Supreme Court Strikes Down Biden’s Student-Loan Forgiveness Plan

Supreme Court Strikes Down Biden’s Student-Loan Forgiveness Plan

The Supreme Court today resolved two challenges to the Biden administration’s student-loan forgiveness plan: Nebraska v. Biden and Department of Education v. Brown. In Nebraska and Brown, six states and two student-loan borrowers (respondents), respectively, challenged a plan to discharge student-loan debts by President Joe Biden, Secretary of Education Miguel Cardona, and the U.S. Department of Education.

Cardona announced on August 24, 2022, a plan to use the HEROES Act as the basis for executive action to discharge up to $20,000 in student-loan debt for qualifying borrowers.

In both cases, the Court was called on to decide whether the states and borrowers had standing to sue. In Nebraska, the Court needed to determine “whether the plan exceeds the Secretary’s statutory authority or is arbitrary and capricious.” In Brown, the Court needed to determine “whether the department’s plan is statutorily authorized and was adopted in a procedurally proper manner.”

In Nebraska, the Court held 6–3 “[a]t least Missouri has standing.” The Chief Justice wrote the opinion of the Court, which Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett joined. Barrett wrote a concurring opinion. Justice Kagan wrote a dissenting opinion, which Justices Sotomayor and Jackson joined.

Finding standing, the Court addressed the merits of the challenge to the plan. The Court accepted Cardona’s authority “to ‘waive or modify’ existing statutory or regulatory provisions” for student loans under the HEROES Act but rejected the argument that this authority extended to “canceling $430 billion of student loan principal”:

The text of the HEROES Act does not authorize the Secretary’s loan forgiveness program. The Secretary’s power under the Act to “modify” does not permit “basic and fundamental changes in the scheme” designed by Congress. Instead, “modify” carries “a connotation of increment or limitation,” and must be read to mean “to change moderately or in minor fashion.” That is how the word is ordinarily used and defined, and the legal definition is no different. (citations omitted)

In Brown, the Court, in an opinion by Alito, unanimously held the borrows lacked standing to challenge plan “[b]ecause respondents fail to establish that any injury they suffer from not having their loans forgiven is fairly traceable to the Plan.”

The HEROES Act, enacted shortly after the attacks of September 11, 2001, empowers the Secretary of Education to forgive student-loan debt for individuals on active duty during a time of war, residing in an area subject to a disaster declaration, or “suffer[ing] direct economic hardship as a direct result of a war or other military operation or national emergency.”

The Nebraska respondents argued the plan deprived them of substantial revenue and violated the separation of powers and the Administrative Procedures Act and that Cardona’s implementation of the plan was arbitrary and capricious. The Brown respondents were ineligible under the plan and argued the Department of Education failed to follow proper procedures under the Administrative Procedures Act in crafting the plan

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Cardona exceeded his authority to ‘waive or modify’ terms of the loan program

On the merits in Nebraska, the Court held forgiveness of “$430 billion in debt principal” was beyond a reasonable interpretation of a provision of the HEROES Act allowing the Secretary of Education to “waive or modify” the terms of the federal student loan program.

The Court noted “modify,” as used in common and legal parlance, means “to make minor changes in the form or structure of [or] alter without transforming.”

The Court then looked to previous modifications of the Education Act before the COVID-19 pandemic, “most of which were procedural”:

Examples include reducing the number of tax forms borrowers are required to file, extending time periods in which borrowers must take certain actions, and allowing oral rather than written authorizations.

The plan at issue “purported to ‘modif[y] the provisions of ‘ two statutory sections and three related regulations governing student loans.” These provisions allowed Cardona to “discharge [a] borrower’s liability” in limited circumstances, such as the borrower’s death or disability or the closure of the borrower’s school before the completion of the borrower’s degree program.

In light of the meaning of “modify” and past modifications, the Court rejected Cardona’s changes to these provisions as neither “moderate” nor “minor”:

Instead, they created a novel and fundamentally different loan forgiveness program. The new program vests authority in the Department of Education to discharge up to $10,000 for every borrower with income below $125,000 and up to $20,000 for every such borrower who has received a Pell Grant.

Whereas the provisions for discharging student loan debt were once “a few narrowly delineated situations specified by Congress, the Secretary ha[d] expanded forgiveness to nearly every borrower in the country.”

Cardona’s changes to the Education Act from its “narrowly delineated” reasons for loan discharge proved too much for the Court to accept under the “modifications”:

The Secretary’s plan has “modified” the cited provisions only in the same sense that “the French Revolution ‘modified’ the status of the French nobility”—it has abolished them and supplanted them with a new regime entirely.

The Court then considered Cardona’s authority to “waive” provisions of the Education Act. Cardona contended that the authority to waive conferred “broader authority” than that conferred by the authority to modify.

The Court first looked to past instances of waiver under the HEROES Act, which it found scarcely resembled the plan at issue:

Previously, waiver under the HEROES Act was straightforward: the Secretary identified a particular legal requirement and waived it, making compliance no longer necessary. For instance, on one occasion the Secretary waived the requirement that a student provide a written request for a leave of absence. On another, he waived the regulatory provisions requiring schools and guaranty agencies to attempt collection of defaulted loans for the time period in which students were affected individuals. (citations omitted)

The Court found this purported waiver deficient because, unlike previous waivers, this purported waiver did not identify a specific legal requirement waived.

The Court continued that even if it accepted a vaguer form of waiver, Cardona’s purported use here did not comport with the concept of a waiver as “relax[ing] existing legal requirements” because this purported waiver added terms that “specif[y] particular sums to be forgiven and income-based eligibility requirements. ”

The Court then considered and rejected Cardona’s argument that “the power to ‘waive or modify’ is greater than the sum of its parts”:

The Secretary has not truly waived or modified the provisions in the Education Act authorizing specific and limited forgiveness of student loans. Those provisions remain safely intact in the U. S. Code, where they continue to operate in full force. What the Secretary has actually done is draft a new section of the Education Act from scratch by ‘waiving’ provisions root and branch and then filling the empty space with radically new text.

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Dissent: the states lack standing because they suffered no injury

The dissent argued the states lacked standing to sue because they “have no personal stake in the Secretary’s loan forgiveness plan. They are classic ideological plaintiffs: They think the plan a very bad idea, but they are no worse off because the Secretary differs.”

The dissent continues that the asserted injury to Missouri, for example, was actually an injury to “a legally and financially independent public corporation” separate from the state despite being “a state-created corporation participating in the student-loan market.”

Dissent: the majority erred in finding Cardona exceeded his ‘waive or modify’ authority

The dissent also challenged the majority’s finding that Cardona acted beyond the scope of his authority under the HEROES Act to “waive or modify” the Education Act:

The statute Congress enacted gives the Secretary broad authority to respond to national emergencies. That authority kicks in only under exceptional conditions. But when it kicks in, the Secretary can take exceptional measures. He can ‘waive or modify any statutory or regulatory provision’ applying to the student-loan program.

The Chief Justice’s opinion agreed that Cardona has the authority to “waive or modify” provisions of the Education Act but challenged the dissent’s view of the scope of this authority:

The Secretary’s comprehensive debt cancellation plan cannot fairly be called a waiver—it not only nullifies existing provisions, but augments and expands them dramatically. It cannot be mere modification, because it constitutes “effectively the introduction of a whole new regime.” And it cannot be some combination of the two, because when the Secretary seeks to add to existing law, the fact that he has “waived” certain provisions does not give him a free pass to avoid the limits inherent in the power to “modify.” However broad the meaning of “waive or modify,” that language cannot authorize the kind of exhaustive rewriting of the statute that has taken place here.

Nebraska v. Biden opinion:

Department of Education v. Brown opinion:

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