A look inside the legal battle to stop Biden's student loan relief

The legal tug-of-war battle over student loan debt cancellation continues. — Cecilia Castelli for NPR

Updated September 30, 2022 at 12:42 PM ET

The antipathy many conservatives feel toward President Biden's student debt relief plan, which the nonpartisan Congressional Budget Office recently estimated will cost roughly $400 billion, is as vivid as many borrowers' enthusiasm for it.

"The president isn't a king. He's not an emperor. And if he does something unconstitutional, hell yeah, I'm going to hold him accountable," Arizona Attorney General Mark Brnovich told NPR in an interview. On Thursday, Brnovich made good on that promise, suing to block Biden's plan.

"I can assure you that my Republican colleagues and I will fight to the bitter end against this illegal, abusive use of the executive pen," Rep. Virginia Foxx, R-N.C., said in a recent speech.

In short, legal opposition to Biden's debt relief plan has become a team effort. Brnovich's lawsuit is just the third this week. And other conservative politicians, interest groups and attorneys are likely to file additional suits soon.

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How likely are they to succeed?

That depends on whom you ask.

The Biden administration's legal defense of student debt relief

In a memo defending Biden's plan, the U.S. Justice Department cited the Higher Education Relief Opportunities For Students Act, or HEROES Act, which President George W. Bush signed after the attacks of Sept. 11, 2001, as U.S. soldiers fought in Iraq and Afghanistan.

The act gave an incredible power to the U.S. secretary of education: the authority "to alleviate the hardship that federal student loan recipients may suffer as a result of national emergencies," according to the Justice Department's memo.

Fast-forward two decades to a very different national emergency: the COVID-19 pandemic.

Early in the pandemic, the Trump administration used this same HEROES Act authority to freeze payments and interest accrual on federal student loans – helping many borrowers who, because of COVID's crippling effect on the economy, would have struggled to keep up.

President Biden not only extended the payment freeze through December but, citing the same authority, announced he would go even further, canceling up to $10,000 in student loan debt for any borrower who earns less than $125,000 a year, and up to $20,000 for any borrower who meets that income requirement and received a Pell Grant to attend college.

The Biden administration argues, if Republicans feel this debt relief is an abuse of power, why didn't they oppose President Trump's use of the same authority in 2020?

"That has not been challenged in court. It has not been found improper by a court," Bharat Ramamurti, deputy director of the National Economic Council, said of the Trump-initiated payment pause after Biden's announcement. "It's the same statute that the previous administration used and that we've used, that we are now using, for this action."

The case against student debt relief

Opponents of Biden's debt relief plan have been clear: They think it is an illegal abuse of power.

Congress controls government spending, they argue, and the president can't simply erase hundreds of billions of dollars in student loan debt without going through lawmakers.

"If Joe Biden or the Biden administration implement a policy that is unconstitutional, we will sue him," Arizona's Mark Brnovich told NPR before he did just that.

The problem for Brnovich, and anyone else hoping to legally block Biden's plan, boils down to one word: standing.

"The courts can only get involved ... when someone who has been harmed in a concrete way by that action files a lawsuit," says Abby Shafroth, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.

Who might Biden's plan – meant to help as many as 40 million borrowers – actually hurt?

"Standing is really the major hurdle," Brnovich conceded. Though it's a hurdle, not a wall.

A very specific borrower could have standing to sue

Several types of plaintiffs could potentially clear that standing hurdle.

First, a borrower – though not just any borrower. The harm has to be automatic, and most borrowers who qualify for debt relief will have to apply for it. That's not automatic.

Some 8 million borrowers, though, have enough income information on file with the U.S. Education Department that they could receive their debt relief automatically, and, of those, borrowers in as many as seven states (though likely fewer) could end up having to pay state income tax on their relief – a tax of perhaps $500 to $1,000 that they may not be able to afford.

That could be considered a kind of automatic harm.

In a lawsuit filed Tuesday, borrower Frank Garrison, an attorney based in Indiana, argued he would be harmed by the president's plan. The suit was filed by the conservative Pacific Legal Foundation, which also employs Garrison.

Garrison says he should qualify for up to $20,000 in automatic debt relief under Biden's plan. But Indiana is one of those states that would tax that relief as income. Garrison does not want the relief now (or the tax hit) because he anticipates having all his debts erased in four years, through the Public Service Loan Forgiveness program – relief that Indiana will not tax.

When the suit was filed on Tuesday, the harm to Garrison seemed to be concrete and automatic. But, just a few hours later, White House spokesperson Abdullah Hasan told NPR in a statement:

"The claim is baseless for a simple reason: No one will be forced to get debt relief. Anyone who does not want debt relief can choose to opt out. Why would this group bring this baseless claim? Because opponents of the debt relief plan are trying anything they can to stop this program that will provide needed relief to working families."

Neither the White House nor the Department of Education had previously said borrowers would have the opportunity to opt out of debt relief.

"That undercuts the whole theory that courts need to intervene here," Shafroth says.

And the judge in Garrison's case appears to agree with Shafroth.

On Thursday, he denied Garrison's request for the court to stop Biden's debt relief plan and wrote, "in view of the fact the Department of Education exempted Plaintiff from receiving debt relief, [the court] finds Plaintiff cannot be irreparably harmed."

Banks and loan servicers could also have standing to sue

While Thursday's denial appeared to close the door on one legal strategy, another opened. Six states sued the Biden administration on behalf of a handful of state-based loan servicers and investment entities that manage old, privately-held federal loans, known as FFEL loans.

FFEL loans are guaranteed by the federal government but often issued, held and managed by outside groups – including private banks and these state-based entities, like Missouri's MOHELA.

These federal loans were a mainstay until the FFEL program ended in 2010. Today, according to federal data, more than 4 million borrowers still have commercially-held FFEL loans. Until Thursday, the department's website advised FFEL borrowers that they could consolidate these loans into federal Direct Loans and qualify for relief.

In Thursday's lawsuit, the six states argue that letting FFEL program borrowers do this – consolidate their old loans to qualify for cancellation – could hurt these state-based loan agencies.

"The consolidation of MOHELA's FFELP loans harms the entity by depriving it of an asset (the FFELP loans themselves) that it currently owns," says the complaint. "The consolidation of MOHELA's FFELP loans harms the entity by depriving it of the ongoing interest payments that those loans generate."

In response, the department quietly reversed its guidance for FFEL borrowers Thursday morning, likely fearing the policy's legal vulnerability. An administration official told NPR the move could exclude roughly 800,000 FFEL borrowers from relief they had been promised.

The sudden change angered not only borrowers, but advocates who have been staunch supporters of debt relief.

"The Biden plan would provide life-changing relief to 40 million Americans," says Aaron Ament, president of Student Defense, a borrower advocacy nonprofit. "I think the reality is that, no matter what they do, they will face politically motivated lawsuits. But, rather than play whack-a-mole by eliminating relief for some borrowers, it would be great to see the administration confidently defend their plan."

It's not yet clear if the department's Thursday policy change, limiting the number of FFEL borrowers who can qualify for debt relief, will undercut these states' claims and make other groups that manage and profit from FFEL loans less likely to legally oppose relief.

And then there's Arizona

Also on Thursday, Arizona Attorney General Mark Brnovich filed his lawsuit to stop debt cancellation, and he took a slightly different tack from the previous suits.

Like the six-state case, he argues that debt relief will deprive Arizona of important, future tax revenue. He also suggests relief will hurt Arizona's economy by exacerbating inflation, increase the state's borrowing costs and increase the law enforcement costs of cracking down on debt relief scammers.

But the first harm listed in Brnovich's complaint may be the most interesting. He essentially argues that broad debt relief will nullify the impact of the Public Service Loan Forgiveness program, which he says dozens of attorneys in his office are eligible to receive.

Simply discharging these attorneys' debts, he writes, "harms [the Office of the Attorney General's] ability to recruit legal talent, and directly makes it less lucrative for lawyers to work for the OAG."

It's too soon to know what a judge will make of those arguments.

And these are just the suits that have been filed so far.

Alfredo Ortiz, the president and CEO of the Job Creators Network (JCN), told NPR his group "absolutely" plans to file a lawsuit, though he wasn't comfortable sharing details.

"We feel very comfortable that our legal strategy is on solid ground and not only will be found to have standing, but the merits of the case, I think, are very clear."

Ortiz says they're waiting to file until the department releases its relief application in early October.

What a lawsuit could mean for borrowers

If a lawsuit is allowed to proceed, Brnovich and other opponents say their priority would be to seek an injunction. That would mean asking the court to stop the Biden administration from canceling any student loan debts.

What's not clear is whether an injunction could come before some borrowers see their debts erased, sowing confusion among remaining borrowers who must then wait for the suit to play out.

"We don't want to create a situation where, you know, a bunch of people are in limbo on this," Brnovich told NPR. "And so I think it's incumbent on all of us ... to file a lawsuit as quickly as possible. So that way there isn't any uncertainty. And that would, of course, mean getting an injunction to stop the president."

In Tuesday's filing, plaintiff Frank Garrison asked the court to prevent the department from canceling any loans under this new Biden plan – a request the judge quickly shot down.

Also worth noting, says Shafroth: "A preliminary injunction is not all or nothing: Even if a court grants [one], it wouldn't necessarily stop the government from moving forward with providing debt relief to most people."

At this point, a few things are clear:

Conservative legal groups are taking notes – to make the next lawsuit even stronger. Since the department's addition of an opt-out undermined Garrison's case, that legal path may be closed.

Soon we'll see how the court responds to the department's changing of its FFEL rules and whether the move, sudden though it was, hurts the six-state case against debt relief.

For its part, the Education Department is clearly willing to make changes, on the fly, if it means protecting the president's debt relief plan for most borrowers.

If Brnovich, Ortiz or other opponents of debt relief do successfully bring a suit – or suits – to federal court, it's possible this legal fight could make its way to the U.S. Supreme Court.