On October 3, 2024, a court in the Eastern District of Missouri hit the brakes on the Biden Administration’s third attempt to forgive student debt en masse. Having been blocked by the courts in its two prior attempts to put unpaid student loans on the backs of taxpayers, the administration tried a new tack. It pointed out that it had the power to “modify” the terms and conditions of federally backed student loans. And it claimed that “modify” meant “forgive completely.” As they had twice before, a coalition of states sued to stop the administration from illegally discharging billions of dollars in loan debt.

Now, no one can sue to stop a federal regulation until is it “final.” And at the time the states sued to stop this particular rule, the Department of Education had not put a final version of anything in the Federal Register. So the Department argued the rule was not “final” and could not be challenged. However, the Department had taken steps to effectuate the rule, including sending emails to all student loan borrowers and changing contracts with student loan servicers such that they would be required to cancel millions of dollars in debt at the push of a button. Based on these actions, the court found the rule was final and could be challenged (and blocked).

The Biden Administration is not done. Despite failing to legally mass forgive student debt three times, it announced a fourth attempt in late October. The questionable legal basis for this plan and the outcome of the presidential election make it unlikely this phase will see the light of day.

Biden Loan Forgiveness Part One: The HEROES Act

Upon taking office, President Biden announced a three-part plan for mass student loan forgiveness. First, claiming authority under the HEROES Act (a law passed in the wake of the 9/11 terrorist attacks to help those who had suffered hardship because of the attacks), he announced that every borrower with an income under $125,000 (or $250,000 for married couples) would have $10,000 of debt canceled, $20,000 for Pell Grant recipients.

Six states sued. Among other things, they argued that the HEROES Act’s minor allowance for the Department of Education to “waive” or “modify” the terms of specific loans did not authorize $400 billion of across-the-board forgiveness. A district court in Missouri dismissed the states’ case, but the states asked the Eighth Circuit for an injunction, which the circuit court granted. The Biden administration appealed, and the Supreme Court agreed to hear the case, leaving the injunction in place.

On June 30, 2023, in Biden v. Nebraska, the Supreme Court sided with the states. First, it found the states had standing to sue because the Missouri Higher Education Loan Authority (MOHELA), a state-chartered loan servicer that paid into a state education fund, would be harmed when many of the loans it serviced (and earned fees off of) were wiped off the books. Then, the Court found that the Biden Administration had exceeded its authority under the HEROES Act. Invoking what has become known as the “major questions doctrine,” the Court found that eliminating billions in student debt was such a costly and politically important act, Congress would have spoken clearly if it had intended to give the Department of Education that power. Congress ordinarily reserves such major questions for itself. Thus, the Court enjoined the HEROES Act forgiveness plan. The Administration scrapped the program.

Biden Loan Forgiveness Part Two: The SAVE Plan

While litigation over HEROES Act forgiveness was pending, the Administration tried a new tactic: the Saving on a Valuable Education Plan (SAVE). SAVE is an updated Income Driven Repayment (IDR) Plan. IDR Plans help borrowers who struggle to repay their loans by allowing them to make a lower monthly payment (a percentage of their discretionary income) over a longer period of time than is required by the usual repayment plan. The SAVE Plan made the terms of IDR Plans more generous than ever before. Among other things, it (1) defines “discretionary income” to be income above 225% of the applicable federal poverty guideline, (2) sets the monthly payment amount at $0 if the borrower’s income falls below that threshold, (3) caps the monthly payment amount at 5% of the borrower’s income that goes above that threshold for undergraduate loans, and (4) cancels all loans where the original principal balance was $12,000 or less after the borrower has made 120 monthly payments or the equivalent. The result was that borrowers would repay as little as $0 per month and could only repay 60% of their loans. The Department estimated the SAVE Plan would cost $156 billion.

The Department of Education finalized the SAVE Plan on July 11, 2023—ten days after the Supreme Court issued its decision in Biden v. Nebraska. A number of states sued to stop the plan in both Kansas and Missouri. Both lawsuits claimed that the Department was forgiving loans without congressional authorization, in violation of the major questions doctrine, and that the Plan was arbitrary and capricious, in violation of the APA.

On June 24, 2024, judges in both cases agreed that the SAVE Plan violated the major questions doctrine and blocked separate parts of the SAVE Plan, effectively prohibiting the Department from lowering payments or forgiving balances. On appeal, the Tenth Circuit (handling the Kansas case) stayed the injunction, but the Eighth Circuit (handling the Missouri case) enjoined the entire plan. The Supreme Court denied the Department’s emergency application to allow the SAVE Plan to take effect while litigation continued. The Eighth Circuit recently heard oral argument on the injunction, and a decision is expected in the next few months. The Tenth Circuit abated Kansas’s case in light of the Eighth Circuit’s ruling.

Biden Loan Forgiveness Part Three: Waiver Again

Phase Three of loan forgiveness commenced in April 2024. For this round, the Department of Education turned to the Higher Education Act.

As background, in 1965 Congress created the FFELP, which was intended to provide government-backed student loans for students who did not qualify for loans guaranteed by states or nonprofits. Under the program, a student could take out a loan, and the lender could buy insurance from the federal government. Then, if the student defaulted on the loan or was unable to pay it back (because of death or disability), the federal government would pay the balance of the loan to the lender and take over the note. The Department could then recover the balance from the student. Congress gave the Secretary of Education the authority to “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption” on those defaulted loans. Later, in 1993, Congress authorized the first Direct Loan program. Now, rather than merely backing loans from private lenders, the federal government would loan money directly to students. For a while, FFELP and direct loans existed side by side. But in 2010, Congress ended FFELP loans and essentially took over the whole student loan system. And what became of the old FFELP loans? Student borrowers who had taken out such loans could continue to pay them back as they had previously, or they could consolidate the loans and take advantage of better terms offered by the Direct Loan Program. But no new FFELP loans could be issued.

Phase Three of the administration’s forgiveness plan blurred the lines between the Direct Loan and FFELP programs. It took the Department’s authority to “modify” FFELP loans and simply applied it to direct loans as well. Then, it interpreted “modify” to mean the Department had authority to cancel debt altogether (much as it had done in Phase One, which the Supreme Court struck down).

The Department proposed canceling the balance of a loan above what was initially borrowed for borrowers with income under $125,000 and up to $20,000 for borrowers with higher incomes. The Department also proposed automatically canceling the loans of any borrower who is eligible for any form of forgiveness, even if the borrower had not successfully applied for forgiveness. The plan was expected to cancel debt for around 25 million borrowers.

The Department announced Phase Three would be finalized in October. However, behind the scenes, there were signs that the Department actually intended to cancel the loans a month earlier—before anyone could mount a legal challenge. Missouri discovered communication between MOHELA and the Department of Education in which the Department told MOHELA to be ready to hit the button on loan forgiveness on September 8. The Department planned to send a list of those who were eligible for forgiveness to loan processers and expected that the loan processors would forgive the loans within the next day.

Upon discovering this information, Missouri and other states sued again, even though the Rule had not yet been published. Despite the lack of any published rule, Missouri argued that the agency had already made its decision and, therefore, the new phase was challengeable as a final action under the Administrative Procedure Act. On the substance, they argued (as before) that the Rule violated the major questions doctrine and the APA. They also argued the expedited timeline (which the Department admitted was planned) violated the Congressional Review Act and the Department’s own statutes. A court in the Southern District of Georgia temporarily blocked the plan, preventing the Department from acting upon the Rule (though not preventing it from publishing the Rule). Later, the Georgia court determined that the State of Georgia did not have a legal right to sue but that the State of Missouri did, so the court transferred the case to the Eastern District of Missouri. The Eastern District of Missouri preliminarily enjoined the Rule entirely. The Department has neither appealed that order nor published the Rule, but it has nonetheless paused payment obligations for millions of borrowers.

What’s Next?

Still undeterred, the Department announced “phase four” of loan forgiveness on October 31, 2024. This plan redefines “hardship” in the Higher Education Act, which allows the Secretary to “ waive all or part of any student loan debts owed to the Department based on the Secretary’s determination that a borrower has experienced or is experiencing hardship related to such a loan.” This Rule would likely have taken effect in early 2025, but the Trump Administration is unlikely to implement it.

Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at [email protected].