Jurisprudence

Why the New Legal Attack on Biden’s Student Loan Relief Is Already Doomed

Biden points and smiles.
President Joe Biden on September 27, 2022. Chip Somodevilla/Getty Images

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.

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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.

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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.

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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.

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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.)

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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.

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.

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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 not permit courts to halt.

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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.

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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.

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