Federal Court Rules 3 of 11 Plaintiff States Have Standing to Challenge Biden's New Student Loan Forgiveness Program

Last Friday, the US District Court for the District of Kansas ruled that 3 of 11 red states challenging President Biden's latest big student loan forgiveness program (which would forgive at least $156 billion in federally backed student debt) have standing to sue. Judge Daniel Crabtree, a Democratic Barack Obama appointee, ruled that the states of Alaska, South Carolina, and Texas have standing due to the fact that they have "public instrumentalities" that service student loans, and those agencies income is likely to go down if the administration's loan forgiveness plan is implemented. Thus, the states have an "injury in fact" of the kind needed for standing.

This standing theory is similar to the one that prevailed in Biden v. Nebraska, the Supreme Court decision striking down Biden's previous big loan forgiveness plan adopted under the 2003 HEROES Act. There, the Court ruled that the state of Missouri had standing because it has a state agency (MOHELA) that services federally backed student loans, and MOHELA's income would be reduced if some of those loans were forgiven.

In this case, Judge Crabtree concludes, Alaska, South Carolina, and Texas have similar justifications for standing, even though weaker and "more attenuated" than Missouri's was:

[P]laintiffs had to show two things to show an injury: (1) the SAVE Plan makes it likely that borrowers will consolidate their loans and (2) if borrowers consolidate their loans, the states' public instrumentalities will suffer harm. Plaintiffs have shouldered their burden on both fronts….

First, plaintiffs have shown by a preponderance of the evidence that the SAVE Plan will cause FFEL [Federal Family Education Loan] borrowers to consolidate their loans into direct loans….

Alaska's ASLC declaration, in contrast, explains the SAVE Plan's incentives for borrowers to consolidate and testifies that the SAVE Plan already is causing borrowers to consolidate. And defendants haven't rebutted this evidence with any evidence of their own….

Second, plaintiffs have shown that, when borrowers consolidate their loans, the states' public instrumentalities—and therefore the states—will suffer harm in the form of reduced interest income.

Sounds right to me!

Usually, if even one of several plaintiffs in a case like this has standing, the others are allowed to remain, as well. That's what the Supreme Court did in Biden v. Nebraska. Judge Crabtree, however, concludes that district courts have discretion to reject the idea that "standing for one is standing for all," and thus decided to dismiss the other eight states from the case, after rejecting their standing arguments (which are weaker than those of the three states that get to continue). I  will leave that issue to commentators with greater relevant expertise on this aspect of standing doctrine.

In a previous post about this case, I noted that the state of Louisiana also has a state-run loan servicing agency that could potentially get standing based on a theory similar to that which prevailed in Biden v. Nebraska. Judge Crabtree dismissed Louisiana from the case without considering this potential basis for standing. I do not understand why, but welcome correction by readers who know more about Louisiana's student loan servicing policies.

Regardless, if this ruling stands up on appeal, the lawsuit will now continue, even if with fewer plaintiffs. While victory on the merits is far from guaranteed to the plaintiffs, I think they have a strong case, similar in many ways to that which succeeded in Biden v. Nebraska, even though this plan is adopted under a different statute (the 1965 Higher Education Act).

If Judge Crabtree's dismissal of eight of the plaintiff states holds up, the lawsuit will no longer be led by Kansas Attorney General Kris Kobach. That may be for the best, as he has been repeatedly sanctioned by federal courts for various types of misconduct.

Meanwhile, the state of Missouri, joined by seven other GOP-controlled states, has filed its own lawsuit challenging the new loan forgiveness program. Missouri is highly likely to get standing, because it is literally advancing the exact same theory as it did in Biden v. Nebraska, involving the exact same state loan servicer: MOHELA (see pp. 27-31 of Missouri's complaint).

Obviously, this is just the first of many rulings in the litigation over the new plan. It is certain to be appealed. Nonetheless, I am fairly confident that at least some of the plaintiff states will succeed in getting standing (Missouri has an especially strong case), and I am also guardedly optimistic (though less so) that courts will ultimately conclude the plan is illegal on the merits.

As with the plan invalidated in Biden v. Nebraska, courts would do well to strike down this one because it is dangerous and unconstitutional to allow the executive to raid the treasury to use it for purposes not authorized by Congress.  For similar reasons, I opposed Donald Trump's attempt to divert military funds to build his border wall.