Lawsuit Against Biden Student Loan Forgiveness Going Nowhere (Caveat: Trump Judges)

Last week Republican attorneys general filed a politically motivated lawsuit to block President Biden’s student loan forgiveness program, including our lame-duck partisan hack attorney general Mark Brnovich aka “nunucks (or is it numbnuts?) He must be auditioning for a job with a right-wing think tank after he leaves office.

Those of you who are eligible for Biden’s student loan forgiveness program should keep this in mind when voting: Democrats are trying to help you with your student loan debt, Republicans are trying to help your lender keep you in debt. Same as it ever was.

The New York Times reported, Republican-Led States Sue to Block Biden’s Plan to Erase Student Loan Debt:

Six Republican-led states took legal action Thursday to block President Biden from wiping away billions of dollars in student loan debt, even as the administration tried to avoid a court challenge by reducing the number of people eligible for relief.

A lawsuit filed in federal court by Leslie Rutledge, the Republican attorney general of Arkansas, accuses Mr. Biden of vastly overstepping his authority last month when he announced the government would forgive as much as $20,000 per person in student loan debt.

The political gamesmanship:

“President Biden’s unlawful political play puts the self-wrought college-loan debt on the backs of millions of hardworking Americans who are struggling to pay their utility bills and home loans in the midst of Biden’s inflation,” Ms. Rutledge said in a statement on Thursday. “President Biden does not have the power to arbitrarily erase the college debt of adults who chose to take out those loans.”

[T]he legal challenge could delay one of Mr. Biden’s signature achievements just weeks before midterm elections that will determine who controls Congress for the balance of the president’s term. Nearly 40 million people with outstanding college loans stand to benefit under the president’s plans, even after the administration cut about 700,000 borrowers from the program on Thursday in an attempt to ward off lawsuits.

Earlier, Supreme Court reporter Mark Joseph Stern explained Why the New Legal Attack on Biden’s Student Loan Relief Is Already Doomed:

On Tuesday, Pacific Legal Foundation filed a lawsuit designed to block President Joe Biden’s student loan forgiveness plan. The suit makes a creative attempt to surmount the biggest obstacle to a legal assault on Biden’s program: the fact that nobody appears to be injured by loan relief, so nobody has standing to sue. But it will still probably fail, for two related reasons. First, the lawsuit is premature, since there’s no existing program yet for courts to assess and strike down. Second, because it’s premature, the suit divulges conservatives’ best strategy to surmount the standing hurdle—and gives the administration an opportunity to forestall it.
If PLF’s goal is to impress its funders with a splashy sortie against Biden, mission accomplished. But if its goal is to halt student debt relief, the suit is not nearly as clever as PLF thinks.

Standing

To pursue a lawsuit against the program, a party would have to show that loan forgiveness harms them in some immediate and concrete way—and also that a court could remedy that harm by ruling in their favor. Who’s harmed by student loan relief? Under Biden’s plan, student debtors who earn less than $125,000 get $10,000 of debt wiped out, or $20,000 if they received Pell Grants. The federal government already holds these loans, so it’s essentially adjusting its own ledger. Nobody is penalized or burdened, just gifted with a one-time windfall. It would appear that the only people injured are taxpayers, since the program will cost about $400 billion. But as a rule, taxpayers do not have standing to challenge federal spending. So that door is locked.

PLF thinks one of its own employees, Frank Garrison, can nonetheless enter federal court through a back door. Since graduation, Garrison has paid off his loans through the Public Service Loan Forgiveness program. This program benefits students who enter public service or non-profit work after graduation. It allows them to pay a fixed amount each month that’s capped for those with lower incomes. After ten years of payments, the government forgives the balance of the loan.

Garrison is a Public Service Loan Forgiveness beneficiary who claims to live in Indiana. (Notably, until Tuesday morning, PLF said Garrison worked in the District of Columbia; after filing the lawsuit, the group revised its website to identify him as an Indiana employee.) He’s on track to receive full forgiveness in about four years. Indiana does not tax student loan relief as income if it’s canceled through Public Service Loan Forgiveness. But Indiana is one of six states that does tax other forms of loan relief, including debts forgiven under Biden’s new program. As a result, Garrison won’t pay taxes on loan relief he receives through Public Service Loan Forgiveness, but will pay taxes on loan relief through the Biden plan. (He estimates that the plan will require him to pay more than $1,000 in Indiana taxes.) This tax, he argues, gives him standing to sue, because it establishes a “pocketbook injury” that can be remedied by judicial invalidation of the Biden plan. (If it turns out Garrison really lives in D.C., the suit will fall apart because D.C. doesn’t tax loan relief as income.) Update, Sept. 27, 2022: PLF claims Garrison has lived in Indiana since February.)

But wait: Isn’t student loan relief an opt-in program? After all, the Department of Education has been advising borrowers to prepare for the application process later this fall. Most people will have to apply, but in its fact sheet on the plan, the administration declared: “Nearly 8 million borrowers may be eligible to receive relief automatically because their relevant income data is already available to the Department.” (In other words, the agency knows they make less than $125,000.) The Department of Education said the same thing in an online FAQ about the program. Garrison asserts that he is part of this class of borrowers who will receive automatic debt cancellation.

Ripeness

Which leads us to problem number one: It’s not clear that Garrison is going to receive automatic debt relief. He thinks he will because he “recently certified his employment status and income” with the Department of Education through his loan servicer. There’s no guarantee, however, that this action alone qualifies Garrison for automatic cancellation. Perhaps the loan servicer failed to report his income to the Department of Education. Perhaps the department would like to verify his income and debt load further before granting relief. Perhaps it will conclude that large-scale automatic cancellation isn’t feasible after all, and will change its policy to require more people to opt in. We don’t know, because the program doesn’t exist yet. That means his future injury remains purely hypothetical, and his lawsuit is, in legal terms, not yet ripe. A plaintiff with an unripe claim cannot pursue a federal lawsuit.

Even if Garrison could somehow surmount the ripeness hurdle to show he does in fact face imminent harm, he’d crash into another barrier: The Biden administration hasn’t finalized the program, so the courts lack authority to block it. Federal law allows courts to block an agency action only when it’s “final,” which means it’s the “consummation of the agency’s decisionmaking process” and creates “rights,” “obligations,” or “legal consequences.” Right now, the Biden program checks none of these boxes. It exists primarily as a series of press releases, fact sheets, and FAQs put out by the White House and the Department of Education. PLF’s suit rests on assumptions drawn from these advertising materials, but countless details could change before the final plan is unveiled. It is a work in progress, exactly what federal law does notpermit courts to halt.

Turn, now, to the other major problem facing PLF: It has given the Biden administration a roadmap to defeat its own lawsuit. Since the student loan program doesn’t officially exist yet in any functioning form, the administration can still tweak it. One possible tweak: an explicit opt-out mechanism for the 8 million borrowers who stand to have their loans automatically canceled. The Department of Education can simply notify borrowers who are eligible for automatic relief and give them the opportunity to reject it. In fact, the department has allowed borrowers to opt out during previous rounds of large-scale debt relief. An opt-out would allow Garrison to easily avoid incurring the tax penalty he fears—and, in the process, strip him of standing to sue. By Tuesday afternoon, the White House press secretary had confirmed that an opt-out would be included in the bill’s final text, whenever it is done.

The deeper you venture into the weeds of the PLF suit, the more defects reveal themselves. For instance, it asks a federal court to abolish the entire debt relief program. But its theory of standing relies entirely on the state taxing debt cancellation as income, which only six states do. So even if PLF prevailed, judicial relief would likely be limited to borrowers in those six states. Moreover, only about one-fifth of all borrowers will see their loans canceled automatically, and a far smaller subset of those borrowers will incur state tax penalties due to loan forgiveness. In theory, the court should only freeze debt relief for those borrowers, rather than blowing up the whole program.

The reality is that, when it comes to student loans, the executive branch has extraordinary discretion to wipe out billions without a judicial veto. After all, the federal government owns this debt already, and Congress has given it sweeping powers to cancel it. Nobody raised a legal challenge when Biden relieved $32 billion in student loans before August 2022  because everyone with passing knowledge of this system understands that these cancellations happen all the time. If a court blocks part or even all of Biden’s program, he can come back with a more narrowly tailored approach, forgive a smaller class of borrowers, require a showing of need; in short, he can keep rejiggering the plan to meet the legal standards. Conservative groups like PLF can flood the courts with lawsuits, but they will never fully overcome the brute fact that the government holds all the cards.

Mark Joseph Stern continued, How the Biden Administration Just Outwitted the Lawsuit Against Student Loan Relief: Update, Sept. 29, 2022: A federal judge has formally denied Pacifical Legal Foundation’s motion.

One day after it was filed, the new lawsuit against President Joe Biden’s student debt relief program was defeated by the Justice Department. The outcome delivers a simple message to the plaintiff: Don’t want the federal government forgiving your student debt? Fine. We won’t.

That lawsuit, brought by the conservative Pacific Legal Foundation on behalf of its own employee, was an effort to establish standing, or the legal right to sue in federal court. A plaintiff has standing only if they suffer a concrete, personal injury, and as a rule, taxpayers can’t challenge federal spending. In constitutional terms, nobody is harmed when the government forgives debt that it holds, so there was no controversy for the federal courts to resolve.

Or was there? PLF thought its employee, Frank Garrison, had a way around the hurdle. Garrison allegedly lives in Indiana, which is one of six states that will tax student debt cancellation as income. He’s already enrolled in a different student loan program that will forgive his remaining student debt in four years—and Indiana will not tax that cancellation. Which allowed Garrison to argue that Biden’s plan injures him because it will force him to pay state taxes on loan forgiveness when he’s set to receive tax-free relief down the road.

If Garrison doesn’t want what Biden’s offering, couldn’t he just opt out? PLF claimed that he could not. Why? Here’s the theory: Most borrowers will have to apply for debt relief. The Biden administration revealed that a subset of borrowers will receive “automatic” relief because the government already has sufficient information about their income to know that they qualify. Garrison believes he’s in this subset. He also believes he cannot stop the government from automatically canceling his debt. Put these beliefs together, and voila: standing.

Except that Garrison’s beliefs are actually wrong. Specifically, his hunch that Biden would force him into debt relief quickly proved untrue. Hours after he filed suit, the White House announced that every borrower would have the option to opt out. Then, on Wednesday, the Justice Department confirmed in a filing that “any borrower who qualifies for automatic debt relief—i.e., relief without filing an application—will be given an opportunity to opt out.” The Department of Education confirmed this option online.

Then came the tactical masterstroke: The Justice Department informed Garrison’s lawyers that he did not even need to opt out. “Upon receiving this lawsuit and reviewing Plaintiff’s filings,” the agency wrote, “the Department has already taken steps to effectuate Plaintiff’s clearly stated desire to opt out of the program and not receive $20,000 in automatic cancellation of his federal student loan debt, and so notified Plaintiff’s counsel today.”

In other words, Garrison’s wish has been granted: The government will not cancel $20,000 of his student debt. That debt will remain, at least until he completes the terms of his previous arrangement, which requires him to continue working for a non-profit (like PLF) or the government for the next four years.

With these two moves, the Biden administration has blown up PLF’s theory of standing. Not only has the government added an opt out to ensure that nobody is compelled into debt relief,, it has already ensured that Garrison’s debt specifically will stay on the books. His injury, already dubious, has disappeared.

The broader issue here was that PLF made it all too easy for the Justice Department to dunk on its suit. The group filed far too early, before the administration had even put the program into operation, or revealed key details about how it’ll work. PLF inadvertently put the administration on notice that a lack of any opt-out could (arguably) create a basis for standing, thus exposing its plan to judicial invalidation. Attorneys for the Justice Department seized it like the golden opportunity it was. Moreover, Garrison’s actual request, exclusion from the program, proved incredibly easy to grant. In doing so, the government stripped away his excuse to be in federal court. The fact that it was so easy to defeat this suit illustrates its fundamentally political and artificial nature. Most real plaintiffs’ aims are not frustrated when the government gives them exactly what they claim to want.

By Thursday, there was already another lawsuit against the program: Six red states led by Missouri sued using a convoluted theory that Biden’s plan will harm them financially. Some of these states have quasi-public loan servicers that hold debt from an old program that doesn’t qualify for relief. They worry that Biden’s plan will spur borrowers to consolidate their olds loans into a new program that does qualify for relief. So the states’ servicers will have fewer loans to sell “on the secondary markets” and thus generate less revenue.

If your head is spinning, don’t worry: This theory is very silly. It rests on mere speculation that Biden’s plan might spur debt consolidation that might lower revenue for the handful of states that created loan servicers—but a “speculative” injury does not establish standing. More lawsuits will arise.The Supreme Court’s conservative majority might eventually find an excuse to strike down the program! If that happens, Biden has other tools at his disposal to forgive billions in loans, including a more narrowly tailored approach to mass relief. The federal government holds this debt. And in the end, the federal government will decide what to do with it.

Paul Waldman adds, The GOP attack on Biden’s student loan plan is upside-down class war:

It took a month, but the inevitable has happened. Conservatives have filed a lawsuit asking the courts to nullify the Biden administration’s decision to forgive up to $10,000 in student loans (and $20,000 for recipients of Pell Grants for low-income borrowers) for the tens of millions of Americans burdened by education debt.

This is a story about Republicans trying once again to achieve policy victories they can’t obtain by winning votes. But it’s also a story of delicate coalition politics and class warfare.

We knew this lawsuit was coming because Republicans can now be relied on to challenge in court almost every important law passed by a Democratic Congress or policy enacted by a Democratic administration. The hope is that GOP-appointed judges will do what they have shown themselves eager to do: arrive at whatever outcome the Republican Party seeks, no matter what the law dictates.

That’s certainly the case here. But the most significant obstacle conservatives faced was finding a plaintiff with “standing” to sue, since you have to show you were harmed in some way by the measure that you are asking the courts to nullify. Who exactly is harmed by forgiving people’s debt?

The suit was brought by a lawyer named Frank Garrison, who just happens to work for the Pacific Legal Foundation, a conservative organization that files suits on a range of issues of interest to the right; the foundation is representing him. Why him? Apparently it’s because he hails from Indiana, one of a small number of states that will be taxing the loan forgiveness as income.

Garrison says that since he still has student debt, when it’s discharged he’ll have to pay taxes on it, and therefore he has suffered harm. He says he’s likely to get his entire debt forgiven anyway through another federal program that relieves debts of people working in nonprofits, which wouldn’t be taxed.

The trouble is, even though the policy hasn’t been finalized, it looks as though neither Garrison nor anyone else will have to take this loan forgiveness if they don’t want to. He’ll be free to refuse it, so he’d suffer no “harm” and have no standing to sue.

That fact could end up torpedoing the lawsuit, though one never knows what Trump-appointed judges somewhere along the line of appeals might do. So, the ultimate outcome is uncertain. And public opinion on the plan itself has been mixed; once it became clear this is a partisan issue, Democrats and Republicans generally lined up behind their parties. However, the idea is more popular among younger and lower-income people, which is not surprising.

The GOP has attacked the plan from multiple, sometimes contradictory directions. In one telling, people who need loan forgiveness are contemptible losers; Sen. Ted Cruz (R-Tex.) characterized the average recipient as “that slacker barista who wasted seven years in college studying completely useless things, now has loans and can’t get a job.”

Being a barista is, of course, a job, and if Cruz could last an entire shift at a busy Starbucks, it would be a shock. Not to mention that the problem with student loans is that the debt traps tens of millions of working people in financial insecurity, even people who have jobs in areas Cruz would pretend to find admirable, such as nursing or truck driving.

In another telling, the recipients of loan forgiveness are not contemptible losers but contemptible winners. They’re fancy-pants elitists getting money they don’t need, or as Senate Minority Leader Mitch McConnell (R-Ky.) called them, “elites with higher salaries.”

In both cases, Republicans want people to believe recipients of loan forgiveness must be liberals of one stripe or another, and that’s the most important reason to reject it: People you hate will benefit. Hate them because you think they represent a cultural elite or hate them because you think they represent an economic elite, but just hate them.

And yet, you will probably not be surprised to learn that the billionaire Koch brothers have given millions of dollars to the Pacific Legal Foundation. It’s nothing if not an instrument of America’s actual financial elite, crusading on behalf of the values and goals of its well-heeled donors.

The threat that elites face from student loan forgiveness isn’t immediate; it’s long-term. They might be taxed to pay for it, but, just as important, it reinforces the idea that government should be active and generous, which undermines the case for a limited government that taxes the wealthy as lightly as possible.

There are less ideological reasons one might not favor loan forgiveness. You can argue that it doesn’t address the fundamental problem of overpriced education, or that since it’s a one-time measure, we’ll have to keep doing it again and again.

But let’s not lose sight of what the court case is about: a party that has lost none of its passion for the interests of the wealthy, nurturing the grievances of the working class and pretending there is no contradiction between the two. It’s not a new story, but it’s as important as ever.