October, 2022
Washington — Although the Biden administration's student loan cancellation plan has, so far, survived several attempts to kill it in court, it has come at a high price. Hundreds of thousands of FFEL borrowers feel betrayed that they will see no relief because, to counter plaintiffs' claims of standing to sue, the Biden administration abruptly took away FFEL borrowers' eligibility to claim cancellation benefits after consolidating their loans from FFEL into DL. The FFEL borrowers had been assured that they were eligible right up to the very day the promised benefits were withdrawn.
This "gut-punch" to FFEL borrowers may have been needless. Standing has a high bar, as Judge Henry Edward Autrey explained in his decision to dismiss six states' requests for injunctive relief against the cancellations. Plaintiffs must "show a concrete and particularized injury for the purposes of standing," he wrote, pointing out four times that "speculative" injury did not qualify for standing.
Make no mistake: any injury to the plaintiffs from FFEL consolidations and cancellations is highly speculative. Fitch Ratings, the Wall Street company that rates student loan asset-based securities (SLABS), even considers the Biden plan to be "positive" for SLAB owners like the plaintiffs. Why DOJ did not make this argument for the Biden administration is inexplicable. It is commonly understood in industry; cancellations will reduce maturity risk.
During oral argument, at 1:06 onward, Judge Autrey even tossed up a softball question to DOJ, inviting a full swing at how speculative the plaintiff's alleged injuries were, in reality. DOJ instead touted the argument that it was cutting off borrowers' benefits, needlessly giving credibility to the plaintiff's assertions that cancellations would be bad for SLABS. In his written decision, unfortunately, Judge Autrey conformed to DOJ's sole argument that removing the borrower benefits settled the question.
This will make it all that much harder for the Biden administration to make amends with the FFEL borrowers, as it says it wants to do.
There is a possible way back, to undo the damage. First, when the case is appealed, DOJ needs to make the case that the standing question is not solely a function of making FFEL borrowers abruptly ineligible.
Second, there is the matter of statutory parity between FFEL and DL programs. Parity prevents termination of FFEL benefits if DL borrowers are eligible for them.
A new case on the parity question, Rosenberg v. Deutsche Bank, has been filed in the Southern District of New York. It cites 20 U.S.C. 1087e(a)(1)-(2) of the Higher Education Act:
Notwithstanding any other provision of this part, loans made to borrowers under this part that, except as otherwise specified in this part, have the same terms, conditions, and benefits as loans made to borrowers under section 1078 of this title [FFEL Loan Program], shall be known as “Federal Direct Stafford/Ford Loans”.
And argues:
...the United States Court of Appeals has ruled that, by enacting the statutory parity provisions in the HEA requiring that all federal student loans under the FFEL Loan Program and the Direct Loan Program “shall have the same terms, conditions, and benefits”, it is clear that (a) “Congress created a policy of inter program uniformity” between the FFEL Loan Program and the Direct Loan Program and (b) “Congress’s instructions to the DOE on how to implement the student loan statutes carry this unmistakable command: Establish a set of rules that will apply across the board.” See Chae v. SLM Corp., 593 F.3d 936, 944-45 (9th Cir. 2010). [Case 1:22-cv-07567 Rosenberg v. Deutsche Bank, Southern District of New York]
This is also the historical position of the Education Department. It would be good to return to it.
Time is short before an upcoming appeal of Judge Autrey's decision in the Eighth Circuit, but DOJ should also draw a distinction between the amount of cancellations at issue and the cost of cancellations to taxpayers. There is a huge difference, as explained in a previous blog post. This is potentially important in determining whether the cancellations cross a "major questions" line. Judge Autrey suggested that the case brought by the six states might succeed on the merits, if the plaintiffs had standing, but his rationale was based on the assumption that taxpayers would be bearing all of the costs. That assumption is speculative and unwarranted.
