8th Circuit halts $475 billion student loan debt forgiveness plan

An injunction preventing the U.S. Secretary of Education from implementing a plan to forgive approximately $475 billion federal student loan debt was appropriate, a panel of the 8th U.S. Circuit Court of Appeals ruled in a per curiam decision on August 9.

A group of seven states – Arkansas, Florida, Georgia, Missouri, North Dakota, Ohio and Oklahoma – sued President Joseph R. Biden, Secretary of Education Miguel A. Cardona and the U.S. Department of Education to enjoin prospectively the implementation of the Improving Income Driven Repayment for the William D. Ford Federal Direct Loan Program and the Federal Family Education Loan (FFEL) Program, or SAVE.

SAVE is the Secretary of Education’s latest regulation creating a new version of the income-contingent repayment (ICR) plan under the Higher Education Act (HEA).

Before SAVE, the ICR plan was governed by the terms of a regulation known as REPAYE, and before REPAYE, it was governed by PAYE. Both REPAYE and PAYE forgave borrowers’ remaining principal at the end of 20 or 25 years of repayment.

The new SAVE plan altered payment-threshold provisions to significantly lower payment amounts, often to $0 per month; did not charge borrowers accrued interest and forgave principal balances much sooner; it also set up a sliding-scale loan forgiveness calculation under which loans can be forgiven in as little as 10 years.

On a motion by the states, the district court granted the injunction, finding that Missouri had established standing through its state instrumentality — the Higher Education Loan Authority of the State of Missouri (MOHELA) — and that MOHELA was facing “certain” irreparable harm.

The states had shown a “fair chance” of success on the merits of their claims both that loan forgiveness is not statutorily authorized for any ICR plan under the HEA and that SAVE violated separation of powers under the major questions doctrine.

However, the district court only enjoined the ultimate forgiveness of loans.

Despite the injunction, the government continued to forgive loans for borrowers enrolled in SAVE through a new co-called “hybrid rule,” which combined the parts of SAVE that the court did not enjoin, allowing borrowers to make the same reduced or $0 payments pursuant to SAVE and ultimately being forgiven the remainder of their loan balance pursuant to REPAYE.

The government appealed the injunction and the states cross-appealed, seeking an expanded injunction and asking for clarification on the scope of the preliminary injunction in an emergency motion for an injunction pending appeal.

A panel of the 8th Circuit affirmed the injunction.

As a threshold matter, the court agreed with the district court that the allegations were sufficient to establish Missouri’s standing.

Turning to the likelihood of success on the merits, the panel found that the states had demonstrated at least a “fair chance” that they will ultimately prevail under applicable law.

“The SAVE plan is even larger in scope than the loan-cancellation program at issue in [the litigation over the government’s last attempt to engage in mass student-loan cancellation],” the court wrote. “SAVE is anticipated to forgive an estimated $475 billion dollars in student loans.”

Although the government’s asserted authority to implement SAVE rested on the HEA’s directive to the Secretary of Education to establish “an income contingent repayment plan, with varying annual repayment amounts based on the income of the borrower, paid over an extended period of time prescribed by the Secretary, not to exceed 25 years,” the court said this was a questionable interpretation of the provision, “especially in light of the fact that ‘other portions of the HEA … explicitly permit loan forgiveness,’ such as IBR plans.”

“The clear statutory requirement that loans in certain programs, such as IBR plans, be canceled, coupled with statutory silence regarding forgiveness under ICR plans, suggests that — as the district court concluded — ‘Congress has made it clear under what circumstances loan forgiveness is permitted, and the ICR plan is not one of those circumstances,” the court added.

In addition, the government’s assertion that it had “discover[ed] in a long-extant statute an unheralded power to regulate a significant portion of the American economy’ requires us to ‘greet [that] announcement with a measure of skepticism,” the court said.

“Here the government asserts that it has discovered in a few provisions of the HEA the authority to forgive hundreds of millions of dollars’ worth of student loans, 3,000 percent more than has ever been forgiven under any previous ICR program,” the court wrote. “In light of this vast assertion of newfound power, the major-questions doctrine requires that ‘something more than a merely plausible textual basis for the agency action is necessary’ in order to uphold the regulation.”

On initial review, the states had the better argument, the court explained.

As to irreparable harm, the government conceded that it continued to forgive loans for borrowers enrolled in SAVE pursuant to the hybrid rule despite the district court’s injunction, which has resulted in the same irreparable harm on MOHELA that the district court sought to enjoin.

The balance of the equities required the 8th Circuit to intervene to preserve the status quo pending the government’s appeal of the district court’s order, the court concluded.

“The government is, for any borrower whose loans are governed in whole or in part by the terms of the Improving Income Driven Repayment for the William D. Ford Federal Direct Loan Program and the FFEL Program, enjoined from any further forgiveness of principal or interest, from not charging borrowers accrued interest, and from further implementing SAVE’s payment-threshold provisions,” the court wrote. “This injunction will remain in effect until further order of this court or the Supreme Court of the United States.”

In a statement, Missouri Attorney General Andrew Bailey called the opinion “a huge win for every American who still believes in paying their own way.”

“This court order is a stark reminder to the Biden-Harris Administration that Congress did not grant them the authority to saddle working Americans with $500 billion in someone else’s Ivy League Debt,” he said.

The Department of Justice, represented by Stephen M. Pezzi, did not respond to a request for comment.

The case is State of Missouri v. Biden, No. 24-2332.

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