Last week, the Supreme Court heard oral arguments on President Joe Biden’s student loan forgiveness plan, and the court will issue a decision in the next few months.
Most experts predict that the likely outcome is that the high court will block the plan under the major questions doctrine because of its significant political and economic impact.
Is it because the court favors Republican policies? Perhaps. But the justices might also be wary of the executive branch having the power to single-handedly create a half-trillion-dollar program just because a 20-year-old statute has the phrase “waive and modify” in it. This can open the door for executive agencies exploiting emergency powers in ways that Congress may not have anticipated, particularly in an election year.
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But the justices are less certain when it comes to the issue of whether the plaintiffs have standing to sue. Four justices are not fully convinced that the current plaintiffs have standing, and it is possible that one or two more might be on the fence. Historically, conservative judges tended to be in favor of stricter standing rules although it appears that if a case is important enough, a court will give standing to a plaintiff if they can show some level of harm that can be redressed.
While both sides steadfastly held their positions in court, Solicitor General Elizabeth Prelogar made an interesting concession. She said that the Missouri Higher Education Loan Authority (MOHELA) would have standing to sue in this case instead of the six states or the two individuals who are the current plaintiffs.
MOHELA is a public instrumentality of the state of Missouri and has been a federal loan servicer since 2011. They stated that they were not involved with the state of Missouri’s decision to sue the Department of Education in order to block the student loan forgiveness program. It is argued that MOHELA would lose substantial revenue from loan servicing fees if the loan forgiveness program is approved. MOHELA and other loan servicers have chosen not to participate most likely because they don’t want to bite the hand that feeds them.
But between now and the time the Supreme Court issues its decision, what if MOHELA were to file its own lawsuit to block the student loan program? If it does, the Supreme Court might feel more comfortable about dismissing the current lawsuit for lack of standing since there is a proper plaintiff.
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If the case is dismissed, then the court will not decide on the merits and the forgiveness program will stand. The Department of Education will then apply the forgiveness adjustments almost immediately afterward and restart repayment and interest accrual for all federally held loans.
MOHELA’s lawsuit will work its way through the courts again although it’s less likely to get expedited treatment. And when it does reach the Supreme Court again, the only issue to be decided is the legality of the student loan forgiveness program. And that is when the majority of the justices are likely to strike down the plan.
Does that mean the loans already forgiven will be reinstated? Perhaps. It is as simple as adding back the forgiven amount to borrowers’ loan balances. On the other hand, the Supreme Court might be reluctant to disturb the outcome of an earlier lawsuit.
So, why should MOHELA sue? What is in it for them?
For starters, it would be good PR for them. By being responsible for dismissing the current lawsuit and upholding the loan forgiveness program, they will be seen in a positive light in an industry known for poor customer service, particularly to those who are suffering a financial hardship.
This can likely result in future borrowers selecting MOHELA to be their loan servicer, which will mean higher earnings for them, their investors, and Missouri.
Lastly, if MOHELA does file a lawsuit, it is likely to do so reluctantly. So how can MOHELA be trusted to prosecute their lawsuit in good faith? Perhaps Missouri can appoint special counsel to represent them.
This idea is not foolproof. A lower court may immediately issue another nationwide injunction blocking forgiveness. Or the case will be dismissed for mootness since the loans were already forgiven.
If a federal student loan servicer like MOHELA files a lawsuit on its own, the Supreme Court may dismiss the current suit for lack of standing. This will allow the president’s student loan forgiveness program to stand even it is later struck down. While this outcome is not guaranteed, it would be a fair compromise and would be worth a shot.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.