling to implement this plan,” said Fitzhenry.

Confidence in Biden Administration

Some supporters of debt relief have expressed confidence in the Biden administration’s legal footing and are skeptical of threats of legal action.

Mike Pierce, executive director of the Student Borrower Protection Center, said last week, “I do think it’s telling that we are now closing in on a week from this announcement and you haven’t seen any ambitious Republicans take a step into some federal court and ask for an injunction.”

Regardless of legal action, Republicans will likely use student loans as a massive talking point this election season. Already Republicans in the House have introduced legislation that would cut back on the federal student loan program by enacting borrowing limits for some loans and eliminating the Public Service Loan Forgiveness program, which has so far granted over $10 billion in debt relief to public service employees.

Currently, these proposals cannot gather much support in the Democratic-controlled House. However, things could change with speculation that Republicans could take control of the House in January after the midterm election.

“We are aware of it, and it’s a matter of concern,” said Terry Hartle, senior vice president of government relations and public affairs at the American Council on Education. “The things that they’re talking about are pretty substantial changes. It’s not even clear that Congress would be able to enact them, much less get the president to sign them. It’s an indication of how some political figures are thinking about higher education, and it’s worrisome, but it’s not as if it will automatically happen, depending on the election.”