Earlier today, US District Judge Henry Autrey issued a decision dismissing a lawsuit filed by six states challenging the legality of President Biden's massive $400 billion loan forgiveness plan. The court dismissed the case based on the procedural doctrine of standing, which—among other things—requires plaintiffs to show the government policy they are challenging has caused them some sort of "injury." The standing ruling is based on very dubious reasoning, and I think it is highly likely to be overturned on appeal. Even if stands, the states have a pretty obvious way to get around it.
Standing is a genuine problem for efforts to challenge the loan forgiveness plan in court. But, like most other observers, I thought the state lawsuit could easily get over this hurdle because at least one of the plaintiff states—Missouri—has a state agency— the Higher Education Loan Authority of the State of Missouri (MOHELA)—that services student loans, including some that will be partially or fully forgive by the Biden plan. The Biden loan forgiveness program will predictably reduce MOHELA's revenue from those loans, and even a small financial loss is enough to qualify for standing under Supreme Court precedent.
Importantly, Judge Autrey doesn't deny that MOHELA suffers an injury from the student loan program. Rather, he concludes that the state of Missouri lacks standing to sue on MOHELA's behalf:
Missouri…. fails to connect the alleged harms to MOHELA as harms to the State of Missouri, i.e., does Missouri establish it has standing to sue on MOHELA's behalf? Missouri maintains it can sue for MOHELA because MOHELA is a state entity that performs "essential public function[s]" that includes ensuring "post-secondary education students have access to student loans" and providing financial support to Missouri's public colleges and universities….
Missouri does impose some control over MOHELA, which is assigned by statute to its Department of Education, like authorization for the Governor to appoint five members of the seven-member board and requiring a yearly report on its income, expenditures, bonds, and other forms of indebtedness issued. Mo. Rev. Stat §§ 173.445, 173.360. However, when it was established, MOHELA's revenues and liabilities were specifically and completely independent of the State of Missouri. The enabling legislation stated in relevant part that "[t]he proceeds of all bonds or other forms of indebtedness issued by the authority and of all fees permitted to be charged by the authority and of other revenues derived shall not be considered part of the revenue of the state…shall not be required to be deposited into the state treasury, and shall not be subject to appropriation by the general assembly." Mo. Rev. Stat. § 173.425. The statute also states that "[t]he state shall not be liable in any event for the payment of the principal of or interest on any bonds of the authority or for the performance of any pledge, mortgage, obligation, or agreement of any kind whatsoever which may be undertaken by the authority." Mo. Rev. Stat § 173.410….
These provisions make clear that the legislature intended to create a self-sustaining and financially independent agency. The express financial separation of MOHELA established by Missouri law and the lack of any obligation for Missouri to pay MOHELA's debts, strongly militates against finding MOHELA to be an "arm of the State."
This reasoning makes little sense. As Judge Autrey acknowledges, MOHELA is a state-controlled entity, part of the state Department of Education. Missouri law describes the agency as "a public instrumentality and body corporate" and describes its powers as "the performance of an essential public function." The fact that its revenues and finances are separate from those of the rest of the state's operations does not make it any less an agency of the State of Missouri. If MOHELA's revenues suffer, the state necessarily suffers, as well, because the state ultimately owns MOHELA. If a single entity owns two different firms, A and B, that owner obviously suffers an injury when either A or B loses revenue—even if A's funds are completely segregated from B's, and vice versa. The same reasoning applies here.
For this reason, I believe it is likely that the US Court of Appeals for the Eighth Circuit will overturn this decision. But even if it does not, Missouri has an easy way to fix the problem: they can simply have MOHELA file a lawsuit in its own name, rather than having the State do so on its behalf. As Judge Autrey notes in his opinion, Missouri law specifically gives MOHELA the right to sue and be sued. Five of the seven members of MOHELA's board are appointed by the governor (and subject to reappointment by him), so the state can likely prevail on MOHELA to file a lawsuit of its own.
Judge Autrey's ruling also dismissed the claims of the other five states, all based on standing. Most notably, Arkansas' claims on behalf of its loan servicing agency, the Arkansas Student Loan Authority (ASLA), are dismissed because ASLA only services Federal Family Education Loan Program (FFELP) loans, and the Biden Administration recently exempted FFELP loans from the loan forgiveness program, in a move likely intended to defeat standing. Interesting, Judge Autrey does not deny that Arkansas has the right to sue on ASLA's behalf!
Regardless, as Judge Autrey acknowledges, MOHELA, unlike ASLA, also services conventional Direct Loan Program (DLP) student debt, and DLP loans remain covered by the loan forgiveness program. For that reason, MOHELA pretty obviously has standing to sue. If so, it is silly to conclude that the state of Missouri, which established and owns MOHELA, doesn't have a right to file a lawsuit on its behalf. But even if it somehow does not, Missouri can refile the lawsuit by having MOHELA sue in its own right.
For reasons I outlined in earlier posts on standing and the loan forgiveness litigation (e.g. here and here), the issues at stake here arise because there are multiple flaws in current Supreme Court standing jurisprudence. For example, it is ridiculous that taxpayers lack standing to sue to challenge massive illegal diversions of public funds, such as Trump's attempted border wall funding diversion (which has striking similarities to the loan forgiveness policy), and Biden's plans in this case. Judge Autrey's ruling adds yet another level of ridiculousness to this already insane edifice by concluding that a state lacks standing to sue on behalf of a public agency the state itself established and owns.
There are other types of litigants that might well get standing to challenge the loan forgiveness program. The ongoing lawsuit brought by the Pacific Legal Foundation on behalf of Frank Garrison is an example of a more speculative, but still plausible standing theory. But loan servicers like MOHELA, pretty obviously have standing under even a narrow interpretation of current precedent. Sooner or later, I expect courts will recognize that, one way or another.
If the state plaintiffs in this case ultimately get standing, courts will have to address the merits. For reasons I have written about in previous posts, the Administration's legal rationale for the program doesn't add up, and the same is true of a possible alternative justification under the 1965 Higher Education Act.
NOTE: The Pacific Legal Foundation—the public interest firm litigating the Garrison case—is also my wife's employer (though she herself is not working on the case). My interest in this issue—and other similar separation of powers matters—long predates PLF's involvement. I do not have any connection to the lawsuit filed by the six states. As a university professor, I actually stand to benefit from Biden's plan, if courts uphold it, because loan forgiveness essentially subsidizes consumption of the services universities and their faculty provide.
UPDATE [Oct. 21, 2022]: A day after the district court ruling, the US Court of Appeals for the Eighth Circuit issued an "administrative stay" temporarily blocking the Biden administration from discharging any student loan debt while it considers the states' motion for a temporary injunction against the loan program. This stay will likely last only a few days, and it doesn't necessarily mean the appellate court will reverse the district judge's ruling on standing, much less that it will rule in favor of the states on the merits. But it does suggest the Eighth Circuit is at least seriously issuing a preliminary injunction that would block the loan forgiveness program for a longer time.
The post Federal Court Issues Dubious Decision Dismissing Six-State Lawsuit Against Biden Loan Forgiveness Program for Lack of Standing [Updated] appeared first on Reason.com.
