In the past few days, numerous media outlets have reported on a lawsuit that would end the SAVE Repayment Plan or prevent the One-Time IDR Account Adjustment.

First, it’s worth noting that this new lawsuit has nothing to do with the SAVE Repayment plan. The reports that claim that the SAVE plan is the subject of the suit are factually wrong. If you read the actual complaint, the lawsuit is about ending the one-time IDR account adjustment.

As for the substance of the lawsuit, borrowers are justifiably worried. After the Supreme Court struck down the one-time forgiveness plan, the idea of litigation around the one-time account adjustment is troubling.

Today, I’ll explain what is at issue in the lawsuit. This will include an assessment of the case’s merits and thoughts on how borrowers should handle the uncertainty when making student loan plans.

Analyzing the Cato Institute Case to End the One-Time IDR Adjustment

Before jumping into the case details, I’d like to discuss my qualifications to offer this analysis.

I am an attorney, and I have years of litigation experience. I’ve also spent over a decade helping borrowers understand student loan policy on this site.

However, I’m not a regulatory law expert, and some of the critical areas of this case fall outside of my personal experience.

Thus, what you are about to read is my informed opinion. Where possible, I’ll link to other resources so that the legal scholars among you can go as far down the rabbit hole as you like. That said, this article is written specifically for non-attorneys.

Hopefully, I can shed some light on the situation while we wait for federal judges to ultimately make final determinations.

Another Student Loan Case, Another Standing Issue

When Biden’s plan to cancel up to $20,000 per borrower went before the Supreme Court, there were actually two cases. Several states brought one case, and another came from two student loan borrowers. In both cases, standing was a significant issue.

In the case brought by the states, the plaintiffs could meet the standing requirement because of the connection between Missouri and federal servicer MOHELA. That was a controversial decision, but it was enough for the case to proceed.

In the case where two borrowers challenged the forgiveness policy, the Supreme Court unanimously ruled that the borrowers did not have standing to challenge the forgiveness.

In this new case, the Plaintiffs are PSLF employers who claim they have standing because the IDR payment count adjustment makes pursuing PSLF less appealing, making it harder for them to attract and retain employees.

It seems likely that the plaintiffs, in this case, will eventually lose on the standing issue.

Imagine, for a moment, a repair shop just down the road from a giant pothole. People passing through town keep hitting the pothole and bringing more business to the repair shop. When the government announces plans to fix the pothole, the repair shop sues to block the repairs. Does the repair shop have the right to sue?

The analogy here is a bit simplified, but it illustrates what I see as the absurdity in the plaintiffs’ argument. I’d be surprised if the plaintiffs have standing and if the case moves forward.

Digging Deeper: One of the plaintiffs, the Cato Institute, also sued to block the one-time forgiveness plan. In that case, just like the new case, they argued that they had standing as PSLF employers.

Unfortunately, the court never ruled on the standing issue in the old case. When other challenges to the one-time forgiveness rule went to the Supreme Court, the Cato Institute case was put on hold and eventually dismissed based on the Supreme Court’s ruling.

However, both parties filed briefs explaining their analysis on the standing issue. The government’s argument starts on page 8 of this document. The response from the plaintiff is available here.

The Merits of the Case

If the plaintiff meets all of the procedural requirements to bring a case, including showing standing, our analysis then moves forward to the merits of the case.

This is one area where my lack of experience with regulatory law is an issue. (If anyone has some experience in this area, please let me know.)

The plaintiffs argue that the government didn’t follow the proper rulemaking procedure to adjust IDR payment counts as planned.

Unfortunately, I don’t have any insight into the strength of this argument.

However, I do have a couple of other thoughts as it pertains to the merits of their case:

The Lawsuit Feels Like a Political Stunt

The complaint opens by stating that “[b]efore the ink dried on the Supreme Court’s June 30 decision… the Department announced a host of equally unlawful loan cancellation schemes.”

However, the IDR payment count adjustment was announced in April of 2022, more than a year before the Supreme Court ruled on one-time forgiveness. To suggest that the IDR account adjustment was in response to the Supreme Court ruling is either misleading or shows a lack of understanding of the facts.

Advocating for your client is to be expected in a complaint, but dubious claims that are factually inaccurate are not likely to be well received by the judge in the case.

Similarly, the complaint argues that “[t]here is no statutory or regulatory authority to count non-payments during periods of forbearance as qualifying monthly payments for PSLF or IDR.”

Here again, the claim is factually inaccurate. For example, the CARES Act states that time during the Covid-19 forbearance will count toward both PSLF and IDR forgiveness.

Both plaintiffs in this case have an agenda, and this case clearly furthers their advocacy goals. That doesn’t mean they will lose, but it could explain why a weaker lawsuit was filed.

A Plaintiff Win Might Not Last

As noted earlier, a large portion of the complaint revolves around alleged violations of the Administrative Procedures Act.

In these arguments, the plaintiffs are not arguing that the rules shouldn’t exist. They argue that the Department of Education didn’t follow the proper creation steps.

Should the plaintiff win on these grounds, the Department of Education could start the rulemaking process from scratch and remedy flaws found in this case.

Why Have an IDR Count Adjustment?

As a final bit of analysis, it is worth pointing out the purpose behind the one-time IDR count adjustment.

According to the Department of Education, loan servicers were improperly steering borrowers into a forbearance when they would have been better off signing up for an IDR plan. This issue was raised by Federal Student Aid, The Consumer Financial Protection Bureau, and the attorneys general of multiple states.

To correct the improper guidance that borrowers were given by their servicers, the IDR account adjustment will award borrowers credit toward IDR forgiveness for certain deferments and forbearances.

In other words, the IDR account adjustment isn’t some scheme to go around the ruling of the Supreme Court. The one-time adjustment was created to address a specific and well-documented problem, and it was announced over a year before the court ruled on the one-time forgiveness program.

Planning and Implications for Borrowers

Once again, borrowers are caught up in uncertainty as they try to plan a repayment strategy without knowing what programs will actually be available.

For example, FFEL loan borrowers who wish to take advantage of the one-time IDR count adjustment need to consolidate their loans before December 31, 2023.

It is entirely possible that this case will not be resolved before that deadline.

In my opinion, this case is far weaker than the case that ultimately sunk the one-time forgiveness plan. If I had FFEL loans, I’d probably be consolidating right now so that I could sign up for the SAVE plan when payments resume.

Even if the one-time adjustment were to get struck down, I’d expect the Department of Education to attempt a more narrow version of the program, or to assist borrowers who consolidated in reliance of the program.

However, nothing is set in stone. Litigation is inherently unpredictable, and anything could happen. Things may go poorly for borrowers, and the administration might do nothing to address the issue. It’s conceivable that borrowers who consolidate specifically for the one-time adjustment look back and regret their decision.

That all said, I’d be surprised if that is what happened.

At present, the IDR account adjustment is an excellent opportunity for borrowers to move closer to loan forgiveness. I’d hate to see people miss out because they assumed the worst would happen.

I think it is a weak lawsuit, and I don’t think it is something borrowers should stress out about.

It’s a situation worth monitoring, but I won’t be rethinking my student loan repayment strategy because some think tank decided a new policy meant that student loan borrowers might not be financially desperate enough to work for them.

Stay Up to Date: Student loan rules constantly change, and temporary programs create deadlines that can’t be missed. To help manage this issue, I’ve created a monthly newsletter to keep borrowers updated on the latest changes and upcoming deadlines.

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What makes this decision noteworthy is that it is a summary judgment vacating the forgiveness program. The judge has made a final decision on the merits of the case. The judge ordered the Department of Education not to forgive any student debt under the program.

The next stop in this litigation is an appeal to the Fifth Circuit Court of Appeals.

However, for borrowers who don’t want to read the entire 26-page decision, there are many unanswered questions. How big of a threat is this ruling to the student loan forgiveness program? What is this case about? Is the Court of Appeals likely to overturn the decision?

Accessing the Threat to Biden’s Student Loan Forgiveness

After the Supreme Court has denied multiple requests to review the one-time forgiveness program, it might seem like a single federal district court isn’t much of a threat.

Unfortunately, the threat to forgiveness is genuine.

Each lawsuit needs to be viewed individually. The Supreme Court rejecting a challenge to the forgiveness program doesn’t mean that it gets a permanent green light. Instead, it just means that particular challenge failed.

If this decision isn’t overturned by the Court of Appeals or the Supreme Court, it will end Biden’s attempt to forgive up to $20,000 per federal borrower.

What is this case about?

In this case, two Plaintiffs are suing to end the student loan forgiveness program. One plaintiff qualifies for $10,000 in forgiveness, but because he didn’t have a Pell Grant while in college, he is not eligible for the $20,000 of forgiveness. The other plaintiff has commercially-held FFELP loans and is not eligible for forgiveness due to the Biden administration’s recent decision to change FFELP eligibility.

The plaintiffs make two arguments. First, they claim that under the Administrative Procedure Act, they should have been given the opportunity to comment on the program before it became official. Second, they argue that the HEROES Act doesn’t authorize the forgiveness program.

The judge ruled for the Plaintiffs and declared the one-time forgiveness program unlawful.

Analyzing the Judge’s Reasoning Behind Ending the Forgiveness Program

I’m not going to get into a point-by-point analysis of the judge’s decision. Instead, I will say that it seems to be on very shaky legal ground.

It reads like a decision where a very conservative, Trump-appointed federal judge had a desired outcome and generated the necessary analysis to get where he wanted to go.

One of the strengths of the government’s case for the forgiveness program is that it will be very hard for any plaintiff to establish standing. To demonstrate standing, a Plaintiff must show that the statute or action in question harmed them. Wasting taxpayer dollars isn’t sufficient for standing. There must be some direct harm. Notably, a program that benefits others but not the plaintiff doesn’t meet the standing requirement.

In this case, the judge found standing for the Plaintiffs. The entirety of his standing analysis revolved around the Plaintiffs’ argument that the APA was violated and they should have gotten a chance to comment.

Where things get weird is that the judge also ruled that the APA wasn’t violated. The HEROES Act specifies that the APA opportunity to comment doesn’t apply to the legislation.

However, in ending the forgiveness program, the judge found that it exceeded the authority of the HEROES Act.

The logic here feels circular. Plaintiffs want to argue that Biden exceeded his authority under the HEROES Act, but they lack the standing to bring that lawsuit. They argue for standing on a violation of the APA, but there isn’t a violation of the APA because the HEROES Act says it doesn’t apply.

The legal analysis seems questionable at best.

Is the Court of Appeals Likely to Overturn the Decision?

The Department of Education will undoubtedly appeal the decision, and they will provide the Court of Appeals with a long list of reasons to overturn the trial court judge.

I’d argue that there is a strong argument that the Court of Appeals should overturn the Texas judge.

Unfortunately, one of the realities of our legal system is that nothing is certain. The Fifth Circuit Court of Appeals might want to reach the same conclusion the Texas judge reached. They could easily affirm the decision.

If that happens, the Supreme Court gets to decide whether or not they want to hear an appeal of the Court of Appeals decision. The Supreme Court could say they don’t want to take the case. Only a small percentage of requests are heard by the Supreme Court. If the Supreme Court refuses to hear the case, the Court of Appeals decision becomes final.

In other words, the Texas court decision was a bad break for borrowers, but hope remains. 

However, a couple more bad breaks for borrowers could mean the end of the $10,000 student forgiveness program before it helps any borrowers. 

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