Lawsuits Piling Up Over Biden’s Debt Cancellation Ploy

AMAC Exclusive – By Tom Campbell

On Monday, President Joe Biden formally opened the application for his plan to unilaterally cancel $400 billion of student-loan debt by executive fiat. But even as the administration plows ahead with the plan, it has run into a mountain of legal obstacles, raising the distinct possibility that the scheme – viewed by many as a desperate ploy to energize turnout for Democrats ahead of November’s midterm elections – may ultimately backfire and become just the latest embarrassing failure for the beleaguered president.

The first lawsuit filed against the plan came from the Pacific Legal Foundation (PLF), which argued that Biden’s cancellation of student debt is a violation of the Constitution’s separation of powers. The group specifically targeted Biden’s use of the HEROES Act to justify the mass debt cancellation.

The HEROES Act, which Congress passed in the wake of 9/11, gave the Secretary of Education the ability to “waive or modify” student loans held by deployed military service members or victims of certain disasters. The Biden administration argued that the COVID-19 pandemic made all student loan borrowers covered under the law – a notion that PLF disputes, with their lawsuit pointing out that the current Congress has declined to pass wide-scale debt cancellation. As PLF notes, student debt forgiveness is “Congress’s prerogative under our Constitution, as Congress is the branch of government that possesses the exclusive power to make law.”

Soon after PLF filed its lawsuit, however, the Biden Justice Department responded with a clever legal move to undermine PLF’s standing in court. But just a few days later, six Republican state attorneys general filed a second lawsuit building on PLF’s basic arguments about the illegality of Biden’s decision. “No statute permits President Biden to unilaterally relieve millions of individuals from their obligation to pay loans they voluntarily assumed,” their complaint states. In furthering the contention that Biden is violating the separation of powers, the attorneys general highlight Speaker Nancy Pelosi’s own assertion in July 2021 that the president does not have the power of blanket debt forgiveness and that such cancellation would have to be “an act of Congress.”

In their lawsuit, the attorneys general also attack Biden’s reliance on the HEROES Act to justify his action. They criticize Biden for stretching the statute to essentially designate the entire country as a “disaster area” due to the COVID-19 pandemic and cite his declaration in a September 18th 60 Minutes interview—only weeks after his initial announcement of the debt cancellation—that “the pandemic is over.” In spite of Biden’s own acknowledgment that we have moved out of the pandemic, the attorneys general argue, he is relying on a “national emergency” that no longer exists to justify his power grab.

On the same day, Arizona Republican Attorney General Mark Brnovich filed a separate lawsuit against the Biden administration. Similar to the lawsuit filed by the other state attorneys general, Brnovich’s suit also argues that Biden’s unilateral cancellation of student-loan debt is an overreach of executive authority, posing a threat to both the separation of powers and placing an undue burden on the states. Specifically, Brnovich alleges that Biden’s plan would make it more difficult for state government offices to recruit legal talent and that the cancellation would increase the state’s cost of borrowing by harming the state’s tax revenue.

Another lawsuit filed by the Job Creators Network Foundation Legal Action Fund takes a slightly different approach, arguing that the Biden Department of Education “flagrantly violated the Administrative Procedure Act’s notice-and-comment requirements by crafting this massive and arbitrary debt jubilee behind closed doors without the traditional public comment period.” Under the provisions of the APA, executive branch agencies must provide a comment and review period for their “quasi-legislative rulemaking” – like enacting mass student-debt forgiveness – in order to justify their decisions since government bureaucrats are not directly elected by the people.

The biggest challenge for the groups hoping to bring these lawsuits thus far has been establishing standing in court. Standing must first be established to challenge the legality of government action. In general, a lawsuit like this must be brought on behalf of a group or individual who can prove they were harmed by a government policy or decision. As a rule, taxpayers cannot challenge federal spending, and the lawsuits must prove the loan forgiveness harmed plaintiffs in a clear and concrete way – something that is difficult given that the most obvious harms done to taxpayers by canceling student debt (inflation, tax increases, moral hazard) are indirect in nature.

This is why, for example, PLF’s lawsuit was thrown out, even if their arguments about the illegality of Biden’s decision still hold merit. PLF’s lawsuit names as the plaintiff a PLF attorney, who they argue would suffer financial harm if, as a Pell Grant recipient, he has $20,000 of debt forgiven. He is part of the Public Service Loan Forgiveness (PSLF) program, which exempts loan forgiveness from tax liabilities. However, the lawsuit argues his tax bill would increase by $1,000 because Indiana would tax the federal cancellation of $20,000 of debt as income since it did not occur as part of the PSLF program.

Shortly after the suit was filed, the Department of Education scrambled to update its FAQs to say that borrowers will be allowed to opt-out of the cancellation if they believe they will be financially harmed. Because of this, the judge overseeing the case declined to issue an injunction, saying there was no harm that needed immediate relief. A judge dismissed another lawsuit filed by the Wisconsin Institute for Law and Liberty (WILL) on similar grounds, rejecting the assertion that taxpayers have standing.

Nonetheless, the two lawsuits filed by Republican state attorneys general have thus far been allowed to move forward. The lawsuit led by the six states claims MOHELA, a student-loan servicer based in Missouri, will be financially harmed by Biden’s plan. Because student-loan servicers receive fees based on the number of accounts they service, the attorneys general argue that MOHELA will lose revenue due to student-loan balances going to zero en masse.

Arizona’s lawsuit claims that the cancellation will hurt the ability of the attorney general’s office to hire employees. It says the AG’s office relies on the PSLF program to recruit lawyers, who hold a disproportionate amount of student-loan debt. Brnovich argues the write-off will make the program for forgiveness less attractive and working for the AG’s office less lucrative.

Ultimately, Americans will have to wait to see whether the state-led lawsuits, or another suit, will be successful. If standing can be established, Americans will have to hope the judicial branch will have more respect for the Constitution’s separation of powers and the rule of law than does President Biden.

Tom Campbell is the pen name of a Washington, D.C.-based professional with more than a decade of policy and legislative experience at the state and federal levels of government.