Student debt relief activist rally in front of the U.S. Supreme Court on June 30, 2023 in Washington, D.C. That day, the Supreme Court stuck down the Biden administration’s student debt forgiveness program in Biden v. Nebraska (Kevin Dietsch/Getty Images).
The fate of a partially enacted federal plan to forgive student loans and lower monthly payments is in the hands of a panel of three GOP-appointed judges on the Eighth Circuit Court of Appeals.
Attorneys from the federal government and the Missouri Attorney General’s Office made their arguments Thursday afternoon before Judges Raymond Gruender, Ralph Erickson and Steven Grasz.
The lawsuit, filed in April by Missouri Attorney General Andrew Bailey and six other GOP attorneys general, seeks to eliminate the U.S. Department of Education’s SAVE Plan, which lowers payment costs based on income and raises the maximum income to qualify for $0 payments. It also promises forgiveness in as little as 10 years, depending on the loan’s original balance.
The plan is on pause while the legal challenge winds through the courts. Borrowers enrolled in the SAVE Plan are currently in a general forbearance without interest accruing.
Arguments Thursday focused on two points: whether the U.S. Department of Education had the authority to create the plan and if the states bringing the lawsuit can prove they are harmed by the plan enough to give them standing to sue.
Thomas Pulham, an attorney with the U.S. Department of Justice, defended the department’s interpretation of the Higher Education Act, which authorizes income-contingent repayment plans.
The law says repayment for these loans is for “an extended period of time prescribed by the Secretary, not to exceed 25 years.” The federal government has held this allows the Secretary of Education to choose the length, as long as it is under 25 years.
Grasz told Pulham that he reads it differently. He believes that it means the loans must be paid in full within 25 years.
“Tell me why I’m reading this statute wrong,” Grasz said. “It talks about a variety of plans for repayment, not forgiveness, repayment — including principal and interest on the loan, which sounds like you have got to repay all the principal and all the interest.”
Pulham said the 25-year period may be unattainable for low-income borrowers, causing high bills at the end of the term if the full balance and interest is due.
“The income contingent repayment plan, by its terms, calls for repayment that is contingent on income. Contingent means possible or uncertain,” he said. “If a borrower does not have sufficient income to cover all the payments, then those payments can’t be made.”
This was the department’s understanding when it implemented the rule and through Congress’s amendments in 2007, he said.
“Congress authorized a repayment plan. If the borrower’s payments are reduced to zero and then forgiven, how is that a repayment plan?” Grasz asked.
“The borrower’s payments are zero only for the time when the borrower’s income is insufficient to make any payment because they’re earning so their income is sufficiently low that they can’t cover the necessities of life,” Pulham said.
The first attempt to forgive student loans under the HEROES Act, which sought to cancel up to $20,000 in debt for borrowers, was squashed when the U.S. Supreme Court ruled the department didn’t have authority from Congress. Bailey was a key part of that case and leads the coalition against the SAVE Plan.
Joshua Divine, Missouri’s Solicitor General, said the appellate court is under the precedent of the Supreme Court ruling, which gave Missouri standing to sue. The case also applied a doctrine that requires clear statements of authorization to executive agencies in matters of economic or political importance.
Divine said the application of this doctrine is “game over” for the federal government’s argument.
“The other side asserts an interpretation that would give the secretary authority to cancel every penny of every loan. The problem, of course, is that extraordinary assertions of authority like that require exceedingly clear statements by Congress, and this the Secretary doesn’t have,” he said.
Grasz, who questioned Pulham throughout his allotted time for arguments, had few inquiries for Divine.
An appointee of former U.S. President Donald Trump, Grasz has ties to Divine through conservative law organization The Federalist Society. In January, Grasz was a speaker at the group’s Missouri chapters conference. Divine was also a speaker during the conference, though on a different topic.
Thursday, Grasz asked Divine why the court should block portions of the rule that look at family size and deferment protocol. A decision at the district court level only blocked forgiveness, parsing out other provisions.
“Those are harming us just as much as the other ones are,” Divine said. “What they have done is they have blasted open the eligibility so you can’t just isolate the forgiveness provision from the eligibility for forgiveness provisions.”
In order for the lawsuit to be valid, Divine must prove harm. A quasi-governmental student-loan processor called the Missouri Higher Education Loan Authority, or MOHELA, has been the state’s vehicle for standing in the loan-forgiveness litigation.
But the federal government said MOHELA, based on the terms of its contract, would make more money with the SAVE Plan.
James Richard Kvaal, the under secretary of education in the Biden administration, signed an affidavit earlier in the case that MOHELA would lose money if the plan is blocked.
“Missouri should be indifferent as to whether there is forgiveness or the loan is entirely paid off,” Pulham told the panel of judges on Thursday. “The two possibilities are zero balance or forgiveness and either way, MOHELA’s payments end.”
MOHELA has not been an active participant in the challenges to the federal government’s loan-forgiveness plans. But the servicer’s existence has allowed the cases to move forward.
Pulham said the six other states signed onto the lawsuit — Arkansas, Florida, Georgia, North Dakota, Ohio and Oklahoma — have “no standing at all.”
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