In two separate lawsuits, a total of 18 states have sued the Biden administration to stop the implementation of its Saving on a Valuable Education (SAVE) Plan. If these lawsuits fail, hundreds of billions of dollars would be transferred from taxpayers to student loan borrowers without congressional authorization. Long-term, SAVE would spell disaster for multiple parties in higher education, propping up the very most expensive college programs with the very worst labor market outcomes and encouraging students to borrow more, colleges to raise prices, and colleges that avoid issuing loans today to begin doing so.

Fortunately, in a sign of legal sanity, two separate courts nearly simultaneously issued injunctions mostly halting the implementation of SAVE, which was scheduled to fully go online next week, on July 1. In the first case (with plaintiffs Missouri, Arkansas, Florida, Georgia, North Dakota, Ohio, and Oklahoma), US District Judge John A. Ross in St. Louis blocked the loan forgiveness portions of the rule. As with the US Supreme Court case that struck down Biden’s original loan forgiveness attempt, the Higher Education Loan Authority of the State of Missouri (MOHELA) is key to establishing standing. (Since that ruling almost exactly a year ago, the US Department of Education has taken multiple negative actions against MOHELA.) Similarly in this case, there is fairly wide agreement that the Department overstepped its authority, but establishing standing to sue is tougher, which is why action by these states’ attorneys general is so critical.  

Interestingly, Judge Ross finds that the Department of Education likely has the authority to decide “repayment schedules and… the extent of interest capitalization as to loans.” However, he says that the Department has “failed to point to a clear congressional authorization for the loan forgiveness provisions of the [SAVE Plan], and the Court has found none.” With standing granted, Judge Ross’s ruling might hinge on the most charitable possible interpretation of the Department’s authority on its merits, and yet it still takes issue with portions of SAVE.

In the second case (led by Kansas with Alabama, Alaska, Idaho, Iowa, Louisiana, Montana, Nebraska, South Carolina, Texas, and Utah), US District Judge Daniel D. Crabtree in Kansas City issued a somewhat stronger ruling, including a nationwide injunction that prevents any further implementation of the rule on July 1.

Perhaps most importantly, he invokes the major questions doctrine, another significant factor in last year’s Supreme Court ruling. “Beyond cost,” Judge Crabtree writes, “the SAVE Plan is a transformative expansion in regulatory authority in another important way: it represents the first time the Secretary has gone beyond the number set by Congress.” In the past, Congress has changed the law when it wanted to be more generous with loan forgiveness, but SAVE goes far beyond the generosity provided by prior regulatory efforts because, “both the monthly payment cap and the payment period limitation overreach any generosity Congress has authorized before.”

Neither judge was willing to force the Biden administration to unwind the portions of SAVE that it had already implemented, including adjusting loan payments and issuing forgiveness for nearly half a million borrowers earlier this year (this, of course, was by the Administration’s design). In particular, allowing the Administration’s more generous stance regarding interest accrual will result in further steps towards forgiveness that may be impossible to unwind. In these regards, the courts’ lack of interference merely rewards an administration taking actions it likely knows are illegal.

Ultimately, however, these judges did the right thing. There are already eight million borrowers enrolled in SAVE (a number that will inevitably continue to climb rapidly), and planned recalculations of loan payments on July 1 would further worsen the already-significant impact loan forgiveness is having on the federal deficit. This pause will allow the legal process to play out, forestalling the Biden administration’s (so far successful) attempt to force a blatantly illegal policy into effect before the courts have the chance to stop it. As the election looms on the horizon, it appears that time is no longer on the side of loan forgiveness.

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