Joint Appendix — Joseph R. Biden, President of the United States, et al., Petitioners v. Nebraska, et al.
Supreme Court briefJan 4, 2023
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Nos. 22-506 and 22-535
In the Supreme Court of the United States
JOSEPH R. BIDEN, PRESIDENT OF THE UNITED STATES,
ET AL., PETITIONERS
v.
STATE OF NEBRASKA, ET AL.
DEPARTMENT OF EDUCATION, ET AL., PETITIONERS
v.
MYRA BROWN, ET AL.
ON WRITS OF CERTIORARI BEFORE JUDGMENT
TO THE UNITED STATES COURTS OF APPEALS
FOR THE EIGHTH AND FIFTH CIRCUITS
JOINT APPENDIX
ELIZABETH B. PRELOGAR
Solicitor General
Department of Justice
Washington, D.C. 20530-0001
SupremeCtBriefs@usdoj.gov
(202) 514-2217
Counsel of Record
for Petitioners
JAMES A. CAMPBELL
Nebraska Attorney General’s
Office
2115 State Capitol
Lincoln, NE, 68509
jim.campbell@nebraska.gov
(402) 471-2682
Counsel of Record
for Nebraska et al.
J. MICHAEL CONNOLLY
Consovoy McCarthy PLLC
1600 Wilson Blvd., Ste. 700
Arlington, VA 22209
mike@consovoymccarthy.com
(703) 243-9423
Counsel of Record
for Myra Brown et al.
PETITIONS FILED: NOV. 18, 2022 AND DEC. 2, 2022
CERTIORARI GRANTED: DEC. 1, 2022 AND DEC. 12, 2022
TABLE OF CONTENTS
Page
Nebraska (No. 22-506)
Complaint (D. Ct. Doc. 1) (filed Sep. 29, 2022) ..................... 1
Declaration of Michael E. Talent &
Excerpts of Exhibits A-C and F
(D. Ct. Doc. 5-1) (filed Sept. 29, 2022) ......................... 45
Declaration of Michael Walden-Newman
(D. Ct. Doc. 5-2) (filed Sept. 29, 2022) ....................... 102
Declaration of James A. Campbell &
Exhibits C-D (D. Ct. Doc. 5-3)
(filed Sept. 29, 2022) ................................................... 105
Declaration of Tony Williams
(D. Ct. Doc. 5-4) (filed Sept. 29, 2022) ....................... 132
District court opinion, memorandum and order
(D. Ct. Doc. 44) (filed Oct. 20, 2022) .......................... 135
District court order of dismissal
(D. Ct. Doc. 46) (filed Oct. 20, 2022) .......................... 152
Notice of appeal (D. Ct. Doc. 47)
(filed Oct. 20, 2022) ..................................................... 153
District court order denying stay
(D. Ct. Doc. 50) (filed Oct. 21, 2022) .......................... 157
Court of appeals order granting stay
(filed Oct. 21, 2022) ..................................................... 158
Court of appeals opinion (filed Nov. 14, 2022) ............. 160
Supreme Court order granting certiorari
(filed Dec. 1, 2022) ...................................................... 168
(I)
II
Table of Contents—Continued:
Page
Brown (No. 22-535)*
Complaint (D. Ct. Doc. 1) (filed Oct. 10, 2022) ............ 169
Declaration of Myra Brown (D. Ct. Doc. 5)
(filed Oct. 10, 2022) ..................................................... 188
Declaration of Alexander Taylor (D. Ct. Doc. 5)
(filed Oct. 10, 2022) ..................................................... 190
Declaration of J. Michael Connolly & Exhibits A-B
(D. Ct. Doc. 5) (filed Oct. 10, 2022) ............................ 192
First Declaration of James Richard Kvaal &
Exhibits A-C (D. Ct. Doc. 24-1)
(filed Oct. 19, 2022) ..................................................... 224
District court order (D. Ct. Doc. 37)
(filed Nov. 10, 2022) .................................................... 263
District court final judgment (D. Ct. Doc. 38)
(filed Nov. 10, 2022) .................................................... 298
Notice of Appeal (D. Ct. Doc. 39)
(filed Nov. 10, 2022) .................................................... 300
Second Declaration of James Richard Kvaal
(D. Ct. Doc. 42) (filed Nov. 15, 2022) ......................... 302
Court of appeals order (filed Nov. 30, 2022) ................ 308
Supreme Court order granting certiorari
(filed Dec. 12, 2022) .................................................... 309
* Exhibits A-B to the Declaration of J. Michael Connolly in Brown
(pp. 194-223, infra) are similar to Exhibits A and E to the Declaration of James A. Campbell in Nebraska (D. Ct. Docs. 5-3 and 31-1).
Exhibits A-C to the First Declaration of James Richard Kvaal in
Brown (pp. 227-262, infra) are identical to Exhibits A-C to the Declaration of James Richard Kvaal in Nebraska (D. Ct. Doc. 27-1). To
avoid repetition, this joint appendix reproduces only the documents
in Brown and omits the similar or identical documents in Nebraska.
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
4:22-cv-01040
STATE OF NEBRASKA; STATE OF MISSOURI;
STATE OF ARKANSAS; STATE OF IOWA;
STATE OF KANSAS; AND STATE OF SOUTH CAROLINA,
PLAINTIFFS
v.
JOSEPH R. BIDEN, JR.,
IN HIS OFFICIAL CAPACITY AS THE PRESIDENT OF THE
UNITED STATES OF AMERICA;
MIGUEL CARDONA, IN HIS OFFICIAL CAPACITY AS
SECRETARY, UNITED STATES DEPARTMENT OF
EDUCATION; AND UNITED STATES DEPARTMENT OF
EDUCATION, DEFENDANTS
Filed:
Sep. 29, 2022
COMPLAINT
1. The economy is not well. Per the last report
from the Bureau of Labor Statistics, inflation has
eroded the livelihood of the working class, with real average hourly earnings (i.e., the purchasing power of
those wages) down 3.4 percent from last year. Real
Earning Summary, U.S. Bureau of Labor Statistics
(Sept. 13, 2022), https://tinyurl.com/bddwnj6d . Drilling
into the numbers illustrates how bad it is.
From
August 2021 to August 2022—the latest numbers available—the cost of food has gone up 11.4 percent, with the
(1)
2
price of groceries increasing 13.5 percent. Consumer
Price Index Summary, U.S. Bureau of Labor Statistics
(Sept. 13, 2022), https://tinyurl.com/yxcdu3dd . Likewise,
gas is up 25.6 percent, and electricity is up 15.8 percent.
Id.
2. And there is no sign of relief. On September 21,
2022, the Federal Reserve Board and Bank presidents
projected that the unemployment rate would increase
over the next year. See Summary of Economic Projections, Federal Reserve Bank, at 2 tlb.1 (Sept. 21, 2022),
https://tinyurl.com/ycxkvn52. And inflation, the Federal
Reserve projects, is likely to be above 5 percent for this
year while the economy struggles along with barely a
pulse. See id. (looking at PCE inflation and projected
real GDP growth of 0.2 percent).
3. The burden of the economic loss and price increases will hit those who can least afford it—the working class and the poor. See, e.g., Jack Kelly, Inflation
Will Wreak Havoc on the Working Class, Forbes (July
24, 2022), https://tinyurl.com/y83v6xwu. The well-off,
however, can handle the hardship. For example, “Jordan
Trevino, 28, who recently took a better paying job in advertising in Los Angeles with a $100,000 salary, is economizing in little ways—ordering a cheaper entree when
out to dinner, for example. But he is still planning a wedding next year and a honeymoon in Italy.” Jeanna Smialek & Ben Casselman, In an Unequal Economy, the Poor
Face Inflation Now and Job Loss Later, N.Y. Times (Aug.
11, 2022), https://tinyurl. com/yhfp9tdy.
4. In the face of out-of-control inflation, job loss, and
recession, the Biden Administration’s response is to give
Mr. Trevino, and those like him, up to $20,000.
3
5. The Administration will do that by cancelling
$10,000 to $20,000 of student loan debt for individuals
who make less than $125,000 annually, or $250,000 annually for a married person filing jointly. The Administration announced this Mass Debt Cancellation on August 24, 2022.
6. The majority of the Mass Debt Cancellation will
“accrue[ ] to the debt borrowers in the top 60 percent of
the income distribution.” Forgiving Student Loans:
Budgetary Costs and Distributional Impact, Penn
Wharton University of Pennsylvania (Aug. 23, 2022),
https://tinyurl.com/vpwkes2n. And none of the benefit
will accrue to those who worked and paid their debt.
7. In addition to being economically unwise and
downright unfair, the Biden Administration’s Mass Debt
Cancellation is yet another example in a long line of unlawful regulatory actions. No statute permits President Biden to unilaterally relieve millions of individuals
from their obligation to pay loans they voluntarily assumed. Just months ago, the Supreme Court warned
federal agencies against “asserting highly consequential
power beyond what Congress could reasonably be understood to have granted” by statute. West Virginia v.
EPA, 142 S. Ct. 2587, 2609 (2022). Yet the Administration’s Mass Debt Cancellation does precisely that. Determined to pursue across-the-board debt cancellation
and stymied by repeated failures to achieve that goal
through legislation, the Administration resorted to a
federal law whose purpose is to provide relief to individuals who have suffered from an emergency like the 9/11
terrorist attacks or who must serve their country overseas in the military.
4
8. That law—known as the Higher Education Relief
Opportunities for Students Act of 2003 (HEROES
Act)—had previously been used by the Department of
Education (ED) to relieve active-duty personnel from
nettlesome bureaucratic constraints by waiving various
administrative requirements such as grace periods and
documentation requirements that might complicate service in active operations. It is inconceivable, when it
passed the HEROES Act, that Congress thought it was
authorizing anything like the Administration’s acrossthe-board debt cancellation, which will result in around
half a trillion dollars or more in losses to the federal
treasury. See The Biden Student Loan Forgiveness Plan:
Budgetary Costs and Distributional Impact, Penn Wharton University of Pennsylvania (Aug. 26, 2022), https://
tinyurl.com/4y9rz8w5 [Penn Report].
9. In fact, until now, no one thought that such a
power lurked within the HEROES Act, or any other existing federal law. House Speaker Nancy Pelosi declared categorically: “People think that the President
of the United States has the power for debt forgiveness.
He does not . . . That has to be an act of Congress.
. . . The President can’t do it. So that’s not even a
discussion.” Lauren Camera, Pelosi: Biden Lacks Authority to Cancel Student Debt, U.S. News & World Report (July 28, 2021), https://tinyurl.com/33ex63de. And
ED previously concluded that the HEROES Act is not a
hidden source of authority to cancel student debt. See
Memorandum from Reed Rubinstein, Principal Deputy
General Counsel, Department of Education, to Betsy
DeVos, Secretary of Education 6 (Jan. 12, 2021), https://tinyurl.com/3kp29ys6 [2021 DeVos Memo].
5
10. Speaker Pelosi and the 2021 DeVos Memo are
right. The HEROES Act allows the Secretary of Education “to waive or modify any statutory or regulatory
provision applicable to” certain student financial assistance programs “in connection with a war or other military operation or national emergency” to protect those
negatively affected by the operation or emergency.
Pub. L. No. 108-76, 117 Stat. 904 (codified at 20 U.S.C. §
1098bb(a)(1)). It is not an across-the-board get-out-ofdebt provision that an administration can invoke at will.
11. Even if the HEROES Act could permit some discharge of student loan debt, the Administration itself
recognized in an Office of Legal Counsel (OLC) opinion
that any waiver or modification under the Act must be
(1) “structured to put loan recipients back into the financial position they would be in were it not for the national
emergency” and (2) limited only to the harm that has a
relation to the borrower’s federal loans, “no matter how
much financial harm a borrower may have suffered because of a national emergency.” OLC August 23, 2022
Memorandum Opinion at 21, https://tinyurl.com/2s3k238w
[2022 OLC Memo]. The Biden Administration’s Mass
Debt Cancellation does not even attempt to meet these
requirements. It instead justifies relief for all borrowers whose debt the Administration holds based on talismanic reference to the COVID-19 pandemic. It makes
no difference to the Administration’s cancellation whether
the pandemic rendered a borrower better or worse off
or how much financial harm the borrower suffered in relation to her loans. Thus, the Mass Debt Cancellation
is not remotely tailored to address the effects of the pandemic on federal student loan borrowers, as required by
the HEROES Act. The Mass Debt Cancellation in-
6
stead disregards the Act’s objectives and express requirements and distorts the Act beyond recognition in
the service of the Administration’s political agenda on
student loans. It is the epitome of unlawful and arbitrary agency action, and it should be set aside.
THE PARTIES
12. Plaintiff State of Nebraska is a sovereign State
of the United States of America. Nebraska sues to vindicate its sovereign, quasi-sovereign, financial, and proprietary interests.
13. Douglas J. Peterson is the Attorney General of
Nebraska. Attorney General Peterson is authorized to
bring legal actions on behalf of the State of Nebraska
and its citizens.
14. Plaintiff State of Missouri is a sovereign State of
the United States of America. Missouri sues to vindicate its sovereign, quasi-sovereign, financial, and proprietary interests.
15. Eric S. Schmitt is the 43rd Attorney General of
the State of Missouri. Attorney General Schmitt is authorized to bring actions on behalf of Missouri that are
“necessary to protect the rights and interests of the
state, and enforce any and all rights, interests, or claims
any and all persons, firms or corporations in whatever
court or jurisdiction such action may be necessary.” Mo.
Rev. Stat. § 27.060.
16. Plaintiff State of Arkansas is a sovereign State
of the United States of America. Arkansas sues to vindicate its sovereign, quasi-sovereign, financial, and proprietary interests.
7
17. Leslie Rutledge is the Attorney General of Arkansas. General Rutledge is authorized to “maintain
and defend the interests of the state in matters before
the United States Supreme Court and all other federal
courts.” Ark. Code Ann. 25-16-703.
18. Plaintiff State of Iowa is a sovereign State of the
United States of America. Iowa sues to vindicate its
sovereign, quasi-sovereign, financial, and proprietary
interests.
19. The Attorney General of Iowa of Iowa is authorized and required to prosecute legal actions on behalf of
the State of Iowa and its citizens when requested to do
so by the Governor. See Iowa Code § 13.2(1)(b).
20. Plaintiff State of Kansas is a sovereign State of
the United States of America. Kansas sues to vindicate
its sovereign, quasi-sovereign, proprietary, and parens
patriae interests.
21. Derek Schmidt is the Attorney General of Kansas. Attorney General Schmidt is authorized to bring
legal actions on behalf of the State of Kansas and its citizens.
22. Plaintiff State of South Carolina is a sovereign
State of the United States of America. South Carolina
sues to vindicate its sovereign, quasi-sovereign, financial, and proprietary interests.
23. Alan Wilson is the Attorney General of South
Carolina. Attorney General Wilson is authorized to
bring legal actions on behalf of the State of South Carolina and its citizens.
24. Defendants are officials of the United States
government and United States governmental agencies
8
responsible for implementing the Mass Debt Cancellation.
25. Defendant Joseph R. Biden, Jr. is the President
of the United States of America. He is sued in his official capacity.
26. Defendant Miguel Cardona is the Secretary of
Education. He is sued in his official capacity.
27. Defendant United States Department of Education (ED) is an agency of the United States government,
located at 400 Maryland Avenue, S.W., Washington, D.C.
20202.
28. This Court has jurisdiction pursuant to 5 U.S.C.
§§ 702-703 and 28 U.S.C. §§ 1331, 1361, and 2201.
29. This Court is authorized to award the requested
declaratory and injunctive relief under 5 U.S.C. §§ 702
and 706, 28 U.S.C. §§ 1361 and 2201-2202, and its inherent equitable powers.
30. Venue is proper in this district pursuant to 28
U.S.C. §§ 1391(b)(2) and 1391(e).
Defendants are
United States agencies or officers sued in their official
capacities. Plaintiff State of Missouri is a resident of
this judicial district, and a substantial part of the events
or omissions giving rise to the Complaint occur within
this district.
31. The Plaintiff States bring this action to redress
harms to their sovereign, quasi- sovereign, financial,
and proprietary interests, including their interests under 5 U.S.C. § 702 and 41 U.S.C. § 1707.
9
FACTUAL ALLEGATIONS
The Decade-Long Political Push For Student-Loan Debt
Cancellation
32. In September 2011, the Occupy Wall Street movement began. Out of that movement grew the Occupy
Student Debt Campaign, which encouraged borrowers
to default on student-loan payments as a form of protest.
Amanda M. Fairbanks, Occupy Student Debt Campaign
Announces Nationwide Loan Refusal Pledge, Huffington Post (Nov. 11, 2011), https://tinyurl.com/sm9upf56.
In November 2015, inspired by statements made by
Senator Bernie Sanders, students at over one hundred
college campuses staged a walk-out to protest the cost
of college in the “Million Student March.” Danielle
Douglas-Gabriel, Million Student March Fights for
Debt-Free College, Wash. Post (Nov. 12, 2015), https://
tinyurl.com/bdutx2ns. The students “demand[ed] . . .
the cancellation of all student debt.” Id. The next
year, ED established a pathway to cancel loans for students defrauded by for-profit colleges. Anya Kamenetz & Kirk Carapezza, A Path ‘To Debt Relief ’ For Defrauded Corinthian Students, NPR (Mar. 25, 2016),
https://tinyurl.com/2p8y9ycf.
33. In 2018, one commentator predicted that “come
2020, at least one major Democratic candidate for president is going to campaign on outright canceling a boatload of student debt” because “student debt forgiveness
is really, really popular among Democrats.” Jordan
Weissmann, Student Debt Forgiveness Is Really, Really
Popular Among Democrats, Slate (Nov. 18, 2018),
https://tinyurl.com/yyvss2ba (capitalization altered). In
April 2019, Senator Elizabeth Warren announced a proposal for student-debt cancellation, stating that her
10
“plan for broad student debt cancellation” would “[c]ancel debt for more than 95% of the nearly 45 million
Americans with student loan debt” and “[w]ipe out student loan debt entirely for more than 75% of the Americans with that debt.” Elizabeth Warren, I’m Calling
For Something Truly Transformational: Universal
Free Public College And Cancellation Of Student Loan
Debt, Medium (Apr. 22, 2019), https://tinyurl.com/mrxy3arr.
34. In June 2019, Senator Sanders announced his
own proposal to “[c]ancel all student loan debt for the
[approximately] 45 million Americans who owe about
$1.6 trillion and place a cap on student loan interest
rates going forward at 1.88 percent.” Bernie Sanders,
College for All and Cancel All Student Debt, https://tinyurl.com/yu8r4avy (last visited Sept. 28, 2022).
35. In April 2020, then-candidate Biden announced
a proposal to “forgive all undergraduate tuition-related
federal student debt from two- and four-year public colleges and universities for debt-holders earning up to
$125,000, with appropriate phase-outs to avoid a cliff.”
Joe Biden, Joe Biden Outlines New Steps to Ease Economic Burden on Working People, Medium (Apr. 9,
2020), https://tinyurl.com/3cbw4zh2 [Biden Medium Article]. He did not suggest that his proposal had anything to do with the COVID-19 pandemic, which was
well underway by April 2020.
Background of Relevant Student Loan Programs
36. The Higher Education Act (HEA) establishes
several student-loan programs. The two that are the
most relevant to this lawsuit are the Direct Loan Program (DLP) and Federal Family Education Loan Program (FFELP). 20 U.S.C. §§ 1071 et seq., 1087a et seq.
11
37. The origination of new FFELP loans stopped on
July 1, 2010. But many FFELP loans still exist and are
subject to ongoing repayment.
38. There are entities, some of which are state instrumentalities, that service FFELP loans and generate revenue from that servicing work. There are also
entities, some of which are state instrumentalities, that
hold FFELP loans and earn income from the interest
payments on those loans. And there are investors,
some of which are state agencies, that invest in studentloan asset-backed securities (SLABS) secured by
FFELP loans. SLABS are FFELP loans bundled, rated,
and sold in tranches to institutional investors as bonds.
39. All student loans originating under the HEA beginning on July 1, 2010, have been, and in the future will
be, originated under the DLP.
40. There are entities, some of which are state instrumentalities, that service DLP loans and generate
revenue from that servicing work.
41. Student-loan borrowers may consolidate FFELP
loans into DLP loans. See 34 C.F.R. § 685.220 (providing the criteria for consolidation). Such a direct consolidation loan comes “at no cost” to the borrower. Direct Consolidation Loan Application, Federal Student
Aid, https://tinyurl.com/bdfhxser (last visited Sept. 28,
2022).
42. The HEA and its implementing federal regulations provide a comprehensive legal framework governing federal student loan assistance and borrowers’ obligations to repay their loans, including how and when
12
certain loan statuses qualify for income-driven repayment (IDR) and Public Service Loan Forgiveness
(PSLF).
43. The HEA sets forth the “[t]erms and conditions”
of DLP loans, including the “[r]epayment plan for public
service employees” and “income-based repayment
plan.” 20 U.S.C. § 1087e.
44. Federal regulation also specifies the conditions
under which “[a] borrower may obtain loan forgiveness
under [the FFELP] program,” 34 C.F.R. § 685.219(c),
and under which a borrower “qualif[ies] for loan forgiveness” under the IDR program, id. § 685.221(f).
45. While the HEA includes a variety of provisions
allowing the Secretary to promulgate regulations for income-driven repayment and other repayment programs, no provision of the HEA authorizes the Secretary to implement a mass cancellation of student-loan
debt.
ED’s, The Biden Administration’s, And Speaker Pelosi’s
Recognition That Student Debt Cancellation Via
Unilateral Executive Action is Unlawful
46. On January 12, 2021, ED published a memorandum concluding that mass student- loan debt cancellation could not be accomplished through executive action.
See 2021 DeVos Memo, supra, at 4, 6. ED noted that it
“has never relied on the HEROES Act or any other statutory, regulatory, or interpretative authority for the
blanket or mass cancellation . . . of student loan
principal balances, and/or the material change of repayment amounts or terms.” Id. at 6.
47. In July 2021, Speaker Pelosi stated at a press
conference: “People think that the President of the
13
United States has the power for debt forgiveness. He
does not. He can postpone. He can delay. But he
does not have that power. That has to be an act of Congress. . . . The President can’t do it. So that’s not
even a discussion.” Camera, supra.
48. Though President (then-candidate) Biden expressed support for cancelling federal student-loan debt
in April 2020, see Biden Medium Article, supra, it appears that he eventually came to agree with Speaker
Pelosi. When asked about student-loan cancellation in
November 2020, President-elect Biden responded by
citing proposed legislation that would cancel student
debt rather than discussing executive action. Adam
Looney, Biden Shouldn’t Listen to Schumer and Warren on Student Debt, Brookings (Nov. 18, 2020),
https://tinyurl.com/bdew8ufr. In October 2021, White
House Press Secretary Jen Psaki reiterated that “[i]f
Congress wanted to pass and send the president a bill to
cancel $10,000 in student debt, he’d happily sign it.”
Zack Friedman, Biden Ready To Sign Student Loan
Forgiveness, But Congress Hasn’t Passed Any Legislation, Forbes (Oct. 5, 2021), https://tinyurl.com/bdfxkyfp.
These comments indicate that President Biden thought
mass student loan cancellation must come through Congress.
The Failure of Proposed Legislation to Enact
Student-Debt Cancellation
49. Despite the Biden Administration’s invitation,
attempts to enact legislation cancelling student-loan
debt have repeatedly failed.
50. In July 2019, Senator Warren introduced the
Student Loan Debt Relief Act of 2019, a bill that would
have automatically canceled $50,000 of student loan debt
14
for those who make under $100,000. The bill failed.
See Student Loan Debt Relief Act of 2019, S. 2235, 116th
Cong. (2019).
51. In March 2021, Representative Al Lawson introduced the Income-Driven Student Loan Forgiveness
Act, which would have cancelled the outstanding balance
on loans for all borrowers under a certain income cap.
See Income-Driven Student Loan Forgiveness Act, H.R.
2034, 117th Cong. (2021). The bill failed.
52. In February 2021, Senators Warren and Chuck
Schumer and Representatives Alma Adams, Ilhan Omar,
and Mondaire Jones introduced a resolution asserting
that the Biden Administration has statutory power to
cancel student debt immediately. Elizabeth Warren,
Warren, Schumer, Pressley, Colleagues: President Biden
Can and Should Use Executive Action to Cancel up to
$50,000 in Federal Student Loan Debt Immediately
(Feb. 4, 2021), https://tinyurl.com/8wpkedd9.
ED’s Multiple Efforts To Prevent COVID -19 From Placing Borrowers In A Worse Position Financially
53. On March 20, 2020, in light of the COVID-19
pandemic, ED waived student-loan interest for three
months and gave borrowers the option to suspend principal payments for two months for federally held student
loan debt. Delivering on President Trump’s Promise,
Secretary DeVos Suspends Federal Student Loan Payments, Waives Interest During National Emergency,
U.S. Department of Education (Mar. 20, 2020), https://
tinyurl.com/yc3yxs4y. Secretary Betsy DeVos stated
that “[r]ight now, everyone should be focused on staying
safe and healthy, not worrying about their student loan
balance growing.” Id.
15
54. On March 27, 2020, President Trump signed the
Coronavirus Aid, Relief, and Economic Security
(CARES) Act, which extended the student-loan pause
through September 30, 2020. See CARES Act Student
Loan Fact Sheet, NCSL (Mar. 30, 2020), https://tinyurl.com/yprmp39d. The Trump and Biden Administrations then repeatedly extended the student-loan
pause, which is currently scheduled to conclude on December 31, 2022. See, e.g., Donald J. Trump, Memorandum on Continued Student Loan Payment Relief
During the COVID- 19 Pandemic (Aug. 8, 2020),
https://tinyurl.com/2p8sjrs4. President Trump stated
that the pause “has helped many students and parents
retain financial stability.” Id.
55. In October 2021, ED announced “transformational changes” to the PSLF program. Department of
Education Announces Transformational Changes to
the Public Service Loan Forgiveness Program, Will Put
Over 550,000 Public Service Workers Closer to Loan
Forgiveness, U.S. Department of Education (Oct. 6,
2021), https://tinyurl.com/63y4x2ux; PSLF Waiver Offers Way to Get Closer to Loan Forgiveness, FEDERAL
STUDENT AID, https://tinyurl.com/ 38tbtxcm (last visited Sept. 28, 2022) [October 2021 PSLF Announcement]. ED later stated that this “[r]evamping” of the
PSLF program resulted in loan relief for approximately
100,000 borrowers. Biden-Harris Administration Extends Student Loan Pause Through August 31, U.S. Department of Education (Apr. 6, 2022), https://tinyurl.com/mr4b7udf [ED April 6 Press Release]. ED
acknowledged that it “change[d]” the “[n]ormal . . .
[r]equirements” and invoked purported “flexibilities
provided by the HEROES Act” to justify this departure
16
from the HEA’s framework.
nouncement, supra.
October 2021 PSLF An-
56. In April 2022, ED announced additional actions
to provide loan cancellation to borrowers through the
PSLF program and IDR plans, which it estimated would
result in debt cancellation for more than 40,000 borrowers and credit toward IDR cancellation for millions
more. Department of Education Announces Actions
to Fix Longstanding Failures in the Student Loan Programs, U.S. Department of Education (Apr. 19, 2022),
https://tinyurl.com/pju4nmxf [April 2022 Press Release]. On information and belief, because of those
changes, service providers already have seen a dramatic
increase in applications and inquiries for DLP consolidations in recent months.
The Administration’s Pretextual Reliance On The
Fading Pandemic to Justify Mass Debt Collection
57. In April 2022, the Biden Administration terminated an earlier order that had suspended the introduction of migrants into the United States based on concerns related to the COVID-19 pandemic. CDC Public
Health Determination and Termination of Title 42 Order, Centers for Disease Control and Prevention (Apr. 1,
2022), https://tinyurl.com/23cp257r. “After considering
current public health conditions and an increased availability of tools to fight COVID-19,” the Administration
wrote, it had determined that the limitation on migration was “no longer necessary.” Id. The Administration cited “the current public health landscape where
97.1% of the U.S. population lives in a county identified
as having ‘low’ COVID- 19 Community Level.” Id.
The Administration asserted in court that “after peaking on January 15, 2022, COVID-19 case numbers in the
17
United States fell by 95% as of March 28, 2022,” and
“[d]eath and hospitalization rates also underwent a
‘swift descent.’” Mem. Opp’n Pls’ Mot. Prelim Inj. at 8,
Arizona v. CDC, No. 6:22-cv-00885 (W.D. La. Apr. 29,
2022), ECF No. 40. In short, the Administration observed, “the pandemic ‘ha[d] shifted to a new phase.’”
Id.
58. More recently, in a September 18, 2022 interview
with 60 Minutes, President Biden was more definitive
about the state of the pandemic, declaring that “[t]he
pandemic is over.” 60 Minutes (@60Minutes), Twitter
(Sept. 18, 2022), https://tinyurl.com/2s35maau.
59. In between those two events declaring the
COVID pandemic over—that is, in August 2022—ED invoked the pandemic to justify its Mass Debt Cancellation.
60. On August 24, 2022, the Administration announced
that it will cancel $10,000 to $20,000 in student debt for
all borrowers who have loans owned by ED and whose
annual income during the pandemic was less than
$125,000 (or $250,000 for married borrowers who file
jointly). FACT SHEET: President Biden Announces
Student Loan Relief for Borrowers Who Need It Most,
The White House (Aug. 24, 2022), https://tinyurl.com/2p8zmh2b.
Borrowers who received a Pell Grant are eligible for
$20,000 in loan cancellation, and borrowers who did not
receive a Pell Grant are eligible for $10,000 in cancellation. Id.
61. The Administration estimates that “over 40 million borrowers are eligible” for the Mass Debt Cancellation. FACT SHEET: The Biden-Harris Administration’s Plan for Student Debt Relief Could Benefit Tens
18
of Millions of Borrowers in All Fifty States, The White
House (Sept. 20, 2022), https://tinyurl.com/ekrbnvn4.
62. DLP loans qualify for loan cancellation. OneTime Student Loan Debt Relief, FEDERAL STUDENT
AID, https://tinyurl.com/yc7bban8 (last visited Sept. 28,
2022) [Cancellation Program Webpage]. So do FFELP
“loans held by ED.” Id.
63. In addition, FFELP borrowers who consolidate
their privately held loans into DLP loans are also eligible
for loan cancellation. Cancellation Program Webpage,
supra. In fact, the Department is explicitly instructing
“borrowers with privately held federal student loans”
including FFELP loans that they “can receive this relief
[cancellation] by consolidating these loans into the Direct Loan program [DLP].” Id.
64. ED has announced that many DLP borrowers—
an estimated eight million of them—will receive cancellation “automatically because relevant income data is already available” to ED. The Biden-Harris Administration’s Student Debt Relief Plan Explained, Federal
Student Aid, https://tinyurl.com/msj29rdx (last visited
Sept. 28, 2022) [Cancellation FAQs] (“[T]here are 8 million people for whom we have data and who will get the
relief automatically.”). For borrowers whose income
data is not available to ED, the Administration will release a loan cancellation application in early October.
Id.
65. Under the Mass Debt Cancellation, eligible borrowers who made payments on their debt during the
pandemic will automatically have those payments refunded to them. Cancellation Program Webpage, supra (“You will automatically receive a refund of your
19
payments during the payment pause if: you successfully apply for and receive debt relief under the Administration’s debt relief plan, AND your voluntary payments during the payment pause brought your balance
below the maximum debt relief amount you’re eligible to
receive but did not pay off your loan in full.”). ED has
advised its loan servicers that borrowers do not have to
state that their refund request is specifically due to
COVID-19. The number of refunds requested and processed since ED announced the Mass Debt Cancellation
has risen precipitously.
66. The Wharton School of the University of Pennsylvania released a study concluding that ED’s Mass
Debt Cancellation alone will cost up to $519 billion over
ten years, and the overall cost could rise to more than $1
trillion when factoring in the other components of ED’s
announcement. See Penn Report, supra.
67. In a legal memorandum accompanying the Mass
Debt Cancellation, ED revoked its previous legal analysis of the issue and asserted that the HEROES Act allows it to effectuate a program of “loan cancellation directed at addressing the financial harms of the COVID 19 pandemic.” Notice of Debt Cancellation Legal Memorandum, 87 Fed. Reg. 52,943, 52,944 (Aug. 30, 2022).
ED further claimed that it is “not required to . . .
show that any individual borrower is entitled to a specific amount of relief ” and “instead may provide relief
on a categorical basis.” Id.
68. The HEROES Act provides that ED, acting
through the Secretary, may “waive or modify any statutory or regulatory provision applicable to [certain] student financial assistance programs” when “necessary in
20
connection with a war or other military operation or national emergency.” 20 U.S.C. § 1098bb(a)(1). The Act
further specifies, as relevant here, that this waiver or
modification must be “necessary to ensure that” one of
certain statutory objectives is achieved, including to ensure that “recipients of student financial assistance
. . . who are affected individuals are not placed in a
worse position financially in relation to that financial assistance because of their status as affected individuals.”
§ 1098bb(a)(2)(A). The Act defines “affected individuals” as including people who (1) “reside[] or [are] employed in an area that is declared a disaster area by any
Federal, State, or local official in connection with a national emergency” or (2) “suffered direct economic hardship as a direct result of a war or other military operation or national emergency, as determined by the Secretary.” § 1098ee(2)(C)–(D).
69. The HEROES Act, which was passed during the
Iraq War and military operations in Afghanistan, codifies its purpose in its preamble: “To provide the Secretary of Education with specific waiver authority to respond to a war or other military operation or national
emergency.” Pub. L. No. 108-76, 117 Stat. 904 (emphasis
added). Its purpose is further reflected in its “Findings” section:
The Congress finds the following:
(1) There is no more important cause than that
of our nation’s defense.
(2) The United States will protect the freedom
and secure the safety of its citizens.
(3)
The United States military is the finest in
21
the world and its personnel are determined to
lead the world in pursuit of peace.
(4) Hundreds of thousands of Army, Air Force,
Marine Corps, Navy, and Coast Guard reservists
and members of the National Guard have been
called to active duty or active service.
(5) The men and women of the United States
military put their lives on hold, leave their families, jobs, and postsecondary education in order
to serve their country and do so with distinction.
(6) There is no more important cause for this
Congress than to support the members of the
United States military and provide assistance
with their transition into and out of active duty
and active service.
20 U.S.C. § 1098aa(b). The sole focus of these findings
is ensuring relief for “members of the United States military.”
70. The day of the White House announcement,
OLC released a memo asserting that the HEROES Act
grants the Secretary authority to “reduce or eliminate
the obligation to repay the principal balance of federal
student loan debt, including on a class-wide basis in response to the COVID-19 pandemic.” 2022 OLC Memo,
supra, at 1.
71. OLC observed that, under the Act, a waiver or
modification “would be permissible only as may be necessary to ensure the individuals are not placed in a
‘worse position financially . . . because of’” their
status as affected individuals. 2022 OLC Memo, supra,
at 20 (citing 20 U.S.C. § 1098bb(a)(2)(A)). According to
OLC, this requires ED to “determine that the COVID -
22
19 pandemic was a but-for cause of the financial harm”
to be addressed by any mass debt cancellation. Id. at
21.
72. On information and belief, the Biden Administration has not made a determination that the pandemic was a but-for cause of any financial harm addressed by the Mass Debt Cancellation.
73. OLC also considered the Act’s requirement
that any waiver and modification “be necessary” to “ensure” that affected individuals “are not placed in a
worse position financially in relation to that financial
assistance because of their status as affected individuals.” 20 U.S.C. § 1098bb(a)(2) (emphasis added). OLC
read this requirement to mean that any waiver or modification should “put loan recipients back into the financial position” they would have held in relation to their
loans “were it not for the national emergency.” 2022
OLC Memo, supra, at 21.
74. On information and belief, the Biden Administration has not made a determination that the Mass
Debt Cancellation will put borrowers back in the financial position they would have been in if not for the
COVID-19 pandemic.
75. Having defined the Act’s criteria for waiver or
modification, OLC analyzed whether “within these parameters” ED is authorized to implement mass debt
cancellation. 2022 OLC Memo, supra, at 21. OLC
concluded that ED need not proceed “case-by-case” under the Act and is allowed to “minimize ‘administrative
requirements.’” Id. at 23. But OLC did not reach a
firm conclusion about the legality of mass debt cancellation, stating only that affording “broad, categorical”
debt cancellation “could be an appropriate invocation of
the Act.” Id. at 21 (emphasis added).
23
The White House Announces the Mass Debt
Cancellation Without Referencing The Pandemic
76. The White House’s public messaging left no
doubt that the Mass Debt Cancellation reflected policy
goals that had no real connection to the pandemic. A
senior administration official explained during a press
briefing after ED announced its Mass Debt Cancellation
that President Biden had “promised to provide targeted
student debt relief ” “[d]uring the [2020 presidential]
campaign” and was now “following through on that
promise.” Background Press Call by Senior Administration Officials on Student Loan Relief, The White
House (Aug. 24, 2022), https://tinyurl.com/9a85ehn5
[Cancellation Backgrounder].
77. Later in the briefing, the same official emphasized that ED’s Mass Debt Cancellation is intended to
“narrow the racial wealth gap,” “promot[e] equity,” allow more Americans to obtain “a ticket to a middle-class
life” through “post-high school education,” and address
education costs that have been rising “[o]ver the last 40
years.” Cancellation Backgrounder, supra. The official
did not mention the COVID-19 pandemic. Id.
78. These statements are in line with ED’s earlier
pronouncements related to student-debt cancellation
during the pandemic. In its April 19 press release, for
example, ED explained that its actions are designed to
“address[] historical failures in the administration of the
federal student loan programs,” and that its actions
“will begin to remedy years of administrative failures
that effectively denied the promise of loan forgiveness
to certain borrowers.” April 2022 Press Release, supra.
24
The HEROES Act Does Not Authorize the
Mass Debt Cancellation
79. ED’s Mass Debt Cancellation does not accord
with the HEROES Act’s express requirements for waivers or modifications. The Act requires ED to tailor any
waiver or modification as necessary to address the actual financial harm suffered by a borrower due to the
relevant military operation or emergency. But under
ED’s Mass Debt Cancellation, every borrower with annual income under $125,000 (or $250,000 for married
borrowers filing jointly) during the pandemic gets the
same $10,000 in student-loan debt cancelled (or $20,000
if the borrower received a Pell Grant). This relief
comes to every borrower regardless of whether her income rose or fell during the pandemic or whether she is
in a better position today as to her student loans than
before the pandemic.
80. The disconnect between ED’s Mass Debt Cancellation and the HEROES Act is even greater because
ED has already provided substantial relief to pandemicaffected borrowers. In March 2020, ED suspended
most borrowers’ obligations to make loan payments and
stopped interest from accruing on their loans, and that
waiver remains in place through the end of 2022. As a
result, most borrowers are better off today than before
the pandemic with respect to their student loans because they have paid nothing for nearly three years, no
interest has accrued on their loans, and rampant inflation has reduced the real-dollar value of their debts.
Since most borrowers during the pandemic missed no
payments (because none were due), and most borrowers
during the pandemic accrued no interest (because the
interest rate has been 0%), and credit reporting bureaus
25
during the pandemic have been reporting student loans
as being on time and the underlying loans as being current (acting to increase an individual’s credit score),
there is no pandemic-caused harm in relation to most
borrowers’ student loans. See 2022 OLC Memo, supra,
at 21 (ED can “only. . . . offset that portion of the
harm that has a ‘relation to’ the borrower’s [federal] assistance”).
81. In fact, 80 percent of all student-loan borrowers
saw their credit scores increase during the pandemic,
with the largest increases among borrowers with delinquent loans at the beginning of the pandemic. Daniel
Mangrum, et al., Liberty Street Economics: Three Key
Facts from the Center for Microeconomic Data’s 2022
Student Loan Update, Federal Reserve Bank of New
York (Aug. 9, 2022), https://tinyurl.com/59d9j8bp.
82. ED’s failure to tie its Mass Debt Cancellation to
the HEROES Act’s requirements cannot be justified as
a matter of administrative convenience. The OLC
memo suggests that ED can avoid individualized determinations of economic hardship to minimize “administrative requirements.” 2022 OLC Memo, supra, at 23–
24. But this observation ignores that, even under ED’s
Mass Debt Cancellation, millions of borrowers will have
to submit tax information to the Department to support
their individual eligibility for cancellation.
In any
event, that it is easier to give debt cancellation to everyone cannot justify ignoring the express requirements of
the HEROES Act.
83. Even if the HEROES Act’s text could plausibly
be read to accord with ED’s Mass Debt Cancellation
(and it cannot), the major-questions doctrine precludes
ED’s invocation of the Act. ED’s invocation of the Act
26
is a quintessential effort to discover “an unheralded
power” representing a “transformative expansion in
[its] regulatory authority.” West Virginia, 142 S. Ct. at
2610.
84. Until now, ED has “generally invoked the HEROES Act relatively narrowly to grant relief to limited
subsets of borrowers, such as deployed military service
members or victims of certain natural disasters.”
Kevin M. Lewis & Edward C. Liu, The Biden Administration Extends the Pause on Federal Student Loan
Payments: Legal Considerations for Congress, Congressional Research Service, at 2–3 (Jan. 27, 2021),
https://tinyurl.com/yxwm4eyj. ED “has never relied
on the HEROES Act or any other statutory, regulatory,
or interpretative authority for the blanket or mass cancellation . . . of student loan principal balances,
and/or the material change of repayment amounts or
terms.” 2021 DeVos Memo, supra, at 6.
85. It is evident from ED’s own recent statements
that the COVID-19 pandemic is mere pretext and a post
hoc rationalization for the political goal of mass debt
cancellation.
ED’s Mass Debt Cancellation Harms Plaintiff States
86. ED’s Mass Debt Cancellation harms Plaintiff
States’ sovereign, quasi-sovereign, financial, and proprietary interests.
87. These harms, which are explained in detail below, are irreparable.
88. But for the Mass Debt Cancellation, the harms
that are ongoing would not have occurred, and the
harms that are imminent will not occur.
27
89. Immediate injunctive relief is necessary to stop
these injuries.
90. The balance of the equities favors issuing immediate injunctive relief.
91. The public interest supports entering an injunction.
Harms to financial and proprietary interests
92. The Mass Debt Cancellation harms the States’
financial and proprietary interests.
93. The Higher Education Loan Authority of the
State of Missouri (MOHELA) is “a body politic and corporate” that is “a public instrumentality and body corporate” of the State of Missouri that performs “an essential public function.” Mo. Rev. Stat. § 173.360.
94. MOHELA’s purpose is to ensure that all eligible
post-secondary education students in Missouri have access to guaranteed student loans. Since 2010, MOHELA has provided roughly $100 million in funding for
college scholarships in the State of Missouri.
95. MOHELA is authorized to act as a servicer for
student loan debt, see Mo. Rev. Stat. § 173.385.1(18), and
it may use fees and charges from that activity “to pay
the costs of the authority,” § 173.385.1(12).
96. MOHELA is a servicer for federally held student debt, including DLP loans, under contracts with
ED. The amount of federally held student debt MOHELA services is substantial. The entity services
roughly $59 billion in federal direct loans representing
over 2.7 million accounts, which are primarily DLP
loans.
28
97. MOHELA is also a servicer of FFELP loans.
98. MOHELA services loans for borrowers across
the nation.
99. MOHELA is also a holder of FFELP loans.
The entity generates revenue from those outstanding
FFELP loans.
100. The borrowers of the FFELP loans that MOHELA holds live across the U.S.
101. MOHELA uses the FFELP loans that it holds
as security on bond offerings.
102. The Mass Debt Cancellation is inflicting a number of ongoing financial harms on MOHELA.
103. As a servicer of DLP loans, MOHELA is enduring injury in the form of compliance costs by undertaking significant efforts to comply with the unlawful Mass
Debt Cancellation.
104. The Mass Debt Cancellation has created an
enormous incentive to consolidate FFELP loans not
held by ED (which are not currently eligible for cancellation) into DLP loans (which are eligible for cancellation). The inevitable result is that FFELP loan borrowers will likely consolidate into DLP loans en masse.
105. The consolidation of MOHELA’s FFELP loans
harms the entity by depriving it of an asset (the FFELP
loans themselves) that it currently owns.
106. The consolidation of MOHELA’s FFELP loans
harms the entity by depriving it of the ongoing interest
payments that those loans generate.
107. To the extent MOHELA must invest in other
fixed-income assets, see Mo. Rev. Stat. §173.385.1(13),
29
using funds that were previously invested in student
loan debt, it will be investing in a rising interest rate environment. As a result, any investments it purchases
in the near term will drop in value.
108. The widespread consolidation of FFELP loans
into DLP loans decreases the number of FFELP loans
on the secondary markets, which—on information and
belief—will lower prices for those loans. The drop in
value of those loans harms those who hold them, like
MOHELA.
109. The consolidation of MOHELA’s FFELP loans
harms the entity by depriving them of the ongoing revenue it earns from servicing those loans.
110. The consolidation of MOHELA’s FFELP loans
diminishes its ability to issue bonds and access debt
markets because the entity uses the income it receives
from student loans as security for bond payments.
111. The Mass Debt Cancellation will also inflict imminent financial harms on MOHELA.
112. MOHELA faces the imminent loss of revenue in
its role as a servicer of DLP loans. MOHELA’s revenue as a servicer of DLP loans is a function of the number of accounts it services. So when student loan balances go to zero, as they will en masse under the Mass
Debt Cancellation, MOHELA will lose the revenue from
servicing those loans.
113. Depriving MOHELA of the FFELP loans it
holds will (1) limit its access to debt markets—by eliminating assets MOHELA may use to secure those bonds,
see Mo. Rev. Stat. §§ 173.385.1(6), 173.390—or (2) force
the entity to issue a bond resolution providing for repayment of the bonds from some other source, see id.
30
114. On information and belief, depriving MOHELA
of assets like student loan debt and limiting MOHELA’s
ability to access debt markets limits the entity’s ability
to ensure that all “postsecondary education students” in
the State “have access to student loans that are guaranteed or insured, or both,” and its ability to support the
State’s universities. Mo. Rev. Stat. § 173.360.
115. The Arkansas Student Loan Authority (ASLA)
is a division of the Arkansas Development Finance Authority. See Ark. Code Ann. 15-5-1902(a)(1). ASLA is
“the instrumentality of the state charged with a portion
of the responsibility of the state to provide educational
opportunities in keeping with all applicable state and
federal laws.” Ark. Code Ann. 15-5- 1902(a)(2). As
part of that mission, ASLA provides student loans.
116. Prior to the Administration’s Mass Debt Cancellation, ASLA held approximately $100 million dollars in
FFELP loans. ASLA financed those loans through the
issuance of bonds. Interest payments received from
borrowers are used to satisfy ASLA’s obligations to
those bondholders. ASLA receives a percentage of the
outstanding FFELP loan balance each month as an administrative fee. Revenue from that administrative fee
is then used for administrative and servicing costs.
117. Excess revenue (the administrative fee minus
administrative and servicing costs) is used for a number
of purposes that further ASLA’s mission. These include: “(1) Making loans; (2) Purchasing loans and
security interests in loan participations as authorized;
(3) Paying incidental expenses in connection with loans;
(4) Paying expenses of authorizing and issuing bonds; (5)
Paying interest on bonds until revenues are available in
31
sufficient amounts from the bonds; and (6) Funding reserves as necessary.” Ark. Code Ann. 15-5-1904(c).
118. The Mass Debt Cancellation is already causing
ongoing harm to ASLA’s financial interests. The FFELP
loans currently held by ASLA do not qualify for cancellation under the program announced by the Administration. However, borrowers may consolidate those loans
into DLP loans.
119. ASLA estimates that, since the administration’s
announcement of the Mass Debt Cancellation, approximately $5-6 million of its FFELP loan holdings have
been consolidated by borrowers into DLP loans. If
FFELP loans held by ASLA remain outside of the Mass
Debt Cancellation, ASLA expects a continuing and massive reduction in its FFELP loan balance. Because
ASLA’s administrative fee is calculated based on the total outstanding balance of its FFELP loans, the Mass
Debt Cancellation will result in a significant reduction
in the revenue ASLA receives from its FFELP loans.
120. If the Administration were to change its program and declare FFELP loans eligible for cancellation
(such as through direct payments to loan holders like
ASLA), ASLA estimates that the vast majority of its
borrowers will be eligible for cancellation. If those
borrowers were to receive any such cancellation of their
FFELP loans, the revenue ASLA receives through administering the FFELP loans will reduce significantly.
ASLA estimates a reduction of between $11-16 million,
depending on future interest rates, in the expected yield
of its FFELP loan balances.
121. The reduction in ASLA revenue caused by the
Mass Debt Cancellation will limit its ability to provide
32
education opportunities to Arkansans through financing
further student loans.
122. The Nebraska Investment Council (NIC) is responsible for investing various assets held by the State
of Nebraska, including the State’s pension fund.
123. NIC has multiple accounts with money invested
in student loan asset-backed securities (SLABS).
124. The Mass Debt Cancellation is inflicting ongoing
financial harm on NIC.
125. The widespread consolidation of FFELP loans
into DLP loans will cause investors in SLABS to receive
money back earlier than anticipated, ending the interest
income flow that SLABS generate.
126. On information and belief, this consolidation will
likely cut in half the existing FFELP SLABS market
and cause financial injury to NIC. See Carmen Arroyo,
Biden’s Student- Loan Relief Plan Stirs a $100 Billion
Plus Debt Market, Bloomberg (Sept. 2, 2022), https://tinyurl.com/43sc7ec4.
127. Furthermore, when the FFELP loans are prepaid, the SLABS market declines, which lowers the
value of NIC’s investments and harms the State of Nebraska, including pensioners throughout the State.
128. The States of Nebraska, Iowa, Kansas, and
South Carolina will also suffer direct pocketbook harms
from the Mass Debt Cancellation.
129. To determine an individual’s taxable state income, Nebraska uses the individual’s federal adjusted
gross income as a baseline. See Neb. Rev. Stat. § 772714.01(1). The same is true of Iowa, Kansas, and
South Carolina. See Iowa Code § 422.7; Kan. Stat. Ann.
33
§ 79-32,117(a); S.C. Code § 12-6-40; South Carolina
Dep’t of Revenue Information Letter 22-14 (Sept. 1,
2022), https://tinyurl.com/3vzwrva2.
130. Normally, federal adjusted gross income includes student loan discharge.
See 26 U.S.C. §
61(a)(11). Under the American Rescue Plan Act of
2021, however, the discharge of student loan debt is not
included in federal adjusted gross income if the discharge occurs between December 31, 2020, and January
1, 2026. See 26 U.S.C. § 108(f )(5). Thus, student loan
debt is currently not considered taxable state income in
Nebraska, Iowa, Kansas, or South Carolina but will be
in the future.
131. There will undoubtedly be student loan debt discharge in the future. Under federal Income-Driven
Repayment (IDR), borrowers receive cancellation after
repaying the loans for a certain period of years (20 to 25,
depending on the loan). The Government Accountability Office (GAO) estimates that by 2030, “about 1.5 million loans held by about 600,000 borrowers” will be eligible for loan cancellation. U.S. Gov’t Accountability
Office, GAO-22-103720, Federal Student Aid: Education Needs to Take Steps to Ensure Eligible Loans Receive Income-Driven Repayment Forgiveness 15 (2022),
https://tinyurl.com/bdhzca8z. Of those loans, roughly
1.2 million will be forgiven between 2026 and 2030. See
id. at 16 fig. 3. And data from 2021 shows that the average amount of loan cancellation under the program so
far has been about “$34,000 per borrower.” Id. at 10.
Thus, significant amounts of federal loan cancellation
will occur after 2026—including for residents in Ne-
34
braska, Iowa, Kansas, and South Carolina. By operation of law, then, substantial income tax revenue will be
coming to Nebraska.
132. The Mass Debt Cancellation, however, will reduce that tax revenue by decreasing the amount of outstanding student loan debt. As a result, the Mass Debt
Cancellation costs Nebraska, Iowa, Kansas, and South
Carolina tax revenue.
Harms to sovereign and quasi-sovereign interests
133. The Mass Debt Cancellation also harms the
States’ sovereign and quasi-sovereign interests.
134. For Missouri, because the Mass Debt Cancellation impairs MOHELA’s ability to provide student loans
to Missouri residents, the Mass Debt Cancellation
harms Missouri’s sovereign and quasi-sovereign interests in ensuring its citizens receive an education, see Mo.
Const. art. IX, § 9(b) (“The general assembly shall adequately maintain the state university and such other educational institutions as it may deem necessary.”), and
the educational well-being of its residents.
135. Because MOHELA performs “an essential public function,” Mo. Rev. Stat. § 173.360, interference with
the entity’s performance of its function impairs its ability to perform an essential public function for the State
of Missouri, which impairs the State’s sovereign interest
in allocating its authority and its sovereign and quasisovereign interests in the education of its populace.
136. For Nebraska, because student loan cancellation impairs NIC’s ability to provide returns on investments vital to the State, including the State’s pension-
35
ers, the Mass Debt Cancellation harms Nebraska’s sovereign and quasi-sovereign interests in the financial
well-being of its residents.
137. For Nebraska, Iowa, Kansas, and South Carolina, the loss of tax revenue impairs their sovereign and
quasi-sovereign interests in setting tax policy and, more
broadly, in creating and enforcing a legal code. The
Mass Debt Cancellation requires Nebraska, Iowa, Kansas, and South Carolina to either forgo future tax revenue or change its tax code to capture the unlawful discharge of student loans.
Need for Immediate Injunctive Relief
138. ED has announced a definitive and detailed
Mass Debt Cancellation program, and it is currently
working with student-loan servicers—some of which are
state entities such as MOHELA—to set up the infrastructure for the cancellation. These actions are inflicting ongoing irreparable harms on Plaintiff States, as
detailed above. Immediate relief is needed to stop
these injuries.
139. The Secretary will imminently issue a waiver or
modification under the HEROES Act, and that waiver
or modification will exacerbate those injuries and add
others.
140. ED has instructed its loan servicers to have
their “initial discharge capability fully operational” by
October 1, 2022, just days from now, and the agency announced that its applications for loan cancellation “will
be available online by early October 2022,” Cancellation
Program Webpage, supra. It is likely that the waiver
or modification will be published around that time.
36
141. Plaintiff States cannot wait to seek relief until
after the Secretary publishes the waiver or modification. The need to act now is exemplified by ED’s stated
plan to “automatically” cancel loans for the eight million
borrowers whose income information the agency already possesses. See Cancellation Program Webpage,
supra. ED appears poised to process these automatic
cancellations as soon as the waiver or modification is
published, effectively denying challengers of its powergrab any chance to obtain injunctive relief before eight
million loans are erased. To prevent this from happening, Plaintiff States must pursue legal recourse now.
CLAIMS FOR RELIEF
COUNT ONE—Separation of Powers
142. Plaintiffs re-allege and incorporate the allegations in the preceding paragraphs of this Complaint.
143. The Mass Debt Cancellation is a major agency
action that could not lawfully be conducted without
proper legal authority.
144. The U.S. Constitution creates a federal government of limited and enumerated powers, and this limitation applies to the Executive Branch.
145. Any action of the Executive Branch must come
from one of two sources of authority: (1) a valid delegation of authority from a statute enacted by Congress,
or (2) a direct exercise of one of the President’s enumerated powers in Article II. “The President’s power, if
any, to issue [an] order must stem either from an act of
Congress or from the Constitution itself.” Youngstown
Sheet & Tube Co. v. Sawyer, 343 U.S. 579, 585 (1952).
146. Defendants have not identified a statute that
gives them the authority to establish and implement the
37
Mass Debt Cancellation. Despite Defendants’ reliance
on the HEROES Act, that statute does not provide them
any such authority.
147. To the extent the HEROES Act permits the
Mass Debt Cancellation, that statute is unconstitutional.
148. Accordingly, the Mass Debt Cancellation is an
ultra vires action and violates the separation of powers.
COUNT TWO—Violation of the Administrative
Procedure Act Exceeding Statutory Authority and
Violating the Constitution
149. Plaintiffs re-allege and incorporate the allegations in the preceding paragraphs of this Complaint.
150. ED is a federal agency subject to the requirements of the APA.
151. The Mass Debt Cancellation is final agency action for purposes of the APA.
152. ED’s August 24, 2022 announcement of the
Mass Debt Cancellation is final agency action. See Calvillo Manriquez v. DeVos, 345 F. Supp. 3d 1077, 1095
(N.D. Cal. 2018) (ED memo and press release “show[ing]
that the Secretary made a final decision about how to
evaluate claims for borrowers” constituted final agency
action).
153. The Mass Debt Cancellation is a major agency
action that could not lawfully be conducted without compliance with the APA.
154. Under the APA, a reviewing court shall “hold
unlawful and set aside agency action” that is “not in accordance with law,” “contrary to constitutional right,
power, privilege, or immunity,” or “in excess of statutory
38
. . . authority[,] . . . limitations, or short of statutory right.” 5 U.S.C. § 706(2)(A)–(C).
155. Defendants have not identified a statute that
gives them the authority to establish and implement the
Mass Debt Cancellation. Despite Defendants’ reliance
on the HEROES Act, that statute does not provide them
any such authority.
156. By exceeding their statutory authority, Defendants have also violated the constitutional separation of
powers.
157. To the extent the HEROES Act permits the
Mass Debt Cancellation, that statute is unconstitutional.
158. Therefore, the Mass Debt Cancellation is in excess of ED’s authority and in violation of the Constitution.
COUNT THREE—Violation of the Administrative
Procedure Act Arbitrary and Capricious Agency Action
159. Plaintiffs re-allege and incorporate the allegations in the preceding paragraphs of this Complaint.
160. ED is a federal agency subject to the requirements of the APA.
161. The Mass Debt Cancellation is final agency action for purposes of the APA.
162. ED’s August 24, 2022 announcement of the
Mass Debt Cancellation is final agency action. See Calvillo Manriquez, 345 F. Supp. 3d at 1095 (ED memo and
press release “show[ing] that the Secretary made a final
decision about how to evaluate claims for borrowers”
constituted final agency action).
39
163. The Mass Debt Cancellation is a major agency
action that could not lawfully be conducted without compliance with the APA.
164. Under the APA, a reviewing court shall “hold
unlawful and set aside agency action, findings, and conclusions found to be . . . arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with
law.” 5 U.S.C. § 706(2)(A).
165. Agency action is arbitrary and capricious if the
agency fails to “examine the relevant data and articulate
a satisfactory explanation for its action including a rational connection between the facts found and the choice
made.” Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State
Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)
(cleaned up). “Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors
which Congress has not intended it to consider, entirely
failed to consider an important aspect of the problem,
offered an explanation for its decision that runs counter
to the evidence before the agency, or is so implausible
that it could not be ascribed to a difference in view or
the product of agency expertise.” Id.
166. The Mass Debt Cancellation’s reliance on the
HEROES Act is not the product of reasoned decisionmaking. ED had already addressed the potential impact of the COVID-19 pandemic on student loans by
pausing loan payments and zeroing interest accrual.
Given that, the agency has not explained why the Mass
Debt Cancellation is also needed.
167. The Mass Debt Cancellation is arbitrary and
capricious because ED relied on factors that Congress
has not intended it to consider under the HEROES Act.
40
A senior administration official explained that ED’s
Mass Debt Cancellation intended to “narrow the racial
wealth gap,” “promot[e] equity,” allow more Americans
to obtain “a ticket to a middle-class life” through “posthigh school education,” and address education costs that
have been rising “[o]ver the last 40 years.” Cancellation
Backgrounder, supra. None of these are factors that
Congress intended the Secretary to consider under the
HEROES Act.
168. The Mass Debt Cancellation is also arbitrary
and capricious because ED’s reliance on the pandemic is
disingenuous—a mere pretext and post hoc rationalization. Shortly before announcing the Mass Debt Cancellation, the Administration had argued in court that
the pandemic’s impact was now relatively modest. And
soon after announcing the Mass Debt Cancellation,
President Biden admitted that the pandemic is over.
Defendants’ reliance on the COVID-19 is plainly and
simply a pretext, not the reasoned decision-making required by the APA.
169. The exceedingly broad scope of the Mass Debt
Cancellation illustrates its arbitrariness. Betraying its
unjustifiably vast scope, the Cancellation is not confined
to people who are in “a worse position financially,” 20
U.S.C. §1098bb(a)(2)(A), or those whose student loans
have been adversely affected by the COVID -19 pandemic.
170. ED failed to address the States’ reliance interests, including, but not limited to, States’ reliance on stability and volume in the existing FFELP loan market,
States’ reliance on their income tax structures, and
States’ reliance in setting up systems to engage in the
41
student loan market, including by providing loans to
States’ residents for their postsecondary education.
171. For all these reasons and more, the Mass Debt
Cancellation is arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law and must
be set aside.
PRAYER FOR RELIEF
Plaintiffs respectfully ask this Court to:
a. issue an order and judgment declaring that the
Mass Debt Cancellation violates the separation of powers established by the U.S. Constitution;
b. issue an order and judgment declaring that the
Mass Debt Cancellation violates the APA because it is in
excess of statutory authority, is arbitrary, capricious, an
abuse of discretion, and otherwise not in accordance
with law, and is without observance of procedure required by law;
c. temporarily restrain and preliminarily and permanently enjoin implementation and enforcement of the
Mass Debt Cancellation;
d. temporarily restrain and preliminarily and permanently enjoin the Secretary from publishing the Mass
Debt Cancellation’s waiver or modification under the
HEROES Act;
e. set aside the Mass Debt Cancellation;
f. award Plaintiffs costs and reasonable attorneys’
fees, as appropriate; and
g. grant any other relief the Court deems just and
appropriate.
Respectfully submitted this 29th day of Sept. 2022.
42
DOUGLAS J. PETERSON
Attorney General of Nebraska
/s/
/s/
/s/
JAMES A. CAMPBELL
JAMES A. CAMPBELL
Solicitor General of Nebraska
Office of the Nebraska Attorney General
2115 State Capitol
Lincoln, NE 68509
(402) 471-2686
Jim.Campbell@nebraska.gov
Counsel for Plaintiffs
LESLIE R. RUTLEDGE
Attorney General of Arkansas
DYLAN L. JACOBS
DYLAN L. JACOBS
Deputy Solicitor General of Arkansas
Nicholas J. Bronni
Solicitor General of Arkansas
Office of the Arkansas Attorney General
328 Center Street, Suite 200
Little Rock, AR 72201
(501) 682-2007
Dylan.Jacobs@arkansasag.gov
Counsel for State of Arkansas
DEREK SCHMIDT
Attorney General of Kansas
SHANNON GRAMMEL
SHANNON GRAMMEL
Deputy Solicitor General
Office of the Kansas Attorney General
120 SW 10th Avenue, 2nd Floor
43
Topeka, Kansas 66612
(785) 296-2215
shannon.grammel@ag.ks.gov
Counsel for State of Kansas
/s/
/s/
/s/
ERIK S. SCHMITT
Attorney General of Missouri
MICHAEL E. TALENT
MICHAEL E. TALENT, #73339MO
Deputy Solicitor General of Missouri
Missouri Attorney General’s Office
Post Office Box 899
Jefferson City, MO 65102
(314) 340-4869
Michael.Talent@ago.mo.gov
Counsel for Plaintiffs
JEFFREY S. THOMPSON
Solicitor General of Iowa
SAMUEL P. LANGHOLZ
SAMUEL P. LANGHOLZ
Assistant Solicitor General
Office of the Iowa Attorney General
1305 E. Walnut Street
Des Moines, Iowa 50319
(515) 281-5164
jeffrey.thompson@ag.iowa.gov
sam.langholz@ag.iowa.gov
Counsel for State of Iowa
ALAN WILSON
Attorney General of South Carolina
J. EMORY SMITH, JR.
J. EMORY SMITH JR.
44
Deputy Solicitor General
Office of the Attorney General of South Carolina
P.O. Box 11549
Columbia, SC 29211
(803) 734-3680
ESmith@scag.gov
Counsel for State of South Carolina
45
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERAN DIVISION
No. 4:22-cv-01040
THE STATE OF NEBRASKA, PLAINTIFFS
v.
JOSEPH R. BIDEN, JR., ET AL., DEFENDANTS
DECLARATION OF MICHAEL E. TALENT
I, Michael E. Talent, declare and state as follows:
1. I am an attorney licensed to practice law before
this Court and a Deputy Solicitor General for the State
of Missouri in the Office of the Attorney General for the
State of Missouri, a plaintiff in this case. I have personal knowledge of the facts stated herein and if called
upon to do so, I will testify thereto.
2. Attached as Exhibit A is a true and correct copy
of an offering statement for bonds issued in 2021 by the
Missouri Higher Education Loan Authority downloaded
from
https://emma.msrb.org/IssueView/Details/P14
13589
3. The Office of the Attorney General served Sunshine Law Requests on MOHELA on August 26, 2022,
and September 2, 2022.
4. As required by law, MOHELA provided the Office of the Attorney General responsive records. See
Mo. Rev. Stat. § 610.026.1.
46
5. The following documents were received in response to the August 26, 2022, Sunshine Law Requests,
which requested “All existing contracts for servicing
student loans held by the federal government, including
but not limited to the loans described at https:// fsapartners.ed.gov/knowledge-enter/library/electronic-announcements/2022-07-29/teacher-education-collegeand-higher-education-grant-program-transitioningfedloan-servicingmohela-updated-aug-22-2022 and https://
fsapartners.ed.gov/knowledge-center/library/electronicannouncements/2022-06-03/public-service-loan-forgivenessprogram-transitioning-fedloanservicing-mohela-updatedaug-22-2022.”
6. Attached as Exhibit B is a true and correct copy
of Contract No. ED-FSA-11-D-0012 between MOHELA
and the U.S. Department of Education, Federal Student
Aid/Mission Support Group, effective date September
27, 2011.
7. Attached as Exhibit C is a true and correct copy
of Contract No. 91003120D0002 between MOHELA and
the U.S. Department of Education, FSA-Acquisitions,
effective date June 23, 2020.
8. The following documents were received in response to the September 2, 2022, Sunshine Law Requests, which requested “Any emails from any individual working at, or affiliated with, the Department of Education involving the student loan forgiveness program
described at the following website: https://www.
whitehouse.gov/briefing-room/statements-releases/2022/
08/24/fact-sheet-president-biden-announces-studentloan-relief-for-borrowers-who-need-it-most/.”
47
9. Attached as Exhibit D is a true and correct copy
of a document entitled “Overview of how the Pandemicconnected Discharge process will work.” The document was attached to an email from the Department of
Education to MOHELA.
10. Attached as Exhibit E is a true and correct copy
of a document entitled “Business Operations Change
Request Form,” dated September 2, 2022. The document was attached to an email from the Department of
Education to MOHELA.
11. Attached as Exhibit F is a true and correct copy
of a document entitled “Federal Servicing Examples of
GD01 discharges.” The document was attached to an
email from the Department of Education to MOHELA.
12. Attached as Exhibit G is a true and correct copy
of a spreadsheet entitled “Change Request 6391 (Pandemic-connected Discharge)—Q & A.” The document
was attached to an email from the Department of Education to MOHELA.
13. Attached as Exhibit H is a true and correct of a
spreadsheet with data referring to “Borrower Refund
Volume.” The spreadsheet was attached to an email
from MOHELA to the Department of Education.
14. Attached as Exhibit I is a true and correct of an
email sent September 1, 2022, with the subject line “RE:
CR 6391 IA & CP.”
Dated:
Sept. 28, 2021
Respectfully submitted,
/s/ MICHAEL E. TALENT
MICHAEL E. TALENT
48
EXHIBIT A
49
NEW ISSUE—BOOK‑ENTRY‑ONLY
$197,500,000
Higher Education Loan Authority of the
State of Missouri
Taxable Student Loan Asset‑Backed Notes,
Series 2021-3
The Higher Education Loan Authority of the State of
Missouri (the “Issuer”), a public instrumentality and
body politic and corporate of the State of Missouri (the
“State”) is issuing $197,500,000 aggregate principal
amount of its Taxable Student Loan Asset‑Backed
Notes, Series 2021‑3 (the “Notes”) in three classes as set
forth below:
*
*
*
*
*
SUMMARY OF TERMS
This summary highlights selected information from
this document and does not contain all of the information
you need to make your investment decision. To understand all of the terms of this offering, read this entire
document.
References in this Offering Memorandum to the “Issuer” refer to the Higher Education Loan Authority of
the State of Missouri. This Offering Memorandum
contains forward-looking statements that involve risks
and uncertainties. See the caption “SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS”
herein. Certain terms used in this Offering Memorandum are defined under the caption “GLOSSARY OF
TERMS” herein.
50
Principal Parties and Dates
Issuer.
Higher Education Loan Authority of the
State of Missouri (the “Issuer”).
Servicer.
The Issuer (the “Servicer”).
Backup Servicer.
Pennsylvania Higher Education
Assistance Agency (“PHEAA”).
Guaranty Agencies .
Missouri Department of
Higher Education and Workforce Development (the
“State Guaranty Agency”), Pennsylvania Higher Education Assistance Agency, Ascendium Education Solutions, Inc. (f/k/a Great Lakes Higher Education Guaranty Corporation) or any other entity authorized to
guarantee student loans under the Higher Education
Act identified under the caption “THE GUARANTY
AGENCIES” herein (each, a “Guaranty Agency” and
collectively, the “Guaranty Agencies”).
Trustee.
U.S. Bank National Association, as trustee
(in such capacity, the “Trustee”).
Monthly Distribution Dates . The monthly distribution dates for the Notes will be the twenty-fifth day of
each calendar month, or, if not a Business Day, the next
Business Day, commencing November 26, 2021. These
dates are sometimes referred to herein as “Monthly Distribution Dates.” Certain fees and expenses of the
Trust Estate established under the hereinafter described Indenture (such as the Administration Fee, the
Servicing Fee and the Trustee Fee) will also be paid on
the Monthly Distribution Dates. The calculation date
for each Monthly Distribution Date generally will be the
second Business Day before such Monthly Distribution
Date.
51
Collection Periods .
The Collection Period with respect to a Monthly Distribution Date will be the calendar month preceding such Monthly Distribution Date
(each, a “Collection Period”). However, the Collection
Period for the initial Monthly Distribution Date of November 26, 2021 will begin on the Date of Issuance and
end on October 31, 2021. With respect to any other
Monthly Distribution Date, the “related” or the “preceding” Collection Period shall be the Collection Period
ending on the last day of the month immediately preceding the month in which such Monthly Distribution Date
occurs.
Interest Accrual Periods.
The initial Interest Accrual Period for the Class A-1A Notes begins on the
Date of Issuance and ends on November 24, 2021 and
the initial Interest Accrual Period for the Class A-1B
Notes and the Class B Notes begins on the Date of Issuance and ends on November 25, 2021. For all other
Monthly Distribution Dates, (a) the Interest Accrual Period for the Class A-1A Notes, will begin on (and include) the twenty-fifth day of a month, whether or not a
Business Day, and end on (and include) the twenty- fourth
day of the following month (notwithstanding that the actual Monthly Distribution Date may occur after the
twenty-fifth day of either such month); and (b) the Interest Accrual Period for the Class A-1B Notes and
Class B Notes will begin on the prior Monthly Distribution Date and end on the day before such Monthly Distribution Date (each, an “Interest Accrual Period”).
Financed Eligible Loans . The loans made to finance
post-secondary education that are made under the
Higher Education Act (each, an “Eligible Loan”) that
52
are pledged by the Issuer to the Trustee under the Indenture and not released from the lien thereof are sometimes referred to herein as the “Financed Eligible
Loans.” The information presented in this Offering
Memorandum under the caption “CHARACTERISTICS OF THE FINANCED ELIGIBLE LOANS”
herein relating to the Eligible Loans the Issuer expects
to pledge to the Trustee on the Date of Issuance is as of
June 30, 2021, which is referred to as the “Statistical
Cut-Off Date.” The Issuer believes that the information set forth in this Offering Memorandum with respect to the Eligible Loans as of the Statistical Cut-Off
Date is representative of the characteristics of the Financed Eligible Loans as they will exist on the Date of
Issuance for the Notes.
*
*
*
*
*
The rate of payments on the Financed Eligible Loans may
affect the maturity and yield of the Notes
Financed Eligible Loans may be prepaid at any time
without penalty.
If the Issuer receives prepayments
on the Financed Eligible Loans, those amounts will be
used to make principal payments as described below under the caption “SECURITY AND SOURCES OF
PAYMENT FOR THE NOTES—Collection Fund;
Flow of Funds” herein, which could shorten the average
life of the Notes. Factors affecting prepayment of
loans include general economic conditions, legislative,
executive orders and administrative initiatives, prevailing interest rates and changes in the borrower’s job, including transfers and unemployment. Refinancing opportunities that may provide more favorable repayment
terms, including those that may be offered under potential government initiatives to consolidate or otherwise
53
refinance existing FFELP Loans to the Federal Direct
Loan Program (the “Direct Loan Program”), also affect
prepayment rates. For example, legislation has been
proposed periodically that would allow eligible student
loan borrowers with FFELP Loans or private loans to
refinance those student loans at lower interest rates
currently offered to new borrowers, with refinanced
FFELP Loans to be fully paid and reissued as loans under the Direct Loan Program, and with borrower eligibility requirements to be established by the Department
of Education based on income or debt-to-income financial need metrics. Also, the President of the United
States has indicated his support for legislation or a potential executive order providing for the cancellation or
prepayment of up to $50,000 per student in student debt.
In addition, defaults on Financed Eligible Loans owned
by the Issuer and pledged under the Indenture result in
guarantee payments being made on such Financed Eligible Loans, which will accelerate the prepayment of the
Notes.
Scheduled payments with respect to the Financed Eligible Loans may be reduced and the maturities of Financed Eligible Loans may be extended as authorized
by the Higher Education Act. Also, periods of deferment and forbearance may lengthen the remaining term
of the Financed Eligible Loans and the average life of
the Notes.
The rate of principal payments to investors on the
Notes will be directly related to the rate of payments of
principal on the Financed Eligible Loans. Changes in
the rate of prepayments may significantly affect investors’ actual yield to maturity, even if the average rate of
54
principal prepayments is consistent with investors’ expectations. In general, the earlier a prepayment of
principal of a loan, the greater the effect may be on an
investor’s yield to maturity. The effect on an investor’s
yield as a result of principal payments occurring at a
rate higher or lower than the rate anticipated by an investor during the period immediately following the issuance of the Notes may not be offset by a subsequent like
reduction, or increase, in the rate of principal payments
on the Notes. Investors will bear entirely any reinvestment risks resulting from a faster or slower incidence of prepayment of the Financed Eligible Loans.
As of the Statistical Cut-Off Date, $9,496,737 of the
principal amount of the Financed Eligible Loans (representing approximately 4.71% of the Financed Eligible
Loans by principal amount) are “rehabilitation loans,”
which are Eligible Loans that have previously defaulted,
but for which the borrower thereunder has made a specified number of on-time payments as described in “APPENDIX A—DESCRIPTION OF THE FEDERAL
FAMILY EDUCATION LOAN PROGRAM—Insurance and Guarantees—Rehabilitation of Defaulted
Loans” hereto. Although rehabilitation loans benefit
from the same guarantees as other FFELP student
loans, rehabilitation loans have generally experienced
re-default rates that are higher than default rates for
FFELP student loans that have not previously defaulted.
*
*
*
*
*
55
Changes to the Higher Education Act, including the enactment of the Health Care and Education Reconciliation Act of 2010, changes to other applicable law and
other Congressional action may affect investors’ Notes
and the Financed Eligible Loans
On March 30, 2010, the Health Care and Education
Reconciliation Act of 2010 (“HCERA” or the “Reconciliation Act”) was enacted into law. Effective July 1,
2010, the Reconciliation Act eliminated the origination
of new FFELP Loans. All loans made under the
Higher Education Act beginning on July 1, 2010 have
been, and in the future will be, originated under the Direct Loan Program. The terms of FFELP Loans originated prior to July 1, 2010 are not materially affected
by the Reconciliation Act and continue to be subject to
the terms of the FFEL Program.
The curtailment of the FFEL Program could have a
material adverse impact on the Issuer, the Servicer, the
Backup Servicer and the Guaranty Agencies. For example, the Servicers (including the Issuer and the
Backup Servicer) may experience increased costs due to
reduced economies of scale to the extent the volume of
loans serviced by such Servicers is reduced. Those
cost increases could affect the ability of the Servicers to
satisfy their obligations to service the Financed Eligible
Loans held in the Trust Estate securing the Notes.
FFELP Loan volume reductions could further reduce
revenues received by the Guaranty Agencies available
to pay claims on defaulted FFELP Loans. In addition,
the level of competition currently in existence in the secondary market for FFELP Loans could be reduced, resulting in fewer potential buyers of FFELP Loans and
56
lower prices available in the secondary market for those
FFELP Loans.
In addition to the passage of the Reconciliation Act,
Title IV of the Higher Education Act and the regulations promulgated by the Department of Education
thereunder have been the subject of frequent and extensive amendments and reauthorizations. See “APPENDIX A—DESCRIPTION OF THE FEDERAL FAMILY EDUCATION LOAN PROGRAM” hereto for
more information on the Higher Education Act and various amendments thereto. There can be no assurance
that the Higher Education Act or other relevant federal
or state laws, rules and regulations may not be further
amended or modified in the future in a manner that
could adversely affect the Issuer or its student loan programs, the Trust Estate created under the Indenture,
the Financed Eligible Loans, or the financial condition
of or ability of the Issuer, the Servicer, the Backup Servicer or the Guaranty Agencies to comply with their obligations under the various transaction documents or the
Notes. Future changes could also have a material adverse effect on the revenues received by the Guaranty
Agencies that are available to pay claims on defaulted
Financed Eligible Loans in a timely manner. In addition, if legislation were to be passed in the future requiring the sale of the Financed Eligible Loans held in the
Trust Estate to the federal government, proceeds from
such sale would be deposited to the Collection Fund and
used to pay the Notes in advance of their current expected Maturity Date. No assurance can be given as to
the amount that would be received from such sale or
whether such amount would be sufficient to pay all principal and accrued interest due on the Notes, as there is
no way to know what purchase price would be paid by
57
the federal government for the Financed Eligible
Loans.
Funds for payment of Interest Benefit Payments,
Special Allowance Payments and other payments under
the FFEL Program are subject to annual budgetary appropriations by Congress. Federal budget legislation
has contained provisions that restricted payments made
under the FFEL Program to achieve reductions in federal spending. For example, federal budget provisions
that became effective on July 1, 2014 reduced payments
by the Department of Education to Guaranty Agencies
for assisting student loan borrowers with the rehabilitation of defaulted loans under the FFEL Program. As
a result, the revenue earned by the Issuer from rehabilitating defaulted FFEL Program loans (collection services) on behalf of Guaranty Agencies decreased, and
the Issuer anticipates such revenue will continue to be
negatively impacted by these federal budget provisions.
Future federal budget legislation may adversely affect
expenditures by the Department of Education, and the
financial condition of the Issuer, the Servicer, the
Backup Servicer and Guaranty Agencies.
Bills have been proposed which would forgive all or
part of existing federal student loans. If such bills
were to pass, if FFELP Loans are included in such loan
forgiveness, or if such legislation creates an incentive
for FFELP Loan borrowers to consolidate their loans
into Federal Direct Consolidation loans, repayment
rates on the Eligible Loans could increase, thereby increasing monthly distributions of principal on the Notes.
The Issuer cannot predict whether any other changes
will be made to the Higher Education Act or other rele-
58
vant federal laws, and rules and regulations promulgated by the Secretary of Education in future legislation, or the effect of such legislation or executive orders
on the Issuer, the Servicer, the Backup Servicer, the
Guaranty Agencies, the Financed Eligible Loans or the
Issuer’s loan programs.
Competition from the Federal Direct Student Loan
Program
The Direct Loan Program was established under the
Student Loan Reform Act of 1993. Under the Direct
Loan Program, approved institutions of higher education, or alternative loan originators approved by the Department of Education, make loans to students or parents without application to or funding from outside lenders or guaranty agencies. The Department of Education provides the funds for such loans, and the program
provides for a variety of flexible repayment plans, including consolidations under the Direct Loan Program
of existing FFEL Program student loans. Such consolidation permits borrowers to prepay existing student
loans and consolidate them into a Federal Direct Consolidation Loan under the Direct Loan Program. As a
result of the enactment of the Reconciliation Act, no
FFELP Loans have been, or in the future will be, originated after June 30, 2010, and all loans made under the
Higher Education Act will be originated under the Direct Loan Program. The Direct Loan Program may
result in prepayments of Financed Eligible Loans if
such Financed Eligible Loans are consolidated under
the Direct Loan Program.
Because of the limited recourse nature of the Trust
Estate created under the Indenture for the Notes, com-
59
petition from the Direct Loan Program should not impact the payment of the Notes unless it causes (a) erosion in the finances of the Issuer to such an extent that
it cannot honor any administration or similar obligations
under the Indenture; or (b) prepayments of Financed
Eligible Loans if such Financed Eligible Loans are consolidated under the Direct Loan Program. See the
caption “—The rate of payments on the Financed Eligible Loans may affect the maturity and yield of the
Notes” above.
*
*
*
*
*
HIGHER EDUCATION LOAN AUTHORITY OF THE
STATE OF MISSOURI
General
The Issuer was established in 1981 pursuant to the
Missouri Higher Education Loan Authority Act, Title
XI, Chapter 173, Sections 173.350 to 173.445 of the Missouri Revised Statues, inclusive, as amended (the “Authorizing Act”) for the purpose of assuring that all eligible post-secondary education students have access to
guaranteed student loans. The Authorizing Act has
been amended over the years to provide the Issuer with
generally expanded powers, including the power to finance, acquire and service student loans including, but
not limited to, those guaranteed or insured pursuant to
the Higher Education Act, and in certain other respects.
The headquarters of the Issuer is 633 Spirit Drive,
Chesterfield, Missouri 63005-1243 (at which approximately 272 employees are located). The Issuer also
has facilities in Columbia, Missouri (at which approximately 72 employees are located) and Washington, D.C.
(at which approximately 4 employees are located). The
60
telephone number of the Issuer is (636) 733-3700. The
Issuer’s website address is http://www.mohela.com,
where its financial statements and additional information can be found in the “About Us” section. The Issuer’s website is not incorporated into and shall not be
deemed to be a part of this Offering Memorandum.
The Issuer provides full-service loan servicing for
private student loans and FFELP Loans owned by the
Issuer and by third parties. The Issuer also services
Direct Loans for the Department of Education, having
been awarded a servicing contract as a not-for-profit
servicer (an “NFP Servicer”) in September 2011. As
of June 30, 2021, MOHELA was servicing $1.1 billion in
FFELP loans representing 59,181 accounts, $18.6 billion in third-party lender owned private loans representing 320,566 accounts, $132.8 million in MOHELAowned private loans representing 6,202 accounts and
$59.1 billion in Direct Loans representing 2,726,179 accounts.
As described herein, the Issuer has significant private loan experience, including the third-party lenderowned private loans referred to above. It also originated and services loans for its own private loan program which it began in 1995. The Issuer originated
and serviced over $370 million in private loans for over
30,000 borrowers before ending the program in 2008.
Through an affiliate and since 2013, the Issuer also services the Missouri Family Education Loan Program
(“MOFELP”), an interest-free loan program for Missouri students meeting certain financial need and academic achievement standards. As of June 30, 2021,
MOFELP had approximately $23.5 million outstanding
with 4,465 borrowers in repayment.
61
The Issuer licenses COMPASS, the servicing system
used by PHEAA.
The Issuer’s present contract to service Federal Direct Loans runs to March 31, 2022. However, the Issuer was one of five bidders awarded a contract on June
24, 2020 by the Department of Education pursuant to its
Business Process Operations Solicitation (the “BPO
Contract”) to service all Federal Direct Loans. The
Department of Education procedures for the BPO Contract may not be operational for some time. In a related development, the Department of Education on October 28, 2020 issued a Solicitation to acquire an “Interim Servicing Solution” (“ISS”) impacting the servicing of student loans and the BPO Contract. The Issuer
filed a Pre-Award Protest with the U.S. Government Accountability Office (the “GAO”) as to the terms of this
ISS Solicitation. The Department of Education recently advised the GAO that it would be taking corrective action by either amending or cancelling the ISS Solicitation. In response thereto, the GAO dismissed the
Issuer’s protest on January 12, 2021.
*
*
*
*
*
Lewis and Clark Discovery Initiative; Scholarship
Funding
In 2007, state legislation was enacted relative to the
then Missouri Governor’s Lewis and Clark Discovery
Initiative (the “Initiative”) providing for the Issuer to
fund designated capital projects at Missouri’s public
higher education institutions (the “Projects”). Pursuant to the legislation, the Issuer was to distribute $350
million for the Projects into a fund in the State treasury
known as the “Lewis and Clark Discovery Fund” (the
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“Fund”). The payments were scheduled to begin with
$230 million in Fall of 2007 and $5 million quarterly
thereafter. The Issuer distributed $245 million into
the Fund by early 2008 but further distributions were
then delayed due to Issuer determinations made pursuant to the terms of the legislation. The determinations
were based on dramatic changes in the federal student
loan program and the credit market crisis and related
great recession. Shortly thereafter, in early 2009, the
new Governor suspended the Projects and the Initiative
became dormant. Accordingly, with no Projects to
fund and changes in the student loan program continuing, no further contributions to the Fund have been
made by the Issuer pursuant to the terms of the legislation. Related to the foregoing, successive Governors
have made scholarship funding requests of the Issuer
which are more consistent with its historical mission.
In response to those Governors’ requests, since 2010,
the Issuer has provided nearly $100 million in funding
for college scholarships in the State of Missouri. The
Issuer has also established another vehicle for providing
significant scholarship and grant funding to students at
Missouri colleges and universities through its nonprofit
Missouri Scholarship and Loan Foundation established
in 2010.
Direct Loan Servicing
Prior to July 1, 2010, the Issuer primarily originated,
acquired and serviced FFELP Loans. The Issuer has
not originated FFELP Loans since July 1, 2010. This
is due to the enactment of the Reconciliation Act, including the Student Aid and Fiscal Responsibility Act
(“SAFRA”), which prohibited the origination of new
FFELP Loans after June 30, 2010. As of July 1, 2010,
63
all loans made under the Higher Education Act are originated under the Direct Loan Program. The terms of
existing FFELP Loans are not materially affected by
the Reconciliation Act.
The Issuer obtained a contract with the Department
of Education to service Direct Loans in accordance with
the HCERA, which requires the Department of Education to contract with each eligible and qualified NFP
Servicer to service loans. On April 29, 2010, the Department of Education began the process to identify eligible NFP Servicers by issuing a Sources Sought Notice (Solicitation Number:
NFP-SS-2010) (the
“Sources Sought Notice”) requesting that interested entities submit information to the Department of Education demonstrating eligibility as an eligible NFP servicer under the criteria set forth in the Reconciliation
Act.
The Issuer responded to the Sources Sought Notice
and was among the first twelve NFP Servicers that the
Department of Education determined met the NFP Servicer eligibility criteria under the Reconciliation Act.
The Issuer applied to the Department of Education on
November 24, 2010, to be permitted to proceed to develop a Memorandum of Understanding. On February
2, 2011, the Department of Education published a determination that the Issuer was permitted to enter into a
Memorandum of Understanding to pursue an Authorization to Operate (“ATO”) and a contract award as an
NFP Servicer. The Pennsylvania Higher Education
Assistance Agency (“PHEAA”) was identified as a key
subcontractor for this arrangement. On March 30,
2011, the Issuer entered into a Memorandum of Under-
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standing with the Department of Education. The Issuer was awarded an ATO on September 22, 2011 and a
servicing contract to become an NFP Servicer to service
federal assets including Direct Loans on September 27,
2011. As of June 30, 2021, the Issuer had entered into
“teaming arrangements” with 18 other NFP Servicers
and was servicing approximately 2.7 million federal asset accounts, which are primarily Direct Loans, representing approximately $59.1 billion in student loans.
In addition to a federal loan servicing contract, the
Issuer services approximately $1.1 billion of its own
FFELP Loans which secure the bonds issued by the Issuer and will provide the Issuer ongoing revenue
streams for many years to come. This legacy portfolio
and its related revenue have assisted and will continue
to assist the Issuer in a gradual and smooth transition
to a federal asset servicing business model. See the
further discussion of the Issuer’s Direct Loan Program
servicing under the caption “HIGHER EDUCATION
LOAN AUTHORITY OF THE STATE OF MISSOURI—General” herein.
*
*
*
*
*
65
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EXHIBIT B
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EXHIBIT C
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Title: FSA Next Gen BPO Multiple-Award IDIQ Contract
Contract No. 91003120D0002
SECTION B—SUPPLIES
PRICES/COSTS
OR
SERVICES
AND
1.0 CONSIDERATION AND PAYMENT
This is an Indefinite Delivery/Indefinite Quantity
(IDIQ) contract that will be used to provide commercial
services for the U.S. Department of Education (ED), Office of Federal Student Aid (FSA).
Firm-Fixed Price :
Individual Task Orders against this
IDIQ Contract shall be awarded on a Firm-Fixed Price
basis.
Initial Task Order :
The first Task Order to be awarded
against this IDIQ contract shall be an “Initial Task Order” for implementation support. The Contractor shall
use the Initial Task Order to complete all tasks necessary to “Go-Live” and become performance-ready to include, but not limited to, personnel security clearances,
achieving the Authorization to Operate (ATO), capacity
planning, training, Inter-System Testing (IST), etc.
Minimum Contract Guarantee :
During the contract
period, the Government shall place orders totaling a
minimum of $1,500,000.00. This reflects the contract
minimum for the entire period of performance, including
any options.
Maximum Contract Guarantee :
The contract maximum for the entire period of performance, including any
options, shall be for the placement of orders totaling a
77
maximum of $1,700,000,000.00. This reflects the contract maximum for the entire period of performance, including any options.
2.0 COMMON PRICING
The following tables reflect the Common Pricing that
shall apply to all individual Task Orders issued against
this IDIQ contract.
Special Note to BPO Providers :
1.
Common Pricing shall be fixed regardless of the
duration of any individual task performed by a
BPO Provider within each operating element
identified under Contact Center Support or
Back-Office
Processing
(e.g.
Inbound/
Outbound Calls, Chat Sessions, SMS/Text Exchanges, Manual Email Exchanges, Eligibility
Processing tasks, Origination and Disbursement
Processing tasks, etc.).
2.
The Common Pricing established for all Inbound
and Outbound Calls under Contact Center Support is predicated on a tiered approach based on
a “Monthly Volume/Tier Range”. The price
per Call, in any given month, shall decrease once
the BPO Provider has reached the ceiling for any
given “Monthly Volume/Tier Range”. Thereafter, the price per Call shall be invoiced at the
next highest “Monthly Volume/ Tier Range”
common price, up to the established ceiling for
that tier. Once the established ceiling for that
tier is reached, any individual Calls above that
tier ceiling shall be invoiced at the common price
78
applicable to the highest tier range, for the remainder of that month. Please see below for an
illustration:
Example 1 (Inbound Calls) :
If the BPO Provider receives 850,000 Inbound Calls in a given
month, this would be the calculation applied for
invoicing purposes under the tiered model approach:
Monthly
Volume/Tier
Range –
Inbound Calls
1 – 266,667
266,668 –
666,667
666,668+
Common Price
Calculation
Invoice
Amount
266,667 x $4.99*
400,000 x $4.89*
$1,330,668.33
$1,956,000.00
183,333 x $4.79*
$878,165.07
Total Monthly Volume for Inbound Calls:
850,000.00
Total Monthly Invoice Amount for Inbound Calls:
$4,164,833.40
Example 2 (Outbound Calls—with Customer) :
If the
BPO Provider receives 850,000 Outbound Calls—
with Customer in a given month, this would be the
calculation applied for invoicing purposes under the
tiered model:
Monthly Volume/
Tier Range –
Outbound
Calls—with
Customer
1 – 60,250
60,251 – 150,000
Common Price
Calculation
Invoice Amount
60,250 x $4.99*
89,750 x $4.89*
$300,647.50
$438,877.50
79
150,001+
700,000 x
$4.79*
$3,353,000.00
Total Monthly Volume for Outbound Calls—with
Customer: 850,000.00
Total Monthly Invoice Amount for Outbound Calls—
with Customer: $4,092,525.00
*The pricing used is for illustration purposes only and
does not reflect the actual common price for each Inbound or Outbound—with Customer Call .
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SECTION
C—DESCRIPTION/SPECIFICATIONS/
STATEMENT OF WORK
1.0 PURPOSE
The purpose of this Common Performance Work Statement (PWS) is to define the scope of work to be performed and the Common Performance Standards to be
achieved by contractors as part of the U.S. Department
of Education, Office of Federal Student Aid (FSA), Next
Generation Financial Services Environment, Business
Process Operations Program (Next Gen BPO).
2.0 BACKGROUND
Next Gen BPO is a component of the Next Gen initiative
and supports FSA’s overall strategic goal to provide a
more efficient and effective customer experience to the
students, parents, and borrowers FSA serves.
FSA intends to accomplish its goal by contracting with
vendors who will execute contact center operations and
back-office processing activities encompassing the full
student aid lifecycle, from disbursement to payoff, in a
manner consistent with leading financial services providers and other industry leaders recognized for their
customer service to:
•
Deliver efficient and effective customer and
partner experiences;
•
Improve customer outcomes, overall portfolio
performance, and compliance with consumer
protection standards; and
•
Establish greater operational flexibility and reduce operational complexity.
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Next Gen BPO Providers will provide personnel to operate under FSA’s single brand, provide an enhanced
level of service beyond today’s environment, and support operations across the entire lifecycle of student aid.
Description of Services
The services contemplated under this NexGen BPO
multiple award Indefinite Delivery Indefinite Quantity
(IDIQ) Contract include the personnel and equipment,
utilizing the provided environment and tools required to
execute the following support services: Contact Center
Support and Back-Office Processing.
Contact Center Support includes but is not limited to :
Inbound/Outbound Calls, Chat Sessions, Inbound Social
Media Inquiries, SMS/Texts Exchanges, Manual Email
Exchanges, Outbound Mail Responses, and Other Contact Center Support.
Back-Office Processing includes but is not limited to :
Eligibility Processing, Origination and Disbursement
Processing, Applicant Support Services, School Support
Services, Campus Based Support, Life of Loan & Grant
Processing, Repayment Plan and Recertifications Processing, Military Benefits Review and Application Processing, Teacher Education Assistance for College and
Higher Education (TEACH) Grant Processing, Public
Service Loan Forgiveness and Temporary Expanded
Public Service Loan Forgiveness (PSLF/TEPSLF) Processing, Deferment Processing, Forbearance Processing, Discharge Processing (Intake, review, followup, and post-determination processing), Bankruptcy
Processing Support, Total & Permanent Disability Discharge Processing, Borrower Defense Processing, Cohort Default Rate (CDR) Appeals Processing, Fair
92
Credit Reporting Agency (FCRA) Credit Dispute Processing, Office of Inspector General (OIG) Fraud Referral Case Management and Resolution Processing, Feedback Center & Ombudsman Group Case Management
and Resolution Processing, Collection/Default Activities
Processing, and Miscellaneous Life of Loan & Grant
Processing.
3.0 CONTRACT INFORMATION
Contract Type :
Firm-Fixed Price IDIQ Contract.
Period of Performance :
Performance of this contract
shall be for a Base Ordering Period of three years and
an Optional Ordering Period of three years.
Table 1—Next Gen BPO Period of Performance
Period of Performance
Duration
Base Ordering Period: 3 years (36 Months)
June 23, 2020 through
June 22, 2023
Optional Ordering Pe- 3 years (36 Months)
riod: June 23, 2023
through June 22, 2026
Total (if Optional Or- 6 years (72 months)
dering Period is exercised)
Place of Performance :
Performance shall be performed at Contractor managed facilities within 48 contiguous states or the District of Columbia unless specifically authorized by FSA.
Observance of Federal Holidays :
Deliverables due on a
Saturday, Sunday, or the following Federal holidays
shall be due on the following business day.
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Federal Holidays
1
New Year’s Day
2
Martin Luther King’s Birth- 3rd Monday in
January
day
3
President’s Day
4
Memorial Day
5
Independence Day
6
Labor Day
7
Columbus Day
8
Veterans Day
9
Thanksgiving Day
10 Christmas Day
January 1
3rd Monday in
February
Last Monday in
May
July 4
1st Monday in
September
2nd Monday in
October
November 11
4th Thursday in
November
December 25
4.0 SCOPE OF WORK, REQUIREMENTS, AND MILESTONES
4.1 CUSTOMER EXPERIENCE FOCUS
Next Gen BPO Providers shall prioritize customer and
partner needs and preferences by meeting or exceeding
FSA’s Common Performance Standards to deliver an
improved experience throughout the lifecycle of student
aid. Next Gen BPO Providers shall use the Training
and * * *
94
EXHIBIT F
95
Federal Servicing Examples of GD01 discharges
Example #1:
Full discharge of all loans
Servicer has 3 loans (A, B, and C) for borrower
123123123:
• Loan A = $3500 prin, $100 int
• Loan B = $2000 prin, $50 int
• Loan C = $1250 prin, $40 int
FSA sends a discharge request (GD01) on 08/01/2022
for borrower 123123123 and provides a total discharge amount of $10,000 and loan listing 3 loans in
this order: Loan B, Loan A, Loan C
Servicer first applies the discharge to Loan B (first
in list from FSA). Servicer applies first to interest
($50) then to principal ($2000).
The total discharge remaining after that is $7,950
($10,000 - $2050) so the servicer then applies to the
next loan in the list—Loan A. Applies first to interest ($100) then to principal ($3500).
The total discharge remaining after that is $4,350
($7950 - $3600) so the servicer then applied to the
next loan in the list—Loan C. Applies first to interest
($40) then to principal ($1250).
No other loans are in the list to be discharge so this
discharge is complete. Total discharge amount is
$6,940.00.
Servicer would respond in response file with:
Change Indicator = Y
Borrower SSN = 123123123
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Status of discharge = DC
Total Discharge Amount = $6,940.00 (00694000
when formatted for file)
Date of most recent discharge request = 08/01/2022
(08012022)
Example #2:
Less than full discharge of all loans
Servicer has 3 loans (A, B, and C) for borrower
987987987:
• Loan A = $3500 prin, $100 int
• Loan B = $2000 prin, $50 int
• Loan C = $8000 prin, $200 int
FSA sends a discharge request (GD01) on 08/01/2022
for borrower 987987987 and provides a total discharge amount of $10,000 and loan listing 3 loans in
this order: Loan B, Loan A, Loan C
Servicer first applies the discharge to Loan B (first
in list from FSA). Servicer applies first to interest
($50) then to principal ($2000).
The total discharge remaining after that is $7,950
($10,000 - $2050) so the servicer then applies to the
next loan in the list—Loan A. Applies first to interest ($100) then to principal ($3500).
The total discharge remaining after that is $4,350
($7950 - $3600) so the servicer then applied to the
next loan in the list—Loan C. Applies first to interest ($200) then to principal ($4150). Only $4150 is
applied to principal because that is all that remains
of the total discharge amount. Therefore, Loan C is
not completely paid off.
97
The total amount of discharge has been applied, so
this discharge is complete.
Total discharge amount is $10,000.00.
Servicer would respond in response file with:
Change Indicator = Y
Borrower SSN = 987987987
Status of discharge = DC
Total Discharge Amount = $10,000.00 (01000000
when formatted for file)
Date of most recent discharge request = 08/01/2022
(08012022)
Example #3:
FSA
Servicer has loans NOT on the list sent by
Servicer has 3 loans (A, B, and C) for borrower
654654654:
• Loan A = $3500 prin, $100 int
• Loan B = $2000 prin, $50 int
• Loan C = $1250 prin, $40 int
• Loan D = $3000 prin, $120 int
FSA sends a discharge request (GD01) on 08/01/2022
for borrower 654654654 and provides a total discharge amount of $10,000 and loan listing 3 loans in
this order: Loan B, Loan A, Loan C [Note: Loan D
is NOT included in the file sent by FSA]
Servicer first applies the discharge to Loan B (first
in list from FSA). Servicer applies first to interest
($50) then to principal ($2000).
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The total discharge remaining after that is $7,950
($10,000 - $2050) so the servicer then applies to the
next loan in the list—Loan A. Applies first to interest
($100) then to principal ($3500).
The total discharge remaining after that is $4,350
($7950 - $3600) so the servicer then applied to the
next loan in the list—Loan C. Applies first to interest
($40) then to principal ($1250).
No other loans are in the list to be discharge so this
discharge is complete. Total discharge amount is
$6,940.00. Loan D was NOT included in the discharge request file, so the servicer would NOT apply
any discharge to that loan.
Servicer would respond in response file with:
Change Indicator = Y
Borrower SSN = 654654654
Status of discharge = DC
Total Discharge Amount = $6,940.00 (00694000
when formatted for file)
Date of most recent discharge request = 08/01/2022
(08012022)
Example #4: Full discharge of all loans, but later another discharge type approved on one of the loans
Servicer has 3 loans (A, B, and C) for borrower
123123123:
• Loan A = $3500 prin, $100 int
• Loan B = $2000 prin, $50 int
• Loan C = $1250 prin, $40 int
99
FSA sends a discharge request (GD01) on 08/01/2022
for borrower 123123123 and provides a total discharge amount of $10,000 and loan listing 3 loans in
this order: Loan B, Loan A, Loan C
Servicer first applies the discharge to Loan B (first
in list from FSA). Servicer applies first to interest
($50) then to principal ($2000).
The total discharge remaining after that is $7,950
($10,000 - $2050) so the servicer then applies to the
next loan in the list—Loan A. Applies first to interest
($100) then to principal ($3500).
The total discharge remaining after that is $4,350
($7950 - $3600) so the servicer then applied to the
next loan in the list—Loan C. Applies first to interest
($40) then to principal ($1250).
No other loans are in the list to be discharge so this
discharge is complete. Total discharge amount is
$6,940.00.
Servicer would respond in response file with:
Change Indicator = Y
Borrower SSN = 123123123
Status of discharge = DC
Total Discharge Amount = $6,940.00 (00694000
when formatted for file)
Date of most recent discharge request = 08/01/2022
(08012022)
Note everything to this point is the same as example
#1.
100
On 9/1/2022 FSA provides the servicer with a Closed
School Discharge request on Loan B.
The servicer would reverse off the GD01 discharge
from Loan B and then apply the Closed School discharge to Loan B. The total discharged for GD01 is
now reduced to $4,890.00.
Servicer would respond in response file with:
Change Indicator = Y
Borrower SSN = 123123123
Status of discharge = DC
Total Discharge Amount = $4,890.00 (00489000
when formatted for file)
Date of most recent discharge request = 08/01/2022
(08012022)—remains 8/1/22 as that is the most recent Pandemic-connected discharge request
Example #5:
No loans to be discharged at the servicer
Servicer has 3 loans (A, B, and C) for borrower
321321321 but none of them currently have balances
(were recently discharged):
• Loan A = $0 prin, $0 int
• Loan B = $0 prin, $0 int
• Loan C = $0 prin, $0 int
FSA sends a discharge request (GD01) on 08/01/2022
for borrower 321321321 and provides a total discharge amount of $10,000 and loan listing 3 loans in
this order: Loan B, Loan A, Loan C
101
Servicer reviews the loans provided by FSA and finds
no balance remain to be discharged (prior discharges
are no reversed to apply GD01 discharges).
Since no loans provided have balances to be discharged the total discharge amount is $0.00.
Servicer would respond in response file with:
Change Indicator = Y
Borrower SSN = 321321321
Status of discharge = DX (if no loans discharged use
DX status and $0 amount)
Total Discharge Amount = $0.00 (00000000 when
formatted for file)
Date of most recent discharge request = 08/01/2022
(08012022)
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UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
No. 4:22-cv-01040
STATE OF NEBRASKA, ET AL., PLAINTIFFS
v.
JOSEPH R. BIDEN, JR., IN HIS OFFICIAL CAPACITY AS
THE PRESIDENT OF THE UNITED STATES OF AMERICA,
ET AL., DEFENDANTS
DECLARATION OF MICHAEL WALDEN-NEWMAN
I, Michael Walden-Newman, hereby declare and
state as follows:
1. I am over the age of 21 and make this declaration
based on my own personal knowledge.
2. I am the State Investment Officer of the State of
Nebraska. I was appointed to my position by, and I work
closely with, the Nebraska Investment Council (NIC).
3. NIC is charged by state law with the responsibility for the investment management of various assets
held by the State of Nebraska. These include the assets of the retirement systems administered by the Public Employees Retirement Board, the Nebraska educational savings plan trust, the achieving a better life experience program, and each retirement system provided
for under the Class V School Employees Retirement
Act. See Neb. Rev. Stat. § 72-1239.01.
103
4. As of September 20, 2022, NIC had approximately 2.6% (which is a market value of $24.8 million) of
the NIC FI US Core Plus separate account portfolio invested in privately held Federal Family Education Loan
Program (FFELP) student-loan asset-backed securities
(SLABS) through BlackRock.
5. As of September 19, 2022, Nebraska’s pension
fund had $345,804.21 invested in FFELP SLABS
through PIMCO Investment Management. On that
same day, Nebraska’s endowment fund had $129,676.58
invested in FFELP SLABS through PIMCO Investment Management.
6. As of September 19, 2022, NIC’s various accounts with Loomis Sayles held multiple investments in
private SLABS. Specifically, NIC’s endowment account held $92,725 in SLABS, and its pension account
owned SLABS with a market value of $99,713.
7. As of September 20, 2022, NIC’s portfolio managed by Baird also included investments in private
SLABS.
8. Our investment managers at BlackRock informed me on September 20, 2022, that they expect the
Biden Administration’s student debt cancellation will increase prepays for FFELP SLABS even though
FFELP loans are not currently included in the Biden
Administration’s student debt cancellation plan.
Pursuant to 28 U.S.C. § 1746, I declare under penalty
of perjury that the foregoing is true and correct.
104
Executed on Sept. 28, 2022.
/s/ MICHAEL WALDEN-NEWMAN
MICHAEL WALDEN-NEWMAN
State Investment Officer
State of Nebraska
105
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
No. 4:22-cv-01040
STATE OF NEBRASKA, ET AL., PLAINTIFFS
v.
JOSEPH R. BIDEN, JR., IN HIS OFFICIAL CAPACITY AS
THE PRESIDENT OF THE UNITED STATES OF AMERICA,
ET AL., DEFENDANTS
DECLARATION OF JAMES A. CAMPBELL
I, James A. Campbell, hereby declare and state as
follows:
1. I am an attorney for the State of Nebraska, a
plaintiff in this case. I am over the age of 21 and make
this declaration based on my own personal knowledge.
2. Attached as Exhibit A is a true and correct copy
of a website published by Federal Student Aid, an Office
of the U.S. Department of Education, outlining the Biden
Administration’s mass student loan cancellation program.
It was downloaded from https://studentaid.gov/debtrelief-announcement/one-time-cancellation.
3. Attached as Exhibit B is a true and correct copy
of a website published by Federal Student Aid, an Office
of the U.S. Department of Education, explaining the
Biden Administration’s mass student loan cancellation
program and answering frequently asked questions. It
106
was downloaded from https://studentaid.gov/ debt-relief-announcement/.
4. Attached as Exhibit C is a true and correct copy
of a budget model published by Penn Wharton, University of Pennsylvania, entitled The Biden Student Loan
Forgiveness Plan: Budgetary Costs and Distributional
Impact. It was downloaded from https://budgetmodel.
wharton.upenn.edu/issues/2022/8/26/biden-student-loanforgiveness.
5. Attached as Exhibit D is a true and correct copy
of the transcript of an August 24, 2022 White House
press briefing by senior administration officials addressing the student loan cancellation. It was downloaded from https://www.whitehouse.gov/briefing-room/
press-briefings/2022/08/24/background-press-call-bysenior-administration-officials-on-student-loan-relief/.
Pursuant to 28 U.S.C. § 1746, I declare under penalty
of perjury that the foregoing is true and correct.
Executed on Sept. 28, 2022
/s/ JAMES A. CAMPBELL
JAMES A. CAMPBELL
107
EXHIBIT C
108
The Biden Student Loan Forgiveness Plan:
Costs and Distributional Impact
Budgetary
Summary:
President Biden’s new student loan forgiveness plan includes three major components.
We estimate that debt cancellation alone will cost up
to $519 billion, with about 75% of the benefit accruing
to households making $88,000 or less. Loan forbearance will cost another $16 billion. The new incomedriven repayment (IDR) program would cost another $70 billion, increasing the total plan cost to $605
billion under strict “static” assumptions. However,
depending on future IDR program details to be released and potential behavioral (i.e., “non-static”)
changes, total plan costs could exceed $1 trillion.
Key Points
• We estimate that President Biden’s proposed student loan debt cancellation alone will cost between
$469 billion to $519 billion over the 10-year budget
window, depending on whether existing and new
students are included.
About 75% of the benefit
falls to households making $88,000 or less per
year.
• Loan forbearance for 2022 will cost an additional
$16 billion.
• Under strict “static” assumptions about student
borrowing behavior and using take-up rates
within existing income-based repayment programs, the proposed new IDR program will cost
109
an additional $70 billion, increasing total package
costs to $605 billion.
• However, depending on future details of the actual
IDR program and concomitant behavioral
changes, the IDR program could add another $450
billion or more, thereby raising total plan costs to
over $1 trillion. These details require future
study.
Introduction
President Biden has recently announced a fact sheet
for a student loan relief proposal that includes:
• Debt cancellation: Individuals earning less than
$125,000 (or $250,000 for families) a year will be
eligible for up to $10,000 in debt cancellation.
Pell Grant recipients earning less than $125,000
(or $250,000 for families) a year are eligible for up
to $20,000 in debt reduction.
• Forbearance:
Student loan forbearance extended through December 31, 2022.
• New Income-Driven Repayment (IDR):
plan proposes:
This
o Capping monthly payments to 5% (relative to
the current rate of 10% or more) of the discretionary income for undergraduate loan borrowers;1
Graduate student debt would also qualify, but at a 10% income
cap, like existing programs although with more generous terms discussed below.
1
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o Covering the borrower’s unpaid monthly interest so that debt balances will not grow even
when monthly payments are zero;
o Raising the amount excluded from the calculation of discretionary income from 150% to 225%
of the poverty line; and,
o Forgiving loan balances after 10 years of payments, instead of 20 years, for borrowers with
original loan balances of $12,000 or less.
The estimation methods herein largely follow our previous brief on student loan debt forgiveness, along with
some updates to accommodate the new details released
by the Biden Administration. Our previous brief also
provides additional background into existing incomebased repayment programs.
Loan Forgiveness (“Debt Cancellation”)
Table 1 reports the 10-year budgetary cost estimates for
the student loan forgiveness portion of the Biden proposal. The $468.6 billion cost in 2022 corresponds to
loans only for students who have separated from eligible
post-secondary education and no longer have their debt
payments deferred. The $519.1 cost over the 10-year
budget window includes students currently enrolled in
college with loan deferral status as well as future students during the budget window. As discussed in our
previous brief, our loan forgiveness calculations include
cost savings to existing income-based repayment programs with partial take-up rates.
Table 1. Conventional Budget Estimates of the Broad
Student Debt Forgiveness, FY2022 - 2031
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Billions of Dollars
DOWNLOAD DATA
* For clarity, costs are recorded in the shown year based
on outstanding loan vintage. For IDR, Congress can
determine a different cost path of subsidy rates by year.
** New IDR program costs are fully “static” by assuming takeup rates of existing IBR programs. A “conventional” score would include an increase in takeup rates,
as discussed below.
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Table 2A reports the distributional impact of loan forgiveness in 2022 across all ages while Table 2B restricts
the ages to 25-35, an age range that is arguably a bit
more consistent with lifecycle effects. About 74 percent (Table 2A) to 76 percent (Table 2B) of forgiveness
accrues to households making less than $82,400 (Table
2A) or $88,043 (Table 2B). Relative to our previous
brief, the extra Pell grant trigger bonus of an additional
$10,000 in forgiveness—for a total forgiveness of up to
$20,000 for Pell grant recipients—skews the distribution more toward lower-income households.
Table 2. Student Debt Forgiveness Benefit Distribution,
FY2022
DOWNLOAD DATA
2A:
All Ages
2B:
Age 25-35
Notes: Estimate household income percentile thresholds for 2022 all age: 20%: $28,784; 40%: $50,795;
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60%: $82,400; 80%: $141,096; 90% $212,209; 95%:
$321,699; 99%: $961,711; 99.9%: $3,668,499.
Notes: Estimate household income percentile thresholds for 2022 age 25-35: 20%: $29,348; 40%: $53,052;
60%:
$88,043; 80%: $153,513; 90% $233,655; 95%:
$363,464; 99%: $1,090,391; 99.9%: $4,503,788.
Loan Forbearance
Table 1 reports that loan forbearance will cost an additional $16 billion. This amount is “stacked” after loan
forgiveness. The presence of loan forgiveness reduces
the additional cost associated with forbearance. Given
its size, the distributional impact is not reported, but it
is more evenly distributed throughout the income distribution relative to loan forgiveness.
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Income Driven Repayment
Table 1 also reports that the new IDR plan will cost an
additional $70.3 billion over the 10-year window when
“stacked” after the loan forgiveness and forbearance.
This new program will likely target lower income households even more than loan forgiveness noted above.
However, assigning the new IDR gains to specific income groups with reasonable accuracy requires the use
of confidential data and an associated mandatory external review period. We will revisit this issue in coming
weeks.
This calculation also assumes that take-up rates in the
new IDR proposal are the same as in existing income
repayment plans. As we document in our previous
brief, a majority of qualified borrowers do not enroll in
existing programs.
Future Analysis is Needed
The new features in the new IDR proposal, however,
could sharply increase take-up rates. Even many borrowers who anticipate not being qualified in future years
would typically be better off enrolling in the intermediate years in which they are qualified. There would also
be financial incentives for future borrowers to shift education financing toward more borrowing to take advantage of the 5% repayment threshold. If the Department of Education simply auto-enrolled borrowers for
which it had sufficient information (i.e., switched from
“opt in” to “opt out”), the additional costs of the IDR
program alone could reasonably exceed $450 billion.
The actual net distributional effects (the “incidence”) of
the new IDR program will also depend on future program details yet to be released. Part of the benefit
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might be captured by colleges and universities in the
form of higher net prices, either higher tuition prices or
reduced needs-based tuition offsets.
We plan to examine these issues in future work, especially as new program details emerge.
This analysis was produced by Junlei Chen under the
guidance of Kent Smetters. Prepared for the website
by Mariko Paulson.
EXHIBIT D
(116)
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BRIEFING ROOM
Background Press Call by Senior Administration
Officials on Student Loan Relief
AUGUST 24, 2022 • PRESS BRIEFINGS
Via Teleconference
MR. HASAN: Hi, everyone, this is Abdullah from the
White House. Thanks for joining today’s background
briefing on the student loans announcement. As you
may have seen just before this call, the President will
have more to say on this at 2:15 p.m. today.
As a reminder, this call is on background and attributable to a senior administration official. There is no embargo.
For your awareness but not for reporting purposes,
joining us for the call today are [senior administration
official] and [senior administration official].
With that, I will turn it over to [senior administration
official].
SENIOR ADMINISTRATION OFFICIAL:
Hi.
Good morning, everyone. Thanks for joining us today.
We wanted to provide some background and walk you
through the plan that the President recently announced.
President Biden believes that a post-high school education should be a ticket to a middle-class life. But for
too many, the cost of borrowing for college is a lifelong
burden that deprives them of that opportunity.
During the campaign, the President promised to provide
targeted student debt relief. And today, the Biden administration is following through on that promise with a
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plan that will benefit tens of millions of middle-class
Americans, their families, and the economy as a whole.
Over the last 40 years, the total cost of both four-year
public and four-year private colleges have nearly tripled, even after accounting for inflation. At the same
time, federal support has not kept up. Pell Grants once
covered nearly 80 percent of the cost of a four-year public college degree, but now they only cover a third.
All of this has left many students from low- and middleincome families with no choice but to borrow if they want
to get a degree.
This skyrocketing federal student loan debt burden—
$1.6 trillion and rising—for more than 45 million borrowers is a financial weight on America’s middle class.
Middle-class borrowers struggle with high monthly payments and ballooning balances that make it harder for
them to build wealth. Larger student debt burdens
make it harder for people to buy homes or put money
away for retirement. It also makes it harder for borrowers to start small businesses because many entrepreneurs rely on their personal wealth to get their businesses off the ground.
And for the most vulnerable borrowers, the effect of
debt are even more crushing, with one in six borrowers
in default and many unable to complete their degree because the cost of attendance was too high.
The burden falls disproportionately on Black borrowers.
According to one analysis, Black borrowers 20 years after taking on the debt still owe 95 percent of their original student loan debt.
Today, President Biden is taking action to lift a large
weight off of tens of millions of Americans by relieving
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student loan debt and reforming our student loan system as a whole.
This announcement has three major parts, and it offers
targeted debt relief to lower- and middle-income families as part of a comprehensive effort to address growing
college costs.
I will describe the first two parts and then turn it over
to my colleague to describe the third.
First is debt cancellation. The administration will provide $20,000 in debt relief to borrowers who received
Pell Grants while they were in college. To qualify, a
borrower must make less than $125,000, or $250,000 if
they are part of a household. Borrowers who are not
Pell Grant recipients but who meet those income thresholds will be eligible to receive $10,000 in relief.
It is really hard to overstate how significant this is for
America’s middle class and for our economy. This announcement will help people who, by and large, came
from working families and are working class now.
If all borrowers claim the relief that they’re entitled to,
43 million federal student loan borrowers will benefit.
And of those, 20 million will have their debt completely
canceled.
This plan distributes relief highly progressively.
Among borrowers who are no longer in school, nearly 90
percent of relief dollars will go to those earning less than
$75,000 a year, and no one in the top 5 percent of incomes in America will get a single dollar of relief.
Also, by targeting relief to borrowers with the highest
economic need, this plan helps narrow the racial wealth
gap. That’s in part because Black students are more
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likely to have to borrow for school, more likely to take
out larger loans, and more likely to have received Pell
Grants.
Even before applying the additional $10,000 for Pell
Grant recipients, the typical Black borrower will see
their balance cut nearly in half, and more than one in
four Black borrowers will see their balance forgiven altogether.
And then, on top, adding relief for Pell Grant recipients
will go a long way to promoting equity because Black
borrowers are twice as likely to be Pell Grant recipients
as their white peers.
Current students with loans are eligible for this debt relief. Dependent students will be eligible for relief
based on their parental income rather than their own income.
And to ensure a smooth transition to repayment and
prevent unnecessary defaults, the administration will be
extending the pause on federal student loan payments
one final time through December 31, 2022.
By combining targeted relief with a restart in payments,
the President is taking one step that has a negative fiscal impulse—collecting more payments from borrowers—and one step that has a positive fiscal impulse—offering debt relief to borrowers most in need.
In terms of an impact on inflation relative to today, our
view is that those steps largely offset. There are certain conditions and assumptions under which they could
well be neutral or deflationary.
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With that, I’m going to turn it over to [senior administration official] to talk about the other components of
the plan.
SENIOR ADMINISTRATION OFFICIAL: Thank
so much. As [senior administration official] said, in addition to providing immediate cancellation, the administration is making the student loan system more manageable for current but also future borrowers.
Fist, the department will reform something called the
income-driven repayment system. The Department of
Education has authority to create income-driven repayment plans, which cap what borrowers pay each month
based on a percentage of their discretionary or disposable income. Most of these plans cancel a borrower’s remaining debt once they make 20 years of monthly payments.
But the existing versions of these plans are too complex
and too limited. And as a result, millions of borrowers
who might benefit from them do not sign up, and the
millions who do sign up are still often left with unmanageable monthly payments.
So that’s why the President will announce proposed reforms to income-driven repayment so that both current
and future low- and middle-income borrowers will have
smaller monthly payments.
The proposed rule for undergraduate loans would cut in
half the amount that borrowers have to pay each month
from 10 percent to 5 percent of discretionary income.
They’ll also raise the amount of income that is considered non-discretionary and therefore protected from repayment, guaranteeing that no borrower earning under
225 percent of the federal poverty level, which is about
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the annual equivalent of a $15 minimum wage for a single borrower, will have to make a monthly payment.
Further, for borrowers with loan balances of $12,000 or
less, the proposed rule will forgive loan balances after
10 years of payments instead of 20 years.
And unlike existing income-driven repayment plans,
this plan would cover the borrower’s unpaid monthly interest so that borrowers’ loan balance won’t grow as
long as they make their monthly payments.
These reforms will deliver significant savings to lowand middle-income borrowers. For example, a typical
single construction worker making $38,000 a year with
a construction management credential would pay only
$31 a month compared to the $147 they pay now under
the most recent income-driven repayment plan. That
would give them an annual savings of nearly $1,400.
And starting in the summer of 2023, borrowers will be
able to allow the Department of Education to automatically pull their income information year after year,
avoiding the hassle of needing to rectify their income annually. Once a borrower is enrolled, it will be much
easier to stay enrolled and receive credit that they’re
due.
Second, the Department of Education is also making
changes to the Public Service Loan Forgiveness—or the
“PSLF”—program that builds off of shorter-term
changes that make it easier for borrowers working in
public service to gain progress towards loan forgiveness.
Borrowers working in public service are entitled to earn
credit towards loan forgiveness under PSLF, but be-
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cause of complex eligibility restrictions, historic implementation failures, and poor counseling given to borrowers, many public service servants have not received the
credit they deserve for their public service.
The Department of Education also proposed regulatory
changes to ensure more effective implementation of the
PSLF program moving forward. Specifically, the Department of Education has proposed allowing more payments to qualify for PSLF, including partial lump sum
and late payments.
The proposed rule also allows certain kinds of deferments and forbearances—such as those for Peace Corps
and AmeriCorps service, National Guard duty, and military service—to count towards PSLF. And it proposes to change the program so that it works better for
nontenured instructors whose colleges need to calculate
their full-time employment.
In the short term, the Department of Education has announced time-limited changes to PSLF that provide an
easier path to forgiveness. Those who serve less than
10 years can now more easily get credit for their service
to date towards eventual forgiveness.
These changes allow eligible borrowers to gain additional credit towards forgiveness even if they’ve been
previously denied.
To ensure borrowers are aware of the temporary
changes, the White House has launched four PSLF days
of action dedicated to borrowers in specific sectors:
government employees, educators, healthcare workers,
first responders, and nonprofit employees. Today is
the first day of action.
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Additionally, the Department of Education has already
taken significant steps to strengthen accountability so
that students are not left with mountains of debt with
little payoff. The agency has reestablished the enforcement unit in the Office of Federal Student Aid, and
it is holding accreditors’ feet to the fire. In fact, the
department just withdrew authorization for the accreditor that oversaw schools responsible for some of the
worst for-profit scandals.
The agency will also propose a rule to hold career programs accountable for leaving the graduates with mountains of debt that they cannot pay—a rule the previous
administration repealed.
Building off of these efforts, the department is announcing new actions to hold accountable colleges that have
contributed to the student debt crisis, including publishing an annual watch list of the programs with the worst
debt levels in the country, so that students registering
for programs in the next academic year can steer clear
of programs with poor outcomes.
It is also requesting institutional improvement plans
from the worst actors that outline how the colleges with
the most concerning debt outcomes intend to bring down
debt levels.
The President believes that when we strengthen the
middle class of the country, everyone benefits. And
that’s what these policies do. It provides a little bit
more financial security for millions of lower- and middleincome Americans.
And with that, I’ll turn it back to Abdullah.
much.
Thanks so
125
MR. HASAN: Thank you. We’ll go ahead to Chris
Megerian for the first question.
Chris, you should be unmuted now.
Q Okay, here I am. So, a question about future college
students. What impact will this have on students
who are currently in high school and are going to be
starting—you know, taking out lots of debt to be starting college soon? And also, can you specify the impact
on Parent PLUS loans—basically, loans that parents
are still paying off for their college graduates?
SENIOR ADMINISTRATION OFFICIAL: So, Parent PLUS loans held by the Department of Education
are included in the cancellation policy that [senior administration official] described.
In terms of future students, two things. As I laid out
at the end there, there’s policies that are designed to
help reduce the cost of college, including increasing Pell,
and the President has proposed moving forward to double the maximum Pell Grant.
And the—all of—the proposal related to income-driven
repayment would apply to future loans. So it will reduce the amount a borrower must pay on undergraduate
loans from 10 to 5 percent of their monthly income. And
again, if they’re low income, it protects—under the definition of discretionary income, it protects a higher level
of income. So some borrowers could have a zero payment, depending on what their income is.
MR. HASAN: Great. Thank you. For the next question, we’ll go to Jeremy Diamond.
Q Hey, thanks for doing this. First of all, on the inflation concerns, I know that you guys said that you believe
126
that these steps will largely offset each other, but do you
just dismiss, out of hand, concerns from several Democratic economists like Larry Summers and Jason Furman? And is there any circumstance under which you
think that this will increase inflation?
And then, secondly, just on the decision-making front,
you know, this is something that the President has been
considering for a really long time now, it seems. And
so I’m wondering, you know, why it took so long.
And there also seems to have been a significant 11thhour push to get the President to go further, and I wonder if you guys could take us into that process over the
last week.
Thanks.
SENIOR ADMINISTRATION OFFICIAL:
Sure.
So, on the inflation question, our view is that the
combination—so if we—relative to where we sit today,
which is that federal student loans are paused and that
—and 45 million borrowers are under no obligation to
make any payments to the government, the combination
of restarting those loans—those loan payments— and
providing targeted debt relief per the President’s plan
at roughly the same time will largely offset each other.
That’s our view.
And also, frankly, with certain fairly reasonable
assumptions—because there’s a lot of assumptions that
go into this kind of analysis—the joint impact of those
two actions could well be neutral or deflationary.
And I would just note that a number of independent experts have echoed this point. As you noted, there’s
some people who take the opposite view, but Moody’s,
Roosevelt, EPI, Center for American Progress, others
127
who have discussed, you know, a plan with this sort of
general outline—a combination of restarting student
loan payments and providing targeted debt relief— have
come to the same conclusion.
MR. HASAN: Great. And then, for the next question, we can go to Cheyenne Haslett.
Q Hi, thank you. Can you clarify which tax year for income—whether it’s 2021 or 2022? And can you also
clarify how exactly, going forward, the monthly income
payments will be—you know, whether that will be taken
on by taxpayers or how cutting down on that will affect
the cost of this plan?
SENIOR ADMINISTRATION OFFICIAL:
I can
take the first. And, [senior administration official],
maybe you can take the second?
For the purposes of the immediate debt relief, a borrower’s income in either the 2020 or 2021 tax year is
what’s relevant. So, in other words, if in either 2021 or
2020 their income was below the income caps that have
been described, they would be eligible for relief.
SENIOR ADMINISTRATION OFFICIAL:
had a little—audio.
Sorry, I
So, on the IDR, the costs of that program are spread out
over time. It depends on how much outstanding debt
is forgiven at the end of the repayment period, but borrowers will be making reduced payments on an annual
basis. And in the—if they have outstanding loans at
the end of the 20-year period and 10-year period for under $12,000, that amount of fund—debt will be forgiven.
Some of those debts may not have been recuperated because people have gone into default. So it’s a fairly complicated process for determining the cost implications.
128
MR. HASAN: Thanks, [senior administration official].
And then for the next question, let’s go to Asma.
Q Hi, guys. It’s Asma from NPR. Thank you all so
much. I think this was a question that actually Jeremy
had asked earlier—I don’t believe it was answered—
which is that there were certainly—there was certainly
a desire from some Democrats to go larger. And can
you help us understand the process of how the President
settled on this 10k threshold for most borrowers —20k,
obviously, for Pell Grant recipients? But how was this
settled upon—given that I know there was a desire, certainly even this week—to go larger than that?
SENIOR ADMINISTRATION OFFICIAL: So I just
want to clarify something, Asma: that 60 percent of
borrowers have Pell Grants. So actually, the majority
of borrowers are eligible for 20k in relief, and the remainder are eligible for the $10,000 in relief. So I think
that’s an—that’s an important clarifying point.
And it honestly reflects—if you look at who Pell Grant
recipients are, about half of them come from families
that make under $30,000 a year and roughly the other
half of them come from families that make between $30and $60,000 a year. And collectively, those Pell Grant
recipients make up about 60 percent of student loan borrowers.
So that just emphasizes, to me at least, how, you know,
the vast majority of borrowers—or a strong majority of
borrowers are folks who come from lower-income, middle-income families.
In terms of the process: Look, the President made a
commitment during the campaign. He said, you know,
he was going to provide $10,000 in relief. And over the
129
past months, we’ve been going through the process that
the President asked us to go through—examining the legal authority, looking at different permutations of this
proposal—all with the goal of figuring out how do we
provide relief to the people who really need it. And
that’s—this is a product of the plan that we arrived at.
We think it does a very good job of, number one, targeting relief to lower-income, middle-income borrowers.
As I said, nearly 87—nearly 90 percent of the relief dollars here go to people making under $75,000 a year,
while not a single dollar goes to anybody in the top 5
percent of incomes.
And by targeting additional
money to Pell Grant recipients, we are recognizing that
not just income, but wealth plays a really important role
in the capacity of borrowers to repay. And because
Pell Grant recipients tend to come from lower-wealth
families, providing them with additional relief is a way
of really targeting relief at those who need it.
So that’s the basic decision-making process.
MR. HASAN: Thanks, [senior administration official].
For the last question, let’s go to Andrew Restuccia.
Q I’m sorry about that. Can you just to get into the
legal justification for this cancellation a little bit more?
It sounds like the administration released a memo laying it out, and it’s based on pandemic authority. Can
you explain how—you know, why it’s based on pandemic
authority when, you know, the conditions in the economy
and other—and also health conditions of the country
have been improving?
SENIOR ADMINISTRATION OFFICIAL:
Yeah,
look, my—I’m not a lawyer. So I’m—my instinct is to
130
defer—for you guys to take a look at the written document that goes through this and to follow up with either
the Education Department or DOJ if you have any questions on that.
MR. HASAN: All right, we’ll take one final question.
And we’ll go to Lauren Egan.
Q Hi. Could you clarify the income cap? Do you qualify if you make as much as $125,000 a year or do you have
to be under that? And then can you speak a little bit to
what borrowers have to do, if anything, to get this cancellation and when people can start to see this reflected
in their balances?
SENIOR ADMINISTRATION OFFICIAL:
So, the income cap is under $125,000.
Sure.
In terms of the process here, the Education Department
is going to be releasing additional details in the coming
days and weeks. Some borrowers are going to have to
submit essentially a simple application that goes to their
income and shows that they would meet the income caps
that have been set out in this plan.
It’s also the case that a certain percentage of borrowers
—I think roughly 8 million borrowers—have already
submitted relevant income information on file to the Education Department through other means. And those
folks may—who qualify under the income cap— may be
able to receive debt relief automatically.
But I’d refer you to the Education Department for further implementation details.
MR. HASAN: All right.
joining today’s call.
Thank you everyone for
131
As a reminder, it is on background, attributable to “senior administration officials.”
No embargo.
You should have, during the call, received a factsheet
from the White House as well, (inaudible) look at that.
And thanks again for joining.
END
132
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
No. 4:22-cv-01040
STATE OF NEBRASKA, ET AL., PLAINTIFFS
v.
JOSEPH R. BIDEN, JR., IN HIS OFFICIAL CAPACITY AS
THE PRESIDENT OF THE UNITED STATES OF AMERICA,
ET AL., DEFENDANTS
DECLARATION OF TONY WILLIAMS
I, Tony Williams, hereby declare and state as follows:
1. I am over the age of 21 and make this declaration
based on my own personal knowledge.
2. I am currently employed as the Director of the
Arkansas Student Loan Authority (“ASLA”). I have
held that position since 2004. I have been employed by
ASLA since 1987.
3. ASLA is a state entity created to provide a comprehensive student loan program for Arkansans. It
was established in 1977. As of 2017, ASLA is a division
of the Arkansas Development Finance Authority
(“ADFA”). ADFA is overseen by a Board of Directors
consisting of the Secretary of the Department of Finance and Administration, eleven public members appointed by the Arkansas Governor, and the Secretary of
the Department of Commerce, who is a nonvoting member. The public members serve four-year terms.
133
4. As part of my duties as ASLA Director, I am familiar with ASLA’s student loan portfolio.
5. ASLA participates in the Federal Family Education Loan Program (“FFELP”), which was established by the Higher Education Act. Origination of
new FFELP loans ceased in 2010, but many FFELP
loans still exist and are subject to ongoing repayment.
6. Prior to the announcement of the student loan
cancellation by the Biden Administration, ASLA held
approximately $100 million in FFELP loans. These
FFELP loans provide a source of revenue to ASLA.
ASLA generates revenue through collecting an administrative fee, which is calculated based on a percentage
of the total outstanding FFELP loan balance. A portion of that administrative fee is paid out by ASLA for
administrative and servicing costs, and the excess is retained as revenue. That revenue is primarily used for
ASLA’s operating expenses but could also be used to finance additional student loans as allowed under Arkansas law.
7. Since the announcement, ASLA estimates that
approximately $5-6 million of the FFELP loans held by
ASLA have been consolidated into loans under the Direct Loan Program (“OLP”).
8. This drop in ASLA’s FFELP loan balance will
result in a reduction of revenue. That is because the
administrative fee ASLA collects on FFELP loans is
calculated based on the outstanding loan balance. A
reduction in the total balance means a reduction in the
administrative fee, resulting in decreased revenue.
9. ASLA’s FFELP loans were financed through
the issuance of bonds, which ASLA is authorized to do
134
under Arkansas law, and which generate revenue to support ASLA’s ongoing college planning programs, higher
education services and financial assistance for Arkansas
families. The principal and interest payments made by
borrowers ultimately go to satisfy obligations to bondholders.
A reduction in the principal balance of
ASLA’s FFELP loans will result in a reduced administrative fee, as explained above.
Pursuant to 28 U.S.C. § 1746, I declare under penalty
of perjury that the foregoing is true and correct.
Executed on Sept. 29, 2022.
/s/ TONY WILLIAMS
TONY WILLIAMS
135
UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
4:22CV01040-HEA
STATE OF NEBRASKA ET AL., PLAINTIFFS
v.
JOSEPH R. BIDEN, JR. ET AL., DEFENDANTS
Filed:
Oct. 20, 2022
OPINION, MEMORANDUM AND ORDER
This matter is before the Court on Plaintiffs’ Motion
for Preliminary Injunction [Doc. No. 3]. Defendants
have filed their response in opposition to the Motion.
The parties appeared in person for a hearing on the Motion on October 12, 2022. The Court has thoroughly reviewed the pleadings, affidavits, exhibits, and memoranda of law submitted by the respective parties, and
has considered the arguments presented at the hearing.
For the reasons set forth below, the Court concludes Defendants’ arguments are well-taken and this matter will
be dismissed.
Facts and Background
On September 29, 2022, six states—Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina
(Plaintiff States)—brought this action for declaratory
and injunctive relief against Defendants President Jo-
136
seph R. Biden, Jr., Secretary of Education Miguel Cardona, and the United States Department of Education,
alleging the Department’s student debt relief plan contravenes the separation of powers and violates the Administrative Procedure Act (APA) because it exceeds
the Secretary’s statutory authority and is arbitrary and
capricious.
Higher Education Act of 1965
Title IV of the Higher Education Act of 1965, as enacted and amended (HEA), by Congress provides the
Secretary of Education (Secretary) authorization to “assist in making available the benefits of postsecondary
education to eligible students” through the provision of
federal financial aid. 20 U.S.C. § 1070 et seq. The
HEA establishes several student loan programs, like the
William D. Ford Direct Loan Program and the Federal
Family Education Loan Program (FFELP).
New
FFELP loans stopped being issued on July 1, 2010.
HEA loans that originated after July 1, 2010 have been
issued under the Direct Loan Program (Direct Loans).
FFELP borrowers still in repayment can generally consolidate their FFELP loans into Direct Loans at no cost.
See 34 C.F.R. § 685.220. The HEA also provides how
and when loans can be paid, including repayment options, like income-based repayment plan, and forgiveness, like public service loan forgiveness. See, e.g.,
34 C.F.R. § 685.219; 20 U.S.C. §§ 1098E; 1087E(D)(1);
1078(B)(9)(A)( V).
The Higher Education Relief Opportunities for
Students Act of 2003
In 2003, Congress enacted the Higher Education Relief Opportunities for Students Act of 2003 (HEROES
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Act). Pub. L. 108-76, 117 Stat. 904 (2003) (codified at 20
U.S.C. §§ 1098aa-1098ee). The HEROES Act allows
the Secretary to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs under title IV of the Act as the Secretary deems necessary in connection with a war or
other military operation or national emergency . . .”20
U.S.C. § 1098bb(a)(1). “The term ‘national emergency’
means a national emergency declared by the President
of the United States.” Id. at § 1098ee(4). The Secretary’s waiver or modification must be “necessary to ensure that” one of certain statutory objectives is
achieved, including to ensure that “recipients of student
financial assistance . . . who are affected individuals
are not placed in a worse position financially in relation
to that financial assistance because of their status as affected individuals” and that administrative requirements placed on those are “minimized, to the extent possible without impairing the integrity of the student financial assistance programs, to ease the burden on such
students and avoid inadvertent, technical violations or
defaults.” Id. at § 1098bb(a)(2). The HEROES Act
explicitly states that the Secretary is “not required to
exercise this waiver or modification authority . . . on
a case-by-case basis.” Id. at § 1098bb(b)(3). The HEROES Act defines “affected individuals” to include people who reside or are employed “in an area that is declared a disaster area by any Federal, State, or local official in connection with a national emergency” or who
“suffered direct economic hardship as a direct result of
a war or other military operation or national emergency,
as determined by the Secretary.”
Id. at §
1098ee(2)(C)–(D).
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COVID-19 Pandemic
Most recently, the Secretary has used the HEROES
act to provide relief in response to the COVID-19 pandemic, which was declared by former President Trump
as a national emergency in March 2020. Accordingly,
on March 20, 2020, the Secretary relied on the HEROES
Act to pause the accrual of interest and repayment for
all federally held student loans from March 13, 2020 until March 27, 2020. On March 27, 2020, Congress directed the Secretary to extend these policies until October 1, 2020 under the Coronavirus Aid, Relief, and Economic Security Act. Pub. L. No. 116-136, § 3513, 134
Stat. 281, 404 (2020) (“CARES Act”).
When the
CARES Act authorization expired, the Secretary, Defendant Cardona, invoked the HEROES Act again to
continue the student loan payment and interest pause
through December 31, 2022.
Student Loan Debt Relief Plan
On August 24, 2022, President Biden announced the
Department’s student debt relief plan to address the financial harms caused by the COVID-19 pandemic and
ensure a smooth transition back to repayment status.
The Secretary announced that the HEROES Act authorizes him to provide a “one-time” debt relief to federal student loan borrowers affected by the COVID-19
pandemic. The Department plans to provide up to
$20,000 in debt relief to Pell Grant recipients with loans
held by the Department and up to $10,000 in debt relief
to non-Pell Grant recipients. Borrowers are eligible
for this relief if their individual income was less than
$125,000 or $250,000 for households in 2020 or 2021.
Direct Loans qualify for the debt relief. Relief for
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FFELP loans only qualify to those borrowers who consolidated their FFELP loans into Direct Loans as of
September 29, 2022.
The Instant Motion
In addition to filing this lawsuit, on September 29,
2022, Plaintiffs moved for preliminary injunction, pursuant to Federal Rule of Civil Procedure 65, seeking to
enjoin Defendants from implementing or enforcing their
debt relief for student loans and to enjoin Defendants
from publishing a waiver or modification under the HEROES Act to effectuate the student loan debt cancellation.1
At the hearing, the parties argued in support of their
respective positions. Defendants confirmed that no
student debt relief would occur before October 23, 2022.
Legal Standards
Preliminary Injunction
It is axiomatic that the standard for issuance of the
“extraordinary and drastic remedy” of a temporary restraining order or a preliminary injunction is very high,
see Mazurek v. Armstrong, 520 U.S. 968, 972 (1997), and
by now very well established. “A preliminary injunction is an extraordinary remedy never awarded as of
right.” Winter v. Nat. Res. Def. Council, Inc., 555 U.S.
On September 30, 2022, the parties filed a stipulation, proposing
an expedited schedule for resolving the instant motion. Plaintiffs
also agreed to withdraw their Motion for Temporary Restraining
Order if the Court granted their stipulation to allow the parties to
file their briefs and schedule a hearing on the preliminary injunction.
On October 17, 2022, the Court granted Plaintiffs’ formal notice of
withdrawal for their Motion for Temporary Restraining Order.
1
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7, 24 (2008), quoting Munaf v. Green, 553 U.S. 674, 68990 (2008). “Whether a preliminary injunction should
issue involves consideration of (1) the threat of irreparable harm to the movant, (2) the state of the balance
between this harm and the injury that granting the injunction will inflict on other parties litigant, (3) the probability that movant will succeed on the merits, and (4)
the public interest.” Dataphase Sys., Inc. v. C.L. Sys.,
Inc., 640 F. 2d 109, 113 (8th Cir. 1981). “At the base, the
question is whether the balance of equities so favors the
movant that justice requires the court to intervene to
preserve the status quo until the merits are determined.” Id.
Article III Standing
Article III of the Constitution limits the jurisdiction of
federal courts to “Cases” and “Controversies.” U.S.
Const., Art. III, § 2. “One element of the case-or-controversy requirement” is that Plaintiffs “must establish that
they have standing to sue.” Raines v. Byrd, 521 U.S. 811,
818 (1997). Article III standing is a threshold inquiry in
every federal case that determines whether the
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