Student Loan Cancellation Under the HEROES Act

Student Loan Cancellation Under the

HEROES Act

April 14, 2023

Congressional Research Service

https://crsreports.congress.gov

R47505

SUMMARY

Student Loan Cancellation Under the HEROES

Act

On August 24, 2022, Secretary of Education Miguel Cardona announced that he would invoke

the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act) to cancel up

to $20,000 of federal student loan debts for borrowers who fell below certain income thresholds.

The HEROES Act authorizes the Secretary to “waive or modify” statutory or regulatory

provisions applicable to federal student financial assistance programs under Title IV of the

Higher Education Act (HEA) of 1965 to ensure that borrowers are not placed in a worse position

financially in relation to their student loans as a result of a war, other military operation, or

national emergency.

R47505

April 14, 2023

Edward C. Liu

Legislative Attorney

Sean M. Stiff

Legislative Attorney

During the course of the COVID-19 pandemic, which Presidents Trump and Biden both declared a national emergency, the

Secretary of Education (Secretary) has used the HEROES Act to provide a number of flexibilities to both borrowers and

schools that participate in HEA student loan programs. These flexibilities include a pause on federal student loan repayment,

interest accrual, and involuntary collections during the entirety of the pandemic. Secretary Cardona has said that the

cancellation policy is intended to address heightened risks of delinquency or default caused by the end of two years of loan

repayment forbearance. However, the HEROES Act has not been used previously to cancel existing student loan balances.

Estimates of the policy’s cost vary, but for its part, the Department of Education (ED) predicts a cost of $379 billion.

Plaintiffs filed multiple lawsuits challenging the cancellation policy before any borrowers could obtain relief under it. Certain

suits resulted in two federal court orders blocking implementation of the program. The Supreme Court agreed to review these

two cases, Biden v. Nebraska and Department of Education v. Brown, and heard oral argument on February 28, 2023. The

questions for which the Court granted certiorari generally can be divided into jurisdictional questions, that is, whether federal

courts may hear the challenges to the cancellation policy, and merits questions, that is, assuming jurisdiction exists, whether

the cancellation policy is lawful.

With respect to the jurisdictional questions, the Court is considering whether the plaintiffs in the two cases have

demonstrated that they have standing to sue to challenge the policy—that is, whether the plaintiffs have suffered an injury-infact that is fairly traceable to the policy and likely to be redressed by the remedies that the plaintiffs seek. In Biden v.

Nebraska, the plaintiffs are several states. The Nebraska plaintiffs argue that the cancellation policy would result in financial

harm and reduced state income tax revenues. The plaintiffs in Department of Education v. Brown are individual student loan

borrowers. The Brown plaintiffs argue that they have been injured by the Secretary’s adoption of the policy without public

participation in its design, resulting in policy eligibility criteria that limit debt relief for these borrowers.

With respect to the cancellation policy’s lawfulness, the parties focus on how broadly or narrowly to read the HEROES Act’s

waiver and modification authority, as well as whether the cancellation policy is sufficiently related to addressing the effects

of the pandemic on student loan borrowers. The plaintiffs argue that the policy should be evaluated under the Court’s “majorquestions doctrine,” which counsels against reading ambiguous statutory text to delegate administrative authority to make

radical or fundamental changes to a statutory scheme in the absence of clear congressional authorization. Beyond these

statutory authority questions, the Court may also consider whether the Secretary reasonably explained his decision to adopt

the policy and comported with procedures for exercising such authority.

The Court’s decisions in these cases could have a variety of implications for the federal student loan programs that ED

administers. The Court’s rulings will likely resolve whether up to 40 million borrowers will receive loan balance discharges

under the policy. The rulings may also clarify ED’s authority to invoke the HEROES Act in the future to waive or modify

provisions of law applicable to federal student financial assistance programs. Finally, the rulings may further develop

important aspects of Supreme Court doctrine with applications beyond federal student loan programs, including the Article

III standing of states as plaintiffs and the Court’s major-questions doctrine.

Congressional Research Service

Student Loan Cancellation Under the HEROES Act

Contents

Background ..................................................................................................................................... 2

Federal Student Loan Programs ................................................................................................ 2

The Federal Family Education Loan Program .................................................................... 3

The Federal Direct Loan Program ...................................................................................... 5

Legislative History and Prior Exercises of the HEROES Act ................................................... 6

Recent Public Debate over Student Loan Cancellation............................................................. 8

Cancellation Policy Design ..................................................................................................... 10

August 2022 Cancellation Eligibility................................................................................ 10

September 2022 Consolidation Limit ................................................................................ 11

ED’s “Supporting Analysis” ................................................................................................... 12

Budgetary Impacts of HEROES Act Uses .............................................................................. 14

Supreme Court Review of Cancellation Policy: Procedural History............................................. 16

Nebraska v. Biden.................................................................................................................... 17

Brown v. U.S. Department of Education ................................................................................. 18

Supreme Court Grants Certiorari Before Judgment ................................................................ 19

Do Plaintiffs Have Standing to Challenge the Cancellation Policy? ............................................. 20

Financial Harm ........................................................................................................................ 21

Servicer Injury .................................................................................................................. 22

Direct Harm Theory .......................................................................................................... 23

Indirect Harm Theory ....................................................................................................... 27

Consolidation Injury ......................................................................................................... 29

Procedural Injury..................................................................................................................... 33

Tax Revenue Injury ................................................................................................................. 36

Is the Cancellation Policy Substantively Valid? ............................................................................ 38

Scope of HEROES Act Authorization..................................................................................... 38

Waiver, Modification, and the Major-Questions Doctrine ................................................ 38

Ensuring Affected Individuals Not Placed in a Worse Position ........................................ 42

Is the Cancellation Policy Procedurally Valid? ............................................................................. 44

Arbitrary-and-Capricious Claim ............................................................................................. 44

Whether the Secretary Considered Alternatives to the Cancellation Policy ..................... 44

Reliance Interests .............................................................................................................. 45

Considering Important Aspects of a Problem and the Consolidation Limit ..................... 46

Pretext ............................................................................................................................... 46

Public-Participation Claim ...................................................................................................... 48

Potential Implications of Nebraska and Brown ............................................................................. 50

Potential Effects on the Cancellation Policy ........................................................................... 50

Potential Effects on HEREOS Act Authority .......................................................................... 51

Potential Effects on Broader Legal Doctrine .......................................................................... 52

Contacts

Author Information........................................................................................................................ 52

Congressional Research Service

Student Loan Cancellation Under the HEROES Act

n August 24, 2022, Secretary of Education (Secretary) Miguel Cardona announced that

the pandemic-related pause on federal student loan repayment, interest accrual, and

involuntary collections (payment pause) would end on December 31.1 The Secretary

found that for some borrowers, the transition to repayment after more than two years of

forbearance posed a heightened risk of delinquency or default.2 If a borrower fell into these

nonpayment statuses, the Secretary reasoned, they would be worse off in relation to their federal

student loans than they were before the pandemic, even accounting for the benefits of the

payment pause.3

O

To forestall these perceived risks, the Secretary invoked asserted authority under the Higher

Education Relief Opportunities for Students Act of 2003 (HEROES Act) to cancel the student

loan debts of certain borrowers.4 The statute authorizes the Secretary to “waive or modify any

statutory or regulatory provision applicable to the student financial assistance programs” of Title

IV of the Higher Education Act (HEA) of 1965 “as the Secretary deems necessary” in connection

with a war or national emergency to provide certain relief.5 In particular, the Act authorizes the

Secretary to waive or modify such provisions “as may be necessary to ensure that” recipients of

Title IV assistance “are not placed in a worse position financially” in relation to that assistance

because of a national emergency.6

Under the Secretary’s cancellation policy, the Department of Education (ED) would provide up to

$10,000 in cancellation benefits to borrowers with adjusted gross incomes in 2020 or 2021 falling

below stated thresholds.7 ED would apply cancellation to, among others, Federal Direct Loan

Program loans and Federal Family Education Loan Program loans held by ED or one of its

guaranty agencies that disbursed before June 30, 2022.8 If a borrower had received a Pell Grant at

any time, ED would provide up to an additional $10,000 in benefits, for a total of $20,000.9

The Secretary’s decision could have far-reaching effects if implemented. According to ED, over

40 million borrowers (about 88%) are eligible for some amount of cancellation under the policy.

Full participation in the policy by eligible borrowers would leave 20 million borrowers (about

44%) with no remaining federal student loan debt.10 ED expects, though, that not all eligible

borrowers would claim the benefit. If 81% did, ED expects that the policy would increase the

federal government’s cost of having made affected loans or loan guarantees by $379 billion.11

1 Memorandum from Miguel Cardona, Jr., Secretary of Education, to Richard Cordray, Chief Operating Officer of

Federal Student Aid 1 (Aug. 24, 2022) [hereinafter Cardona Memo] (filed as Exhibit B to Decl. of James Richard

Kvaal, Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. filed Oct. 7, 2022)).

2 See id.

3 See id.

4 See id.

5 20 U.S.C. § 1098bb(a)(1).

6

Id. § 1098bb(a)(2).

7 Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and William

D. Ford Federal Direct Loan Program), 87 Fed. Reg. 61512, 61514 (Oct. 12, 2022).

8 Id.

9 Id.

10 See Attachment 1 to Memorandum from James Richard Kvaal, Under Secretary of Education, to Miguel A. Cardona,

Secretary of Education, on the Rationale for Pandemic-Connected Loan Cancellation Program 12 (Aug. 24, 2022)

[hereinafter Supporting Analysis] (filed as Exhibit A to Decl. of James Richard Kvaal, Nebraska v. Biden, No. 4:22-cv01040 (E.D. Mo. filed Oct. 7, 2022)).

11 U.S. Department of Education Estimate: Biden-Harris Student Debt Relief to Cost an Average of $30 Billion

Annually Over Next Decade, U.S. DEP’T OF EDUC., https://www.ed.gov/news/press-releases/us-department-education-

Congressional Research Service

1

Student Loan Cancellation Under the HEROES Act

The Secretary’s decision drew debate over whether Congress had delegated authority to the

Secretary to discharge student loan balances on this scale, which ED has not previously attempted

to do under the HEROES Act or any other authority. Within weeks of the Secretary’s decision,

individuals, groups, and states filed lawsuits challenging the policy. By November 2022, plaintiffs

in two such cases obtained court orders blocking the policy’s implementation, so that to date ED

has yet to cancel any student loan debt under the policy.12

Those two cases are now before the Supreme Court for review. The cases, argued before the

Court on February 28, 2023, raise important, unsettled questions of standing and statutory

authority. In the first case, Biden v. Nebraska, six states allege impending financial harm or taxrevenue injury on account of the policy.13 The second case, Department of Education v. Brown,

features two borrowers who claim procedural injury from not having been able to participate in

the policy’s development.14 Both suits include arguments that the cancellation policy exceeds the

Secretary’s HEROES Act authority.

The Court’s decision on these and other important questions of standing and statutory authority

will likely determine whether the Secretary can implement the cancellation policy. This report

begins by placing those important questions in their context, surveying affected federal student

loan programs,15 past uses of HEROES Act authority,16 and congressional debates concerning

student loan cancellation.17 The report then describes the cancellation policy itself18 and traces the

history of Nebraska and Brown in the lower courts.19 This report next assesses the parties’ key

legal arguments about standing,20 statutory authority for the policy,21 and whether the Secretary

adopted the policy in a procedurally valid manner.22 Finally, this report concludes with a

discussion of potential implications of decisions in Nebraska and Brown for the cancellation

policy, for the Secretary’s HEROES Act authority, and for legal doctrines that are not confined to

the federal student loan context.

Background

Federal Student Loan Programs

For decades, the federal government has helped students and their parents finance higher

education under several federal student loan programs, authorized under the HEA23 and other

estimate-biden-harris-student-debt-relief-cost-average-30-billion-annually-over-next-decade (last visited Apr. 14, 2023)

[hereinafter ED Cost Estimate].

12 See infra “Supreme Court Review of Cancellation Policy: Procedural History.”

13 See infra “Nebraska v. Biden.”

14 See infra “Brown v. U.S. Department of Education.”

15 See infra “Federal Student Loan Programs.”

16 See infra “Legislative History and Prior Exercises of the HEROES Act.”

17 See infra “Recent Public Debate over Student Loan Cancellation”

18 See infra “Cancellation Policy Design.”

19 See infra “Supreme Court Review of Cancellation Policy: Procedural History.”

20 See infra “Do Plaintiffs Have Standing to Challenge the Cancellation Policy?”

21 See infra “Is the Cancellation Policy Substantively Valid?”

22 See infra “Is the Cancellation Policy Procedurally Valid?”

23 See, e.g., infra “The Federal Family Education Loan Program” and “The Federal Direct Loan Program.”

Congressional Research Service

2

Student Loan Cancellation Under the HEROES Act

statutes.24 The vast majority of outstanding federal student loans were made under HEA

authorities.25 The Biden Administration has identified only certain HEA loan balances as eligible

for cancellation.26

Plaintiffs in Nebraska and Brown press claims that implicate two HEA loan programs: the Federal

Family Education Loan Program and the William D. Ford Direct Loan Program.

The Federal Family Education Loan Program

Until its authority terminated in June 2010,27 the Federal Family Education Loan Program

(FFELP) facilitated making loans to students and their parents to help finance a higher education.

The FFELP is a federal loan guarantee program. Nonfederal lenders—state entities and certain

private entities28—originated FFELP loans using their own funds. While federal statute required

listed provisions that had to be included in a loan’s note for it to be insurable under the program,29

the original parties to that note were the borrower and the nonfederal lender. The lender was the

loan’s initial holder.30 FFELP loans that remain with lenders are potential revenue sources.31 The

lender receives payments of principal, interest, and other fees.

The FFELP encouraged lending through, among other things, loan guarantees comprised of a

system of insurance offered by guaranty agencies (GAs) and reinsurance of GA insurance by ED.

The Secretary entered agreements with GAs to help administer the FFELP.32 GAs are state or

private nonprofit organizations.33 They serve as an “intermediary” between the lender and ED.34

A lender may invoke an FFELP loan guarantee if a borrower defaults.35 A lender must make

diligent efforts to collect on a defaulted loan.36 If those efforts fail, the lender may file a default

24 For example, Title VII of the Public Health Service Act authorized a federal student loan guarantee program known

as the Health Education Assistance Loan (HEAL) program, which facilitated private lending to students pursuing a

degree in certain healthcare fields. See 42 U.S.C. § 292a. Authority to issue new loan guarantees lapsed in September

1998, id., yet HEAL program loans remain outstanding, see FED. STUDENT AID, U.S. DEP’T OF EDUC., FISCAL YEAR

2021 ANNUAL REPORT 38 fig. 19 (2021), https://www2.ed.gov/about/reports/annual/2021report/fsa-report.pdf; see also

CRS Report R46720, Student Loan Programs Authorized by the Public Health Service Act: An Overview, by Elayne J.

Heisler and Alexandra Hegji.

25 CRS Report R47196, Federal Student Loan Debt Cancellation: Policy Considerations, coordinated by Alexandra

Hegji, at 4 tbl. 1.

26 Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and

William D. Ford Federal Direct Loan Program), 87 Fed. Reg. 61512, 61513 (Oct. 12, 2022).

27 20 U.S.C. § 1071(d).

28 Id. § 1085(d)(1).

29 See, e.g., id. § 1077(a) (stating that “a loan by an eligible lender shall be insurable” under the FFELP program “only

if evidenced by a note or other written agreement” which, among other things, provides for specified payment

deferments); see also id. § 1077a (regulating loan interest rates).

30 See Holder, BLACK’S LAW DICTIONARY (11th ed. 2019) (“Someone who has legal possession of a negotiable

instrument and is entitled to receive payment on it.”).

31 FFELP loans could be sold to third parties after origination and, as discussed below, assigned to guaranty agencies.

Each of these subsequent owners would be the loan’s holder during the time it owned the loan. For ease of reference,

this report refers to lender-held FFELP loans as those held by entities other than a GA or ED.

32 34 C.F.R. § 682.400(a).

33 Id. § 682.200(b) (guaranty agency).

34 Great Lakes Higher Educ. Corp. v. Cavazos, 911 F.2d 10, 15 (7th Cir. 1990).

35 FFELP lenders may file claims with a GA in other circumstances as well, such as when a borrower’s loan is

discharged because of their and permanent disability. See, e.g., 34 C.F.R. § 682.402(c)(8)(i)(A)–(B).

36 Id. § 682.411(a).

Congressional Research Service

3

Student Loan Cancellation Under the HEROES Act

claim with the GA to be compensated for the unpaid balance of principal and accrued interest.37

Upon payment of the default claim, the lender assigns the loan to the GA,38 transferring title to

the loan to the GA.39 Having received title, the GA must itself make diligent efforts to collect

before it, too, may be compensated for unpaid balances under its reinsurance agreement with

ED.40 The GA assigns a defaulted loan to ED upon payment of a reinsurance claim.41

Though the FFELP has not insured new loans since June 2010, more than $200 billion remained

outstanding on FFELP loans at the end of 2022.42 Different entities hold outstanding FFELP

loans.43 At the end of FY2022, borrowers owed lenders—that is, entities other than ED or a GA—

about $103 billion.44

Lenders have used the revenue-generating potential of FFELP loans to access credit markets

through asset-backed securities known as Student Loan Asset-Backed Securities (SLABS). An

asset-backed security is a bond or note whose cash flow derives from an asset such as a third

party’s debt.45 SLABS, in particular, are backed by a pool of pledged student loans, including

FFELP loans. For example, in 2021, the Higher Education Loan Authority of the State of

Missouri (MOHELA or the Missouri Authority) offered SLABS for sale to investors, explaining

that the notes were payable solely from the proceeds of a pool of FFELP loans.46 SLABS generate

returns based on, among other factors, the payments borrowers make on pooled loans.47 An

investor’s expected yield on SLABS thus depends, in part, on predicting how long borrowers will

make payments on pooled loans, with longer time periods translating to greater interest

37 Id. § 682.412(e)(2).

38 See id. § 682.410(b)(5)(vi).

39

See Assign, BLACK’S LAW DICTIONARY (11th ed. 2019) (“To convey in full; to transfer (rights or property) . . . . ).

40 See 20 U.S.C. § 1078(c) (authorizing the Secretary to “enter into a guaranty agreement with any guaranty agency,

whereby the Secretary shall undertake to reimburse it . . . with respect to losses (resulting from the default of the

student borrower) on the unpaid balance of the principal and accrued interest of any insured loan”).

41 34 C.F.R. § 682.409(a)(1).

42 U.S. DEP’T OF EDUC., Federal Student Aid Portfolio Summary, FED. STUDENT AID,

https://studentaid.gov/sites/default/files/fsawg/datacenter/library/PortfolioSummary.xls (last visited Apr. 14, 2023).

43 U.S. DEP’T OF EDUC., Location of Federal Family Education Loan Program Loans, FED. STUDENT AID,

https://studentaid.gov/sites/default/files/fsawg/datacenter/library/LocationofFFELPLoans.xls (last visited Apr. 14,

2023) (describing FFELP loan amounts held by lenders, GAs, and ED).

44 Id.

45 Morgan Tanafon, Market Crises and Dodd-Frank: Does the Act Protect Against Hazardous Student Loan

Securitization?, 38 REV. BANKING & FIN. L. 869, 878 (2019).

46 See HIGHER EDUC. LOAN AUTH. OF THE STATE OF MO., TAXABLE STUDENT LOAN ASSET‑BACKED NOTES, SERIES 20213 OFFERING MEMORANDUM 5 (2021),

https://www.mohela.com/DL/common/publicInfo/investorInformation.aspx?idx=2340 [hereinafter OFFERING

MEMORANDUM] (“The only sources of funds for payment of the Notes issued under the Indenture are the Financed

Eligible Loans and investments pledged to the Trustee and the payments the Issuer receives on those Financed Eligible

Loans and investments.”) (filed as Exh. A to Decl. of Michael E. Talent, Nebraska v. Biden, No. 4:22-cv-01040 (E.D.

Mo. filed Sept. 29, 2022)); see also MO. REV. STAT. § 173.390 (authorizing MOHELA to issue bonds “payable solely

from and secured by a pledge of revenues derived from or by reason of the ownership of student loan notes and

investment income or as may be designated in a bond resolution authorized by the authority”).

47 See U.S. DEP’T OF THE TREASURY, OPPORTUNITIES AND CHALLENGES IN ONLINE MARKETPLACE LENDING 7 fig. 3

(2016),

https://home.treasury.gov/system/files/231/Opportunities_and_Challenges_in_Online_Marketplace_Lending_white_pa

per.pdf (illustrating securitization by direct lenders).

Congressional Research Service

4

Student Loan Cancellation Under the HEROES Act

payments.48 If loan prepayments exceed expectations, then actual yields can fall below expected

yields.49

The Federal Direct Loan Program

Nearly all borrowers who today obtain federal student loans do so under the William D. Ford

Direct Loan Program (FDLP), authorized by Congress in 1993.50 The designation of this federal

credit program as a “direct loan” program means that, when making an FDLP loan, the federal

government disburses funds to a nonfederal borrower under a contract with the borrower that

requires repayment.51 Unlike some other HEA student loan programs, such as the FFELP, the

borrower enters a contractual relationship with the federal government directly upon borrowing

the loan. The federal government is the loan holder, receiving payments of principal, interest, and

other fees on account of the FDLP loan.

The federal government makes several type of loans under the FDLP. Eligible undergraduate

borrowers may receive need-based Direct Subsidized Loans. Undergraduate and graduate

students may obtain Direct Unsubsidized Loans as well. Direct PLUS Loans are available to

graduate students and to the parents of dependent undergraduate students.52

Borrowers may also “consolidate education loans made under certain Federal programs,”53

including loans made under the FFELP, by borrowing a Direct Consolidation Loan.54 Unlike other

FDLP loans, Direct Consolidation Loan proceeds are not used to directly pay tuition, fees, and

similar costs. Instead, ED pays consolidation-loan proceeds to the holder of an existing education

loan to discharge that loan.55 Thus, if a borrower consolidates an existing FFELP loan held by a

lender, ED pays the consolidation proceeds to the FFELP lender to pay the existing loan’s balance

in full.56 Going forward, the borrower makes payments to ED on account of the new Direct

Consolidation Loan.

Among other loan types, ED holds tens of millions of FDLP loans—at the end of FY2022, more

than $1.42 trillion was outstanding on loans made on behalf of 37.8 million recipients.57 To

administer these and other federally held student loans, ED contracts with third-party loan

servicers.58 A loan servicer is a company that ED contracts with “to handle the billing and other

48 See OFFERING MEMORANDUM, supra note 46, at B-2.

49 See OFFERING MEMORANDUM, supra note 46, at 96 (“The rates of payment of principal on the Notes and the yield on

the Notes may be affected by prepayments of the Financed Eligible Loans.”).

50 Student Loan Reform Act of 1993, Pub. L. No. 103-66, tit. IV, § 4011, 107 Stat. 312, 341.

51

See 2 U.S.C. § 661a(1).

52 CRS Report R45931, Federal Student Loans Made Through the William D. Ford Federal Direct Loan Program:

Terms and Conditions for Borrowers, by Alexandra Hegji, at 4–5.

53 34 C.F.R. § 685.220(a).

54 See id. § 685.220(b).

55 Id. § 685.220(f)(2).

56 See id.

57 See supra note 42.

58 See, e.g., 20 U.S.C. § 1087f(b)(2) (authorizing the Secretary to enter into contracts for “the servicing and collection

of loans made or purchased under” the FDLP program).

Congressional Research Service

5

Student Loan Cancellation Under the HEROES Act

services on” an ED-held federal student loan.59 ED engages several servicers60 and allocates

borrower accounts among servicers.61 ED generally pays servicers based on the number and types

of assigned accounts and the work that the servicer performs on ED’s behalf.62

Legislative History and Prior Exercises of the HEROES Act

The Secretary identified the Higher Education Relief Opportunities for Students Act of 2003

(HEROES Act) as statutory authority for the cancellation policy. The Act allows the Secretary to

“waive or modify any statutory or regulatory provision applicable to the” Title IV programs “in

connection with a . . . national emergency” to ensure, among other things, that “affected

individuals are not placed in a worse position financially” in relation to their Title IV assistance.63

The HEROES Act evolved from an earlier HEROES Act of 2001, itself enacted in response to the

terrorist attacks of September 11, 2001.64 The original 2001 version of the statute provided similar

waiver and modification authority for individuals affected by the national emergency declared for

the attacks of September 11, 2001, or a subsequent national emergency declared for a terrorist

attack.65 The 2001 law was subject to a sunset at the end of FY2003.66

Before that sunset date arrived, Congress replaced the statute with the current HEROES Act of

2003.67 The 2003 legislation used a definition of “national emergency” that did not include the

“terrorist attack” qualifier used in the original 2001 law.68 The HEROES Act of 2003 otherwise

resembled the 2001 law in many respects. Under both laws, for example, the Secretary was

empowered to “waive” or “modify” statutory and regulatory provisions applicable to Title IV

programs to bring about certain relief for “affected individuals.”69

Like its predecessor statute, the HEROES Act of 2003 was subject to a two-year sunset.70

Congress extended the HEROES Act authority in 2005 and made the statute permanent in 2007.71

59 U.S. DEP’T OF EDUC., Who’s My Student Loan Servicer?, FED. STUDENT AID, https://studentaid.gov/manage-

loans/repayment/servicers (last visited Apr. 14, 2023); see also CRS Report R44845, Administration of the William D.

Ford Federal Direct Loan Program, by Alexandra Hegji, at 19–20 (describing common servicing activities).

60 U.S. DEP’T OF EDUC., Servicer Loan Portfolio by Loan Status, FED. STUDENT AID,

https://studentaid.gov/sites/default/files/fsawg/datacenter/library/servicer-portfolio-by-loan-status093022.xls (last

visited Apr. 14, 2023).

61 See, e.g., U.S. DEP’T OF EDUC., CONTRACT NO. ED-FSA-11-D-0012 WITH MOHELA 15 (2011) (describing account

allocation) (filed as Exh. B to Decl. of Michael E. Talent, Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. filed Sept.

29, 2022)).

62 See id. at 1 (describing unit pricing for borrowers in different repayment statuses).

63 20 U.S.C. § 1098bb(a)(1).

64 Higher Education Relief Opportunities for Students Act of 2001, Pub. L. No. 107-122, 115 Stat. 2386 (2002).

65 Id. § 5(4), 115 Stat. at 2388.

66

Id. § 6, 115 Stat. at 2389.

67 Higher Education Relief Opportunities for Students Act of 2003, Pub L. No. 108-76, 117 Stat. 904.

68 Id. § 5(4), 117 Stat. at 907.

69 Compare Higher Education Relief Opportunities for Students Act of 2001, Pub. L. No. 107-122, § 2(a)(2), 115 Stat.

2386, 2386 (2002) (authorizing waivers or modifications deemed necessary “to ensure that borrowers of Federal

student loans who are affected individuals are not placed in a worse position financially in relation to those loans

because of their status as affected individuals”), with Higher Education Relief Opportunities for Students Act of 2003,

Pub L. No. 108-76, § 2(a)(2), 117 Stat. at 904 (similar waiver for “recipients of student financial assistance under Title

IV” of the HEA “who are affected individuals”).

70 Id. § 6, 117 Stat. at 908.

71 Student Financial Assistance—Extension, Pub. L. No. 109-78, 119 Stat. 2043 (2005) (extension to September 30,

Congressional Research Service

6

Student Loan Cancellation Under the HEROES Act

Neither of these legislative actions made substantive changes to the waiver or modification

authority provided by the HEROES Act.72

It does not appear that ED has ever invoked the HEROES Act to afford relief as broad as the

cancellation policy announced by Secretary Cardona in 2022. For instance, past Secretaries

invoked the HEROES Act to expand available forbearance relief for certain Federal Perkins Loan

borrowers “who reside or are employed in a disaster area.”73 In doing so, however, the Secretaries

did not forgive or cancel any outstanding loan balances and also did not modify the rule that

interest ordinarily accrues during forbearance.74 Past Secretaries likewise invoked the HEROES

Act to suspend the collection of defaulted loans from borrowers “who reside or are employed in a

disaster area,”75 but these did not expressly contemplate forgiveness or cancellation of such

defaulted loan balances. Other early examples of HEROES Act use include waivers and

modifications that addressed loan deferrals, extensions of the maximum period of loan

forbearance, and waivers of the requirement that students return overpayments of certain grant

funds.76

The scope of HEROES Act waivers grew during the COVID-19 pandemic. On March 20, 2020,

then-Secretary of Education Betsy DeVos announced that “[a]ll borrowers with federally held

student loans” would “automatically have their interest rates set to 0% for a period of at least 60

days.”77 The Secretary also offered such borrowers “the option to suspend their payments for at

least two months.”78 A week later, Secretary DeVos announced that ED would also “halt

collection actions and wage garnishments to provide additional assistance to borrowers.”79 While

neither of the Secretary’s March 2020 announcements specified the statutory authority she

2007); Higher Education—Permanent Extension of Waiver Authority, Pub. L. No. 110-93, § 2, 121 Stat. 999 (2007)

(permanent authorization).

72 See id.

73 See, e.g., Federal Student Aid Programs (Student Assistance General Provisions, Federal Perkins Loan Program,

Federal Direct Loan Program, Federal Family Education Loan Program and the Federal Pell Grant Program), 68 Fed.

Reg. 69312, 69314–15, 69316 (Dec. 12, 2003) [hereinafter 2003 Federal Register Notice] (“Under [the HEA and its

implementing regulations], there is a 3-year cumulative limit on the length of forbearances that a Federal Perkins Loan

borrower can receive. To assist Perkins borrowers who are affected individuals in this category, the Secretary is

waiving these statutory and regulatory requirements so that any forbearance based on a borrower’s status as an affected

individual is excluded from the 3-year cumulative limit.”).

74 Compare 34 C.F.R. § 674.33(d)(7) (specifying that “[i]nterest accrues during any period of forbearance” on a Federal

Perkins Loan), with, e.g., 2003 Federal Register Notice, supra note 73, at 69316.

75 See 2003 Federal Register Notice, supra note 73, at 69314–16 (“In accordance with [ED regulations], schools and

guaranty agencies must attempt to recover amounts owed from defaulted Perkins and FFEL[P] borrowers. The

Secretary is waiving the regulatory provisions that require schools and guaranty agencies to attempt collection on

defaulted loans for the time period during which the borrower is an affected individual. The school or guaranty agency

may stop collection activities upon notification by the borrower, a member of the borrower’s family, or another reliable

source that the borrower is an affected individual in this category.”) (emphasis added).

76 See Use of the HEROES Act of 2003 to Cancel the Principal Amounts of Student Loans, 46 O.L.C. ___, slip op, at

*4 (Op. O.L.C. Aug. 23, 2022), https://www.justice.gov/d9/2022-11/2022-08-23-heroes-act.pdf [hereinafter OLC

Opinion].

77 Delivering on President Trump’s Promise, Secretary DeVos Suspends Federal Student Loan Payments, Waives

Interest During National Emergency, U.S. DEP’T OF EDUC. (Mar. 20, 2020),

https://content.govdelivery.com/accounts/USED/bulletins/2823e37 [hereinafter March 20, 2020 Announcement].

78 Id.

79 Secretary DeVos Directs FSA to Stop Wage Garnishment, Collections Actions for Student Loan Borrowers, Will

Refund More than $1.8 Billion to Students, Families, U.S. DEP’T OF EDUC. (Mar. 25, 2020),

https://content.govdelivery.com/accounts/USED/bulletins/28317e2 [hereinafter March 25, 2020 Announcement].

Congressional Research Service

7

Student Loan Cancellation Under the HEROES Act

invoked to grant this relief,80 ED later clarified that the Secretary based the relief on the HEROES

Act.81

Congress subsequently enacted the Coronavirus Aid, Relief, and Economic Security (CARES)

Act.82 Section 3513(a) of the CARES Act required the Secretary to “suspend all payments due”

for ED-held FDLP and FFELP loans through September 30, 2020.83 Section 3513(e) in turn

required the Secretary to “suspend all involuntary collection related to” such loans during Section

3513(a)’s payment suspension period.84 Section 3513(b) provided that interest would not accrue

on those loans during the suspension period.85 Section 3513 was subject to a sunset date of

September 30, 2020.86

In August 2020, as Section 3513’s sunset date approached, Secretary DeVos “extend[ed] the

student loan relief to borrowers initiated by the President and Secretary in March 2020 through

December 31, 2020.”87 Like the March 2020 relief, ED based the August 2020 extension on the

HEROES Act.88 The Trump and Biden Administrations have since extended Section 3513

repeatedly.89 The payment pause continues in effect as of this publication. Under the most recent

extension, it will last, at the latest, until August 29, 2023 (i.e., 60 days after June 30, 2023). If the

Supreme Court resolves the student loan litigation before June 30, then the payment pause will

end 60 days after the date of the Court’s decision.90

Recent Public Debate over Student Loan Cancellation

The Biden Administration expressly describes its announced cancellation policy as a response to

the COVID-19 pandemic. However, Congress has considered legislation to provide broad-based

student loan cancellation since at least as early as 2019. During the first session of the 116th

80 See March 20, 2020 Announcement, supra note 77; March 25, 2020 Announcement, supra note 79.

81 FED. STUDENT AID, ANNUAL REPORT FY 2020, at 38 (2020), https://www2.ed.gov/about/reports/annual/

2020report/fsa-report.pdf [hereinafter FSA Annual Report] (“The relief provided to borrowers from March 13, 2020

through March 26, 2020 . . . was provided under the Secretary’s authority in the [HEROES Act].”); Secretary DeVos

Extends Student Loan Forbearance Period Through January 31, 2021, in Response to COVID-19 National Emergency,

U.S. DEP’T OF EDUC. (Dec. 4, 2020), https://www.ed.gov/news/press-releases/secretary-devos-extends-student-loanforbearance-period-through-january-31-2021-response-covid-19-national-emergency [hereinafter December 2020

Announcement] (stating that the Secretary “used her authority under the HEROES Act” to implement the March 2020

relief).

82 Pub. L. No. 116-136, 134 Stat. 281 (2020).

83 Id. § 3513(a) (codified at 20 U.S.C. § 1001 note).

84 Id. § 3513(e).

85 Id. § 3513(b).

86 Id. § 3513(a).

87 U.S. DEP’T OF EDUC., Secretary DeVos Fully Implements President Trump’s Presidential Memorandum Extending

Student Loan Relief to Borrowers Through End of Year (2020),

https://content.govdelivery.com/accounts/USED/bulletins/29b4634 [hereinafter August 2020 Announcement].

88 See Federal Student Aid Programs (Student Assistance General Provisions, Federal Perkins Loan Program, William

D. Ford Federal Direct Loan Program, and Federal-Work Study Programs), 85 Fed. Reg. 79856–57, 79862 (Dec. 11,

2020) [hereinafter 2020 Federal Register Notice]; FSA Annual Report, supra note 81, at 38.

89 See, e.g., Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program,

and William D. Ford Federal Direct Loan Program), 87 Fed. Reg. 61512, 61513–14 (Oct. 12, 2022) (listing

extensions). See also CRS Legal Sidebar LSB10568, The Biden Administration Extends the Pause on Federal Student

Loan Payments: Legal Considerations for Congress, by Kevin M. Lewis and Edward C. Liu.

90 See COVID-19 Emergency Relief and Federal Student Aid, FED. STUDENT AID,

https://studentaid.gov/announcements-events/covid-19 (last visited Apr. 14, 2023).

Congressional Research Service

8

Student Loan Cancellation Under the HEROES Act

Congress, some Members introduced bills to cancel, to varying degrees, portions of outstanding

federal student loan debt.91 Proponents of these proposals generally argued that cancellation

would address a student debt crisis that arose because of increasing tuition costs.92 However, as

the COVID-19 pandemic progressed, some Members suggested bills providing for student loan

cancellation as a means of addressing the economic impact of the pandemic on borrowers.93

In 2020, Congress considered omnibus legislation called the Heroes Act (not to be confused with

the HEROES Act of 2003), which would have addressed a wide variety of pandemic-related

issues.94 Although the House of Representatives passed a version of the bill that would have

directed the Secretary to cancel or repay up to $10,000 of student loan debt for “economically

distressed borrowers,” Congress ultimately did not enact that measure.95 The following year,

Congress enacted the American Rescue Plan Act of 2021 (ARPA), which included a provision

amending the treatment of discharged student loans for federal income tax purposes.96

In addition to these legislative proposals, academics and some Members of Congress suggested

the possibility of executive action to discharge student loan balances based on existing statutory

authorities.97 In January 2021, ED under the outgoing Trump Administration concluded that the

HEROES Act did not authorize cancellation of student loan balances, a decision that the Office of

Legal Counsel (OLC) of the Department of Justice (DOJ) rejected in 2022 in concert with the

Biden Administration’s announcement of the cancellation policy.98

91 Student Debt Cancellation Act of 2019, H.R. 3448, 116th Cong. (2019) (authorizing cancellation of federal student

loan balances as well as authorizing ED to purchase, and subsequently cancel, outstanding private education loans);

College for All Act of 2019, S. 1947, 116th Cong. (2019) (same); Student Loan Debt Relief Act of 2019, H.R. 3887,

116th Cong. (2019) (authorizing cancellation of up to $50,000 of federal student loan balances for borrowers, subject to

an income phase-out between $100,000 and $250,000), S. 2235, 116th Cong. (2019) (same).

92 See Senator Warren, House Majority Whip Clyburn Introduce Legislation to Cancel Student Loan Debt for Millions

of Americans, SEN. ELIZABETH WARREN (July 23, 2019), https://www.warren.senate.gov/newsroom/pressreleases/senator-warren-house-majority-whip-clyburn-introduce-legislation-to-cancel-student-loan-debt-for-millionsof-americans; AFT President Randi Weingarten on Sen. Warren’s Student Debt and College Affordability Proposals,

AM. FED’N OF TEACHERS (Apr. 22, 2019), https://www.aft.org/press-release/aft-president-randi-weingarten-senwarrens-student-debt-and-college.

93 See, e.g., Student Loan Forgiveness for Frontline Health Care Workers Act, H.R. 6720, 116th Cong. (2020)

(providing for partial cancellation of student loan balances for certain health care professions engaged in COVIDrelated health services); Frontline Health Care Worker Student Loan Assistance Act of 2020, H.R. 8393, 116th Cong.

(2020) (providing a smaller degree of cancellation for similar borrowers). But see, Student Loan Relief Act, H.R. 8514,

116th Cong. (2020) (providing up to $25,000 of cancellation of student loan balances for all borrowers).

94 See The Heroes Act, H.R. 6800, 116th Cong. (2020).

95 Id. at Div. O, Title I, § 150117.

96 American Rescue Plan Act of 2021, Pub. L. No. 117-2, tit. IX, § 9675, 135 Stat. 4, 185–86. This provision is

discussed in more detail below under “Tax Revenue Injury.”

97 See Luke Herrine, The Law and Political Economy of A Student Debt Jubilee, 68 BUFF. L. REV. 281 (2020); Chuck

Schumer Says Biden Could Forgive $50,000 in Student Debt with Executive Order, CNBC (Nov. 17, 2020),

https://www.cnbc.com/2020/11/16/schumer-suggests-student-debt-forgiveness-through-executive-order.html; H.R.

Res. 100, 117th Cong. (2021) (calling on the President of the United States to take executive action to broadly cancel

Federal student loan debt); S. Res. 46, 117th Cong. (2021) (same).

98 Memorandum from Reed D. Rubinstein, Principal Deputy General Counsel of the U.S. Department of Education, to

Betsy DeVos, Secretary of Education (Jan. 12, 2021),

https://static.politico.com/d6/ce/3edf6a3946afa98eb13c210afd7d/ogcmemohealoans.pdf [hereinafter Rubinstein

Memo]; OLC Opinion, supra note 76. These competing interpretations are discussed in more detail below at “Waiver,

Modification, and the Major-Questions Doctrine.”

Congressional Research Service

9

Student Loan Cancellation Under the HEROES Act

Cancellation Policy Design

On August 24, 2022, Secretary of Education Miguel Cardona determined that he would exercise

asserted authority under the HEROES Act to provide relief to student loan borrowers in

connection with the pandemic.99 Secretary Cardona decided he would extend the payment pause

until December 31, 2022, and that this would be the “final extension” of the pause.100 However,

the Secretary found that “many borrowers” would be at “heightened risk of loan delinquency and

default” once payment resumed in 2023.101 If borrowers fell into delinquency or default, they

would be “worse off than they were before the pandemic,” even accounting for the benefits

afforded them by the payment pause.102 To avoid this result, Secretary Cardona decided that he

would waive and modify statutory and regulatory provisions to discharge federal student loan

balances.103

The Secretary’s August 24 announcement was followed roughly five weeks later by a

modification to ED’s website affecting cancellation eligibility for Direct Consolidation Loans. On

September 29, within hours of the Nebraska plaintiffs filing suit,104 ED announced that a

borrower’s Direct Consolidation Loan would be eligible for cancellation only if it derived from a

consolidation application filed with ED on or before September 29 (the consolidation limit).105

The Nebraska plaintiffs characterize this development as a “change” to the policy.106 These

aspects of the cancellation policy are discussed below.

August 2022 Cancellation Eligibility

In his initial directives about the cancellation policy, the Secretary settled on three related criteria

to identify borrowers eligible to receive cancellation and the amount of cancellation benefits they

would receive.

The Secretary’s first two eligibility criteria would work in tandem to identify borrowers and loans

eligible to receive cancellation. First, ED would use income thresholds to identify borrowers with

eligible loan types who could receive cancellation. Thresholds differ based on a borrower’s

taxpayer status and would use adjusted gross income (AGI) in tax years 2020 or 2021.107 Those

who file individually (whether single or married) would be eligible if their AGI was less than

$125,000 in either tax year. Those who file jointly, as head of household, or as a qualifying

99 Cardona Memo, supra note 1, at 1.

100 Id. at 2.

101 Id. at 1.

102 Id.

103 Id.

104 The federal petitioners do not appear to dispute that the Nebraska plaintiffs filed their complaint before ED’s

website vendor published the consolidation limit on the Federal Student Aid website. Compare Br. of Pet’rs’ at 25,

Biden v. Nebraska, No. 22-506, and Dep’t of Educ. v. Brown, No. 22-535 (U.S. Jan. 4, 2023) (describing the

consolidation limit as “a decision the Department made before the States sued and announced and made effective the

day they sued”) [hereinafter Federal Pet’rs’ Br.], with Br. of Resp’ts’ at 10, Biden v. Nebraska, No. 22-506 (U.S. Jan.

27, 2023) [hereinafter State Pls.’ Br.].

105 See infra “Consolidation Injury.”

106 See State Pls.’ Br., supra note 104, at 10–11.

107 The Secretary’s initial memorandum referred only to “income” generally. See Cardona Memo, supra note 1, at 1. In

later publications concerning the policy, ED has used Adjusted Gross Income to describe the income thresholds. See

Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and William

D. Ford Federal Direct Loan Program), 87 Fed. Reg. 61512, 61514 (Oct. 12, 2022).

Congressional Research Service

10

Student Loan Cancellation Under the HEROES Act

widow or widower would be eligible if their AGI was less than $250,000 in either tax year.108

Second, ED would apply cancellation benefits to only certain federal student loans. Cancellation

would be available for FDLP loans and FFELP loans held by a GA or by ED that had been

disbursed as of June 30, 2022.109 Direct Consolidation Loans would also be eligible for

cancellation, provided the loan’s proceeds were used to consolidate education loans outstanding

as of the June 30, 2022, cutoff.110 But FFELP loans held by a lender would not be eligible for

cancellation.

The Secretary’s income threshold and loan type criteria identify the borrowers eligible to receive

cancellation benefits. A third criterion identifies the amount of benefits eligible borrowers would

receive. The Secretary decided that all eligible borrowers would receive up to $10,000 in

cancellation benefits.111 Eligible borrowers would receive up to an additional $10,000 in

cancellation benefits, for up to $20,000, if they had received a Pell Grant at any point.112 ED

awards Pell Grants to “help financially needy students meet the cost of their postsecondary

education.”113

September 2022 Consolidation Limit

FFELP loans held by a lender are not, themselves, eligible for cancellation under the policy. Even

so, borrowers with such loans initially had a route to gain cancellation eligibility: consolidation

into the FDLP. Take a borrower with only lender-held FFELP loans who met the cancellation

policy’s applicable income threshold and was otherwise able to obtain a Direct Consolidation

Loan.114 The lender-held FFELP loans would not themselves be eligible for cancellation. After

consolidation of these loans into the FDLP, though, the new Direct Consolidation Loan would be

eligible for cancellation because the Direct Consolidation Loan would consolidate only loans that

disbursed before June 30, 2020.115

ED’s initial public statements about the cancellation eligibility of Direct Consolidation Loans did

not state a deadline by which a borrower would need to apply for consolidation into the FDLP. In

September 2022, ED decided to revise its website to explain that “consolidation loans comprised

108 87 Fed. Reg. at 61514. ED decided to use parental income for enrolled dependent student borrowers. See, e.g.,

Supporting Analysis, supra note 10, at 12.

109 See Cardona Memo, supra note 1, at 1. Secretary Cardona also listed Perkins Loans held by ED as among the loan

types eligible for cancellation. Id. Neither Nebraska nor Brown implicate Perkins Loans.

110 See, e.g., One-Time Student Loan Debt Relief, FED. STUDENT AID (pdf version of Department of Education website

as it existed on September 28, 2022) (stating that Direct Consolidation Loans would be eligible for cancellation if

“[u]nderlying loans disbursed on or before June 30, 2022”) (filed as Exh. E to Decl. of James A. Campbell, Nebraska v.

Biden, No. 4:22-cv-01040 (E.D. Mo. filed Oct. 11, 2022)).

111 See Cardona Memo, supra note 1, at 1.

112 See id.

113 34 C.F.R. § 690.1; see also generally CRS Report R45418, Federal Pell Grant Program of the Higher Education

Act: Primer, by Cassandria Dortch.

114 See 34 C.F.R. § 685.220(d) (describing eligibility rules for obtaining a Direct Consolidation Loan, such as a

requirement that at the time the borrower applies for the loan the borrower is not “subject to a judgment secured

through litigation, unless the judgment has been vacated[,]” on the “loans being consolidated”); see also 20 U.S.C.

§§ 1078-3(a)(3), 1087e(g).

115 See supra note 27 and accompanying text (noting that authority to make FFELP loans terminated in 2010 so that all

FFELP loans were necessarily disbursed before the cancellation policy’s June 30, 2022 cut-off).

Congressional Research Service

11

Student Loan Cancellation Under the HEROES Act

of any FFELP or Perkins loans not held by ED are also eligible, as long as the borrower applied

for consolidation before Sept. 29, 2022.”116

ED communicated these changes to the private firm that serves as website vendor for the Federal

Student Aid website on September 28, 2022—the day before the complaint in Nebraska was

filed—and the changes were visible to the public the next day, September 29.117 Borrowers of

lender-held FFELP loans could still apply for consolidation on or after September 29, but the

resulting loan would not be eligible for cancellation.118 In another revision to its website made

public on September 29, ED stated that it was “assessing whether there are alternative pathways

to provide relief to borrowers with federal student loans not held by ED,” including FFELP

loans.119 To date, ED has not identified an alternative cancellation pathway for federal student

loans that are not held by ED.

On October 12, 2022, ED published the waivers and modifications that comprise the policy in the

Federal Register.120 These published waivers include the consolidation limit.121

ED’s “Supporting Analysis”

As ED deliberated on the cancellation policy, it prepared a paper that “summarizes the basis for

and key design elements of” the initiative.122 The federal petitioners refer to this document as

ED’s “Supporting Analysis.”123 They have relied on the Supporting Analysis in the student loan

litigation as the main evidence of why the cancellation policy is necessary to ensure that

borrowers are not placed in a worse position financially in relation to their federal student loans

because of the pandemic.124 The Supporting Analysis expresses three general conclusions relevant

to the litigation: (1) that borrowers face a heightened delinquency or default risk with the end of

the payment pause; (2) that, in general, the cancellation of student loan balances would avert such

risks; and (3) that the policy’s income and Pell Grant eligibility criteria reasonably cabined

benefit eligibility to borrowers who need it.

First, the Supporting Analysis determined that ending the payment pause would expose borrowers

to a heightened delinquency or default risk on their federal student loans.125 For purposes of

federal student loans, a borrower is current on a loan if the borrower makes a monthly payment

116 One-Time Student Loan Debt Relief, FED. STUDENT AID (Sept. 28, 2022 copy edit document showing changes to

ED’s website in redline form) (filed as Exhibit D to Decl. of James Richard Kvaal, Nebraska v. Biden, No. 4:22-cv01040 (E.D. Mo. filed Oct. 7, 2022)).

117 See Decl. of James Richard Kvaal at ¶ 4, Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. Oct. 7, 2022).

118 See supra note 116.

119 One-Time Student Loan Debt Relief, FED. STUDENT AID (Sept. 28, 2022 copy edit document showing changes to

website content in redline form) (filed as Exhibit D to Decl. of James Richard Kvaal, Nebraska v. Biden, No. 4:22-cv01040 (E.D. Mo. filed Oct. 7, 2022)).

120 Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and

William D. Ford Federal Direct Loan Program), 87 Fed. Reg. 61512 (Oct. 12, 2022).

121 Id. at 61514 (“Direct Consolidation loans disbursed after June 30, 2022, and for which the repaid loans include a

FFEL loan not held by ED, are only eligible for relief if the borrower submitted an application to consolidate such

loans prior to September 29, 2022.”).

122 Supporting Analysis, supra note 10, at 1.

123 Federal Pet’rs’ Br., supra note 104, at 9.

124 See, e.g., Federal Pet’rs’ Br., supra note 104, at 44 (relying on the Supporting Analysis to argue that the cancellation

policy’s income eligibility criterion is appropriately tailored to benefit borrowers at risk of delinquency or default after

the payment pause ends).

125 Supporting Analysis, supra note 10, at 1.

Congressional Research Service

12

Student Loan Cancellation Under the HEROES Act

within 30 days of its due date.126 If the borrower does not make a monthly payment within 30

days of its due date, the borrower is then delinquent until the point when the borrower either

returns to current status or defaults.127 A borrower defaults by failing to make a monthly payment

within 270 days of its due date.128

To gauge default and delinquency risks, ED looked first to the payment behavior of borrowers

affected by certain 2017 natural disasters who were in mandatory administrative forbearance.129

Default rates among these borrowers spiked once forbearance ended.130 In the year before the

disaster declaration that led to the forbearance, 0.3% of borrowers entered default, whereas 6.5%

entered default in the calendar year after exiting forbearance.131 Increases in default rates were

even higher among Pell Grant recipients.132

ED also found evidence of delinquency and default risk in data from a survey of borrowers, who

expected that despite the payment pause they would have more difficulty making full loan

payments post-pandemic than they had pre-pandemic.133 ED explained that other studies of

delinquency rates for debts not affected by the payment pause (e.g., non-student loan debt)

confirmed the views expressed in the borrower survey.134

Second, the Supporting Analysis found that loan cancellation could reduce delinquency and

default risks by reducing or eliminating the amount that borrowers would have to repay each

month.135 If ED provided up to $20,000 in cancellation and all eligible borrowers claimed that

benefit, 20 million borrowers would have no remaining student loan balance and thus no risk of

falling into delinquency or default on such debt.136 With full participation by eligible borrowers,

another 23 million would still have amounts owing after application of cancellation benefits.137

ED would reamortize the loans of borrowers with remaining balances, and their monthly

payments would decline by an estimated $200 to $300.138 ED estimated that the payment pause,

by comparison, saved the average borrower in repayment $233 per month.139

Third, the Supporting Analysis explained use of borrower income as a cancellation-policy

eligibility criterion.140 ED determined that the higher a borrower’s income, the more likely the

126 FED.STUDENT AID, DEP’T OF EDUC., FISCAL YEAR 2022 ANNUAL REPORT 33 (2023),

https://www2.ed.gov/about/reports/annual/2022report/fsa-report.pdf.

127 Id.

128 20 U.S.C. § 1085(l).

129 Supporting Analysis, supra note 10, at 2 (examining borrowers affected by hurricanes as well as wildfires in

northern California).

130 Supporting Analysis, supra note 10, at 2.

131 Supporting Analysis, supra note 10, at 2.

132 Supporting Analysis, supra note 10, at 2 (noting that 7% of Pell borrowers “enter[ed] default in the calendar year

after exiting mandatory administrative forbearance compared to 5 percent” of borrowers who were not Pell Grant

recipients).

133 Supporting Analysis, supra note 10, at 2–3.

134 See, e.g., Supporting Analysis, supra note 10, at 3 (stating that data from the Federal Reserve Bank of New York

showed that delinquency rates on student loans not affected by the payment pause had returned to pre-pandemic levels).

135 Supporting Analysis, supra note 10, at 4.

136 Supporting Analysis, supra note 10, at 5.

137 Supporting Analysis, supra note 10, at 5.

138 Supporting Analysis, supra note 10, at 5.

139 Supporting Analysis, supra note 10, at 5.

140 Supporting Analysis, supra note 10, at 6.

Congressional Research Service

13

Student Loan Cancellation Under the HEROES Act

borrower could make timely payments on their federal student loans.141 In particular, as compared

to their lower-income counterparts, borrowers in higher income categories made loan payments

more consistently; expressed a greater ability to repay future loans; were less likely to report

financial insecurity; and were less likely to have lost employment at the beginning of the

pandemic.142 In some cases, ED found that there were particularly large differences in repayment

capacity between borrowers who made less than $125,000 and those who made more than

$125,000.143 As a result, ED determined that the “$125,000 income mark” would be “a reasonable

ceiling for discharge eligibility.”144

The Supporting Analysis also contended that a borrower’s past receipt of a Pell Grant, another

policy eligibility criterion, helped predict a borrower’s delinquency or default risk in ways that a

borrower’s current income alone could not.145 As ED explained, a borrower’s Pell Grant

eligibility was based on family financial resources at the time of Pell Grant application, when

recipients tended to have “lower wealth and familial monetary resources” than nonrecipients.146

While this determination relates to the status of a Pell Grant recipient at the time of application

for the grant, ED also found significant differences in borrower repayment between Pell Grant

recipients and nonrecipients.147 In every imputed income band, a Pell Grant recipient was about

twice as likely to have defaulted on their loans as a non-Pell Grant recipient borrower in the same

band six to ten years after entering repayment.148

Budgetary Impacts of HEROES Act Uses

One facet of the lawsuits challenging the cancellation policy is the magnitude of the economic

impact of this exercise of the HEROES Act. According to the plaintiffs, the dimensions of the

policy show that ED proposes to use the HEROES Act to address a question of major economic

as well as political significance. Thus, plaintiffs urge the Supreme Court to apply the “majorquestions doctrine” to assess whether the statute authorizes the policy.149 The federal petitioners

respond, in part, by focusing on the financial effects of the payment pause,150 portions of which

ED implemented using HEROES Act authority. Given the “permanent and substantial effects” of

this prior use of the HEROES Act, the federal petitioners contend that the cancellation policy is

141 Supporting Analysis, supra note 10, at 6.

142 Supporting Analysis, supra note 10, at 7–10.

143 See, e.g., Supporting Analysis, supra note 10, at 8 (“There is a break in repayment capacity at around $125,000.

After forbearance, nearly 20 percent of borrowers earning between $100,000 and $124,000 expect to experience

difficulty repaying loans, comparted to 14 percent of those earning above $125,000.”); id. at 7, 9 (stating that

inconsistent payment rates and expressions of financial insecurity for borrowers in the $100,000 to $124,000 income

band are about double the rates of borrowers with incomes between $125,000 and $149,000).

144 Supporting Analysis, supra note 10, at 7. The Supporting Analysis does not expressly relate indicators of a

borrower’s ability to repay student loans to household income as opposed to individual income. Id. at 6.

145 Supporting Analysis, supra note 10, at 11 (describing Pell Grant recipient status as an “independent and valuable”

indicator of delinquency or default risk).

146 Supporting Analysis, supra note 10, at 11.

147 Supporting Analysis, supra note 10, at 12.

148 Supporting Analysis, supra note 10, at 12.

149 See State Pls.’ Br., supra note 104, at 31.

150 Federal Pet’rs’ Br., supra note 104, at 51.

Congressional Research Service

14

Student Loan Cancellation Under the HEROES Act

not an “unheralded” exercise of claimed statutory authority and thus is not on par with those

administrative actions the Court has invalidated in its major-questions cases.151

While the economic impact of the payment pause and the cancellation policy could perhaps be

framed in more than one way, the parties have quantified the economic impacts of ED’s actions

by citing their estimated budgetary costs. The Federal Credit Reform Act of 1990 prescribes how

agencies measure and account for these costs.152

When an agency makes a direct loan or loan guarantee, it estimates the “cost” to the federal

government of that commitment.153 In simplified terms, this “cost” figure estimates the value to

the government, when the commitment is made, of the future cash flows of a loan or loan

guarantee.154 Cash flows are amounts the agency expects to pay to and receive from a third party

over the lifetime of the commitment, stated in today’s dollars.155 The agency obligates existing

budget authority to cover this cost when it originates a direct loan or makes a loan guarantee.156 If

an agency then modifies a commitment—for example, by exercising “administrative discretion

under existing law” to change a commitment’s terms157—in a way that increases the estimated

cost of the outstanding direct loan or loan guarantee, the agency obligates more budget authority

to cover the increased cost.158

ED used HEROES Act authority to extend the payment pause originally instituted by the CARES

Act.159 By suspending loan repayment and interest accrual on covered federal student loans, the

payment pause increased the cost to the federal government of having made the loans. The exact

extent of the cost increase is unclear because there does not appear to be a public estimate of the

cost of the entire HEROES Act payment pause from October 2020 to the present. ED states that

the payment pause extensions made during FY2021 resulted in increased costs of $49.5 billion,

while the extensions made during FY2022 increased costs by an additional $48.6 billion.160

151 Federal Pet’rs’ Br., supra note 104, at 51.

152 2 U.S.C. § 661a, et seq.

153 2 U.S.C. § 661c(d). ED estimates initial and updated costs on a cohort basis, grouping together in a single cohort all

of the direct loans (or loan guarantees) made in a given fiscal year. See FED.STUDENT AID, U.S. DEP’T OF EDUC., FISCAL

YEAR 2022 ANNUAL REPORT 170 (2023), https://www2.ed.gov/about/reports/annual/2022report/fsa-report.pdf.

154 2 U.S.C. § 661a(5).

155 See id. § 661a(5)(B)–(C). According to the Government Accountability Office (GAO), there is no FDLP cohort

whose borrowers have all finished repaying their loans. Thus, as of 2022, ED continued to monitor the “costs” of the

FDLP’s inaugural, Fiscal Year 1994 loan cohort, as well as all subsequent cohorts. See GOV’T ACCOUNTABILITY OFF.,

STUDENT LOANS: EDUCATION HAS INCREASED FEDERAL COST ESTIMATES OF DIRECT LOANS BY BILLIONS DUE TO

PROGRAMMATIC AND OTHER CHANGES, GAO-22-105365, at 7–8 (2022) [hereinafter DIRECT LOAN COST REPORT].

156 See 2 U.S.C. § 661c(d).

157 Id. § 661a(9).

158 See OFF. OF MGMT. & BUDGET, EXEC. OFF. OF THE PRESIDENT, CIRCULAR NO. A-11: PREPARATION, SUBMISSION, AND

EXECUTION OF THE BUDGET § 185.7 (rev. Aug. 2022).

159 See Pub. L. No. 116-36, § 3513(a)–(b), 134 Stat. 281, 404 (2020). ED has stated that for a thirteen-day period

preceding enactment of the CARES Act it also used the HEROES Act to provide similar payment relief to borrowers.

See FED. STUDENT AID, U.S. DEP’T OF EDUC., FISCAL YEAR 2020 ANNUAL REPORT 38 (2020),

https://www2.ed.gov/about/reports/annual/2020report/fsa-report.pdf. No public estimate of the costs of this relief

appears to exist.

160 See U.S. DEP’T OF EDUC., FY 2022 AGENCY FINANCIAL REPORT 21, 69 (2023),

https://www2.ed.gov/about/reports/annual/2022report/agency-financial-report.pdf (explaining that the FY2022 cost

increase included the cost of extending the payment pause through December 31, 2022).

Congressional Research Service

15

Student Loan Cancellation Under the HEROES Act

According to the Government Accountability Office (GAO), the payment pause in effect between

October 2020 and May 2022 increased the cost of FDLP loans by $77.8 billion.161

The cancellation policy would also affect the cost to the government of federal student loans by

discharging all or part of an eligible loan’s outstanding balance. As a result of this discharge, the

federal government would forgo payments of principal and accrued interest that it once estimated

it would receive. By canceling principal, the federal government would also forgo interest that

would have accrued on this principal. Cost estimates for the policy vary. ED estimates that for all

eligible loan cohorts, cancellation would result in a roughly $379 billion cost increase.162 The

Congressional Budget Office (CBO) places the cost of cancellation at about $400 billion.163 The

two cost estimates diverge because, among other things, they rest on different assumptions about

the number of eligible borrowers who would apply for cancellation.164

Supreme Court Review of Cancellation Policy:

Procedural History

The Supreme Court has accepted jurisdiction over two cases challenging the cancellation policy,

Nebraska v. Biden and Brown v. U.S. Department of Education. Different plaintiffs brought the

two cases, and the cases were heard in different lower courts. The two groups of plaintiffs

describe different types of harm that the cancellation policy would allegedly cause, and the

plaintiffs raise different claims to avert this alleged harm. The paths that each of these cases

traveled to the Supreme Court are summarized below.

161 GOV’T ACCOUNTABILITY OFF., DIRECT LOAN COST REPORT, supra note 155, at 14. Relying on GAO’s analysis, the

federal petitioners argue that “previous invocations of the [HEROES] Act had permanent and substantial economic

effects. Most significantly, the previous COVID-19 relief measures, including the suspension of loan payments and

interest accrual, are estimated to have cost the federal government $102 billion.” Federal Pet’rs’ Br., supra note 104, at

51 (emphasis added). This $102 billion figure adds the $77.8 billion cost of the payment pause that is attributable to the

HEROES Act to the $24.6 billion cost that is attributable to the CARES Act. However, costs incurred because of the

CARES Act seem not relevant to the federal government’s argument concerning payment-pause-cost figures, which is

that the cancellation policy is not an “unheralded” use of HEROES Act authority. See also Transcript of Oral Argument

at 31:24, Dep’t of Educ. v. Brown, No. 22-535 (Feb. 28, 2023) (statements at oral argument by the federal petitioners

that the payment pause had cost “150 billion dollars”),

https://www.supremecourt.gov/oral_arguments/argument_transcripts/2022/22-535_ba7d.pdf.

162 See ED Cost Estimate, supra note 11.

163 Letter from Phillip L. Swagel, Director, Congressional Budget Office, to Richard Burr, Ranking Member,

Committee on Health, Education, Labor, and Pensions, U.S. Senate, and Virginia Foxx, Ranking Member, Committee

on Education and Labor, U.S. House of Representatives at 3 (Sept. 26, 2022), https://www.cbo.gov/system/files/202209/58494-Student-Loans.pdf (last visited Apr. 14, 2023) [hereinafter CBO Cost Estimate]. CBO estimated that $430

billion in loan balances will be canceled under the policy. See id. CBO set its “cost” estimate lower, though, because it

concluded a portion of canceled balances would, under current law, already have been discharged under programs such

as income-driven repayment plans. See id.

164 Compare ED Cost Estimate, supra note 11 (assuming an 81% participation rate), with CBO Cost Estimate, supra

note 163 (assuming “90 percent of income-eligible borrowers will apply for debt cancellation”).

Congressional Research Service

16

Student Loan Cancellation Under the HEROES Act

Nebraska v. Biden

The first filed of these cases is captioned Nebraska v. Biden, initiated by a complaint filed in the

U.S. District Court for the Eastern District of Missouri on September 29, 2022.165 The plaintiffs in

Nebraska are six states: Nebraska, Missouri, Arkansas, Iowa, Kansas, and South Carolina.166

The Nebraska complaint includes three counts. Count 1 is titled “Separation of Powers” and

alleges that the cancellation policy is “ultra vires” and “violates the separation of powers”

because the HEROES Act does not authorize the policy.167 Count 2 claims that the policy violates

the Administrative Procedure Act (APA) because ED adopted the policy in excess of its statutory

authority.168 Count 3 asserts that the policy violates the APA because it is “arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law.”169 Whereas Counts 1 and 2 mainly

focus on the asserted lack of statutory authority for the policy,170 Count 3 claims that the

Secretary’s decision to adopt the policy did not result from reasoned decisionmaking. 171

Along with their complaint, the Nebraska plaintiffs filed a motion for a preliminary injunction.172

The Nebraska plaintiffs asked the district court to enjoin the federal petitioners from

implementing or enforcing the policy because, at that time, ED had said that it would “start

cancelling loan balances” for certain borrowers as early as October 2022,173 a move that

assertedly would have inflicted harm on the plaintiffs.

On October 20, the district court denied the Nebraska plaintiffs’ motion and dismissed the suit.174

The district court did not reach the merits of the plaintiffs’ claims by asking (for example)

whether the states were likely to prevail on their argument that the HEROES Act did not

authorize the cancellation policy.175 Instead, the district court held that none of the plaintiffs had

shown Article III standing under any of their injury theories.176

The Nebraska plaintiffs appealed the district court’s judgment to the U.S. Court of Appeals for

the Eighth Circuit (Eighth Circuit).177 They simultaneously asked the Eighth Circuit for two

related forms of relief. The Nebraska plaintiffs first asked for an administrative stay of the

cancellation policy to give the Eighth Circuit time to consider their second form of relief before

165 See Compl., Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. Sept. 29, 2022).

166 Id. ¶¶ 12–20.

167 Id. ¶¶ 142–48.

168 Id. ¶¶ 149–58.

169 Id. ¶¶ 159–71.

170 Id. ¶¶ 146–48, 155–56.

171 Id. ¶ 166.

172 Mot. for Prelim. Inj., Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. Sept. 29, 2022). A preliminary injunction is

a temporary court order, issued before final judgment, compelling or preventing an action to prevent an irreparable

injury to the party requesting the injunction. Injunction, BLACK’S LAW DICTIONARY (11th ed. 2019).

173 Pl. States Memo. in Supp. of Mots. for TRO and Prelim. Inj. at 3, Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo.

Sept. 29, 2022). ED subsequently stated that it would not discharge student loan debt under the policy until late

October 2022. See Decl. of James Richard Kvaal at ¶ 5, Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. Oct. 7,

2022). Before then, though, the U.S. Court of Appeals for the Eighth Circuit entered injunctive relief to stay the

policy’s implementation, relief that remains in effect as of the date of this publication. See infra notes 180–181 and

accompanying text.

174 Nebraska v. Biden, No. 4:22-cv-1040, 2022 WL 11728905, at *7 (E.D. Mo. Oct. 20, 2022).

175 See id. (dismissing complaint for lack of jurisdiction).

176 Id. at *4–7.

177 Not. of Appeal, Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. Oct. 20, 2022).

Congressional Research Service

17

Student Loan Cancellation Under the HEROES Act

ED began implementing the policy.178 The Nebraska plaintiffs also asked for an injunction of the

policy pending appeal.179

On October 21, 2022, the Eighth Circuit summarily granted the administrative stay.180 On

November 14, the court entered an injunction pending appeal.181 The Eighth Circuit explained

that at least one of the states, Missouri, had likely shown standing based on the policy’s effects on

MOHELA.182 The Eighth Circuit also found that the appeal involved “substantial,” unresolved

questions of law about ED’s statutory authority.183 The equities, the court reasoned, supported an

injunction, because allowing the policy to go into effect would have an “irreversible impact” on

the plaintiffs, while staying implementation would not harm eligible borrowers already covered

by the payment pause.184

Brown v. U.S. Department of Education

As Nebraska progressed, two student loan borrowers pressed a separate challenge to the

cancellation policy in a case captioned Myra Brown v. U.S. Department of Education, filed on

October 10, 2022, in the U.S. District Court for the Northern District of Texas.185 One of the

Brown plaintiffs is current on lender-held FFELP loans and thus is not eligible for cancellation.186

The only FFELP loans eligible for cancellation under the policy are those held by ED or in

default at a GA.187 The second plaintiff owes FDLP loans and thus is eligible for up to $10,000 in

cancellation.188 The second plaintiff would not receive an additional $10,000 in cancellation,

though, because he did not receive a Pell Grant.189

The Brown complaint includes a single APA count, which focuses on ED’s failure to follow

allegedly applicable procedures for developing the policy. In particular, the Brown plaintiffs say

that the cancellation policy qualifies as a “regulation” or “rule” as those terms are used in the

HEA and the APA, respectively.190 Because the policy allegedly fits these categories, the plaintiffs

contend they had a right to participate in the policy’s development, which ED did not allow

them.191 Like the Nebraska plaintiffs, the Brown plaintiffs filed a motion for preliminary

injunction alongside their complaint.192

178 See Dkt. Entry Granting Mot. for Administrative Stay, Nebraska v. Biden, No. 22-3179 (8th Cir. Oct. 21, 2022).

179 Emergency Mot. for Inj. Pending Appeal, Nebraska v. Biden, No. 22-3179 (8th Cir. Oct. 21, 2022).

180 Dkt. Entry Granting Mot. for Administrative Stay, Nebraska v. Biden, No. 22-3179 (8th Cir. Oct. 21, 2022).

181 See Nebraska v. Biden, 52 F.4th 1044 (8th Cir. 2022).

182 Id. at 1046–47.

183 Id. at 1047–48.

184 Id. at 1048. Four days before, on November 10, 2022, the Brown district court entered a judgment of vacatur setting

aside the cancellation policy. See infra note 198 and accompanying text.

185 Compl., Brown v. U.S. Dep’t of Educ., No. 4:22-cv-00908-O (N.D. Tex. Oct. 10, 2022).

186 Id. ¶¶ 13–14.

187 See supra note 109 and accompanying text.

188 Compl. at ¶¶ 15–16, Brown v. U.S. Dep’t of Educ., No. 4:22-cv-00908-O (N.D. Tex. Oct. 10, 2022).

189 Id. ¶ 16.

190 Id. ¶¶ 65–73.

191 Id. ¶ 72.

192 Pls.’ Mot. for Prelim. Inj., Brown v. U.S. Dep’t of Educ., No. 4:22-cv-00908-O (N.D. Tex. Oct. 10, 2022).

Congressional Research Service

18

Student Loan Cancellation Under the HEROES Act

On November 10, the district court entered judgment for the Brown plaintiffs.193 The district court

held that the plaintiffs had standing based on a procedural injury theory.194 Turning to the merits,

the district court then considered the Brown plaintiffs’ single APA claim as relating to the APA’s

“procedural” and “substantive” requirements.195 As to procedure, the district court reasoned that

because ED issued the policy “under the HEROES Act, which exempts” the policy from public

comment requirements, the policy “did not violate the APA’s procedural requirements.”196 Then,

under the rubric of the APA’s “substantive requirements,” the district court held that the HEROES

Act did not in fact authorize the policy.197 As a remedy, the district court declared the policy

unlawful and ordered that it be vacated.198

The federal petitioners took an immediate appeal to the U.S. Court of Appeals for the Fifth

Circuit (Fifth Circuit)199 and asked the Fifth Circuit to stay the district court’s judgment pending

appeal.200 On November 30, the Fifth Circuit summarily denied that motion.201

Supreme Court Grants Certiorari Before Judgment

By mid-November 2022, orders issued by two courts—the Texas district court’s November 10

judgment of vacatur202 and the Eighth Circuit’s November 14 injunction203—barred ED from

implementing the cancellation policy. In November and December 2022, the federal petitioners

thus asked the Supreme Court for orders that would allow ED to move forward with the

cancellation policy while the appellate courts heard the appeals.204

In the alternative, the federal petitioners asked the Supreme Court to grant certiorari before

judgment.205 Federal statute empowers the Court to accept jurisdiction over a case “before

judgment has been rendered in the court of appeals.”206 This is not the typical route used to arrive

at the Court. The Court’s rules of practice say that certiorari before judgment is reserved for cases

of “such imperative public importance as to justify deviation from normal appellate practice.”207

193 See Brown v. U.S. Dep’t of Educ., No. 4:22-CV-0908-P, 2022 WL 16858525, at *15 (N.D. Tex. Nov. 10, 2022).

194 Id. at *7–9. The procedural injury theory is discussed in more detail. See infra “Procedural Injury.”

195 See Brown, 2022 WL 16858525 at *10–11.

196 Id. at *11.

197 Id. at *13–14.

198 Id. at *14–15.

199 Not. of Appeal, Brown v. U.S. Dep’t of Educ., No. 4:22-cv-00908-P (N.D. Tex. Nov. 10, 2022).

200 Defs.-Appellants’ Emergency Mot. for Stay Pending Appeal, Brown v. U.S. Dep’t of Educ., No. 22-11115 (5th Cir.

Nov. 17, 2022).

201 Order, Brown v. U.S. Dep’t of Educ., No. 22-11115 (5th Cir. Nov. 30, 2022).

202 See supra note 198.

203 See supra note 181.

204 Appl. to Vacate the Inj. Entered by the U.S. Ct. of Appeals for the Eighth Cir., Biden v. Nebraska, No. 22A444

(U.S. Nov. 18, 2022); Appl. to Stay the J. Entered by the U.S. District Ct. for the N. District of Tex., U.S. Dep’t of

Educ. v. Brown, No. 22A489 (U.S. Dec. 2, 2022).

205 See, e.g., Appl. to Vacate the Inj. Entered by the U.S. Ct. of Appeals for the Eighth Cir. at 4, Biden v. Nebraska,

No. 22A444 (U.S. Nov. 18, 2022).

206 28 U.S.C. § 2101(e).

207 SUP. CT. R. 11.

Congressional Research Service

19

Student Loan Cancellation Under the HEROES Act

In December 2022, the Supreme Court deferred rulings on the federal petitioners’ applications for

relief from the restraining effects of the lower court orders.208 As a result, both orders continue to

bar ED from carrying out the cancellation policy.

The Supreme Court also granted certiorari in both cases and identified the questions it will

consider.209 In Nebraska, the Court will examine whether the state plaintiffs have Article III

standing, whether statute authorizes the cancellation policy, and whether the Secretary’s exercise

of any such authority was arbitrary or capricious.210 In Brown, the Court will consider the

borrower plaintiffs’ Article III standing and whether the policy is statutorily authorized and

adopted in a procedurally proper way.211

Do Plaintiffs Have Standing to Challenge the

Cancellation Policy?

Under Article III of the Constitution, the judicial power of the United States extends only to

“Cases” and “Controversies.”212 In particular, plaintiffs, whether individuals, businesses, or

governmental entities, must show that they have standing to sue before they may invoke the

jurisdiction of the federal courts.213 The Supreme Court has repeatedly held that to have standing,

a plaintiff must demonstrate that (1) they have suffered some injury-in-fact, (2) that the injury is

fairly traceable to the defendant’s allegedly unlawful conduct, and (3) that the injury is likely to

be redressed by the remedy sought from the court.214 As described by the Court in 2021, this

requirement ensures that federal courts only decide cases involving the “rights of individuals”

within the courts’ “proper function in a limited and separated government.”215

For an alleged harm to constitute an injury-in-fact, it must be both concrete (i.e., not abstract or

conjectural)216 and particularized (i.e., affecting the plaintiff individually).217 Common examples

of concrete harms include physical injuries or monetary losses,218 but concrete harms may also

include intangible injuries such as reputational harms or interference with a person’s

208 Dkt. Entry, Biden v. Nebraska, No. 22-506 (U.S. Dec. 1, 2022); Dkt. Entry, Dep’t of Educ. v. Brown, No. 22-535

(U.S. Dec. 12, 2022).

209 Dkt. Entry, Biden v. Nebraska, No. 22-506 (U.S. Dec. 1, 2022); Dkt. Entry, Dep’t of Educ. v. Brown, No. 22-535

(U.S. Dec. 12, 2022).

210 Dkt. Entry, Biden v. Nebraska, No. 22-506 (U.S. Dec. 1, 2022) (referencing the federal petitioners’ application to

identify questions presented in Nebraska); Appl. to Vacate the Inj. Entered by the U.S. Ct. of Appeals for the Eighth

Cir. at 38, Biden v. Nebraska, No. 22A444 (U.S. Nov. 18, 2022).

211 Dkt. Entry, Dep’t of Educ. v. Brown, No. 22-535 (U.S. Dec. 12, 2022) (stating questions presented).

212 U.S. CONST. art. III, § 2.

213 Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016) (explaining that Article III standing “doctrine limits the category

of litigants empowered to maintain a lawsuit in federal court to seek redress for a legal wrong”).

214 Hollingsworth v. Perry, 570 U.S. 693, 704 (2013).

215 TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2203 (2021) (internal quotation marks omitted) (distinguishing

between those cases that are properly within the judicial power and “hypothetical or abstract disputes” which are not).

216 See Carney v. Adams, 141 S. Ct. 493, 498 (2020) (“[A] grievance that amounts to nothing more than an abstract and

generalized harm to a citizen’s interest in the proper application of the law does not count as an injury in fact.” (internal

quotation marks omitted)).

217 Lujan v. Defs. of Wildlife, 504 U.S. 555, 560 n.1 (1992).

218 Collins v. Yellen, 141 S. Ct. 1761, 1779 (2021) (stating that “pocketbook injury is a prototypical form of injury in

fact”).

Congressional Research Service

20

Student Loan Cancellation Under the HEROES Act

constitutional right of free speech.219 The harm must be “real and immediate” and not

hypothetical or imagined.220 With respect to particularity, the Court has explained that this inquiry

generally requires asking whether the plaintiff claims an injury that is personal, rather than a

grievance the plaintiff “suffers in some indefinite way in common with people generally.”221

Traceability generally requires a causal link between the defendant’s allegedly unlawful conduct

and the plaintiff’s injury.222 The Court has stated that it may be “substantially more difficult” to

establish causation where the asserted chain of events connecting unlawful action to harm

includes the actions of third parties who are not parties to the suit.223

Redressability requires a court to examine the particular relief requested by the plaintiff and ask

whether it likely would address the alleged injury.224 For example, a plaintiff lacks standing to

request an injunction to prevent future harm where they have failed to allege continuing or

threatened injury from an underlying violation of law.225

The Brown and Nebraska plaintiffs advance different standing theories, which fall into three

general categories. First, certain Nebraska plaintiffs allege that the cancellation policy causes

them financial harm based on its effects on loan servicers and lender-held FFELP loans. Second,

certain Nebraska plaintiffs assert harm in the form of lost state tax revenue. Third, the Brown

plaintiffs claim that the Secretary adopted the policy in disregard of alleged procedural rights to

participate in the policy’s development and that this procedural-right deprivation harmed their

interest in receiving cancellation benefits.

Financial Harm

The states of Missouri, Nebraska, and Arkansas argue that they have standing to pursue their

claim based on alleged financial harm.

Missouri’s financial-harm standing theories are unique for two reasons. First, only Missouri

claims to be injured because of the cancellation policy’s effects on direct loan servicers. Second,

Missouri’s claims of financial harm depend on an alleged injury suffered in the first instance by a

nonparty, MOHELA. Missouri thus offers two theories of how harm to MOHELA harms the

state. One theory alleges that financial harm to MOHELA results in direct, simultaneous harm to

Missouri because of the state’s degree of control over MOHELA. The second theory contends

that MOHELA’s financial losses will indirectly harm Missouri by impairing MOHELA’s ability

to make statutorily required payments to the state or scholarship contributions in lieu of such

payments.

Missouri, Nebraska, and Arkansas each claim a second type of financial harm. The states allege

that the policy gave borrowers of lender-held FFELP loans an incentive to consolidate into the

FDLP, which inflicted injury on these states in a variety of ways described below.

219 See Spokeo, Inc. v. Robins, 578 U.S. 330, 340 (2016) (“Although tangible injuries are perhaps easier to recognize,

we have confirmed in many of our previous cases that intangible injuries can nevertheless be concrete.”).

220 City of Los Angeles v. Lyons, 461 U.S. 95, 102 (1983) (internal quotation marks omitted).

221 DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 344 (2006).

222 Lujan, 504 U.S. at 560.

223 Warth v. Seldin, 422 U.S. 490, 505 (1975).

224 Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 103 (1998).

225 Lyons, 461 U.S. at 102–03.

Congressional Research Service

21

Student Loan Cancellation Under the HEROES Act

The following sections first examine the issues uniquely affecting Missouri’s standing before

turning to the second financial harm theory—the consolidation injury—asserted by the three

states.

Servicer Injury

Missouri’s unique theory of financial harm focuses on the cancellation policy’s alleged effects on

MOHELA in its capacity as one of ED’s loan servicers. ED contracts with third parties—loan

servicers—to perform many of the day-to-day administrative functions of the student loan

accounts that correspond to the tens of millions of student loans that ED holds.226 ED allocates

accounts to its servicers and then pays servicers based on the number and type of accounts and

the work that the servicer performs on ED’s behalf.227

MOHELA is one of ED’s loan servicers. In FY2022, ED paid MOHELA $88.9 million in directloan servicer fees.228 These fees were the largest source of MOHELA’s revenue in that fiscal

year.229 Missouri thus argues that the cancellation policy will cause financial harm to MOHELA

because ED has stated that if all eligible borrowers applied for cancellation, up to 20 million

would have no remaining student loan balance after cancellation.230 The elimination of student

loan balances, Missouri says, means the closure of accounts—sometimes more than one per

affected borrower—that are assigned to ED’s servicers.231 These closures, in turn, would impact

servicer fees.232 If half of ED’s accounts close as a result of the policy, then Missouri argues that

MOHELA could lose “at least half of” the accounts allocated to it and “nearly 40 percent” of its

total operating revenue.233

In its briefs, the federal government appears to dispute that the policy will cause MOHELA to

lose servicer fees.234 It is unclear whether this position later changed at oral argument. On the one

hand, the Solicitor General said at oral argument that “if MOHELA made allegations that the”

policy “was going to have financial effects on it, it could sue in its own name and” the federal

petitioners “would not contest Article III standing.”235 On the other hand, the Solicitor General

reiterated arguments from the briefs that, as a factual matter, Missouri failed to demonstrate that

loan discharge under the policy would cause MOHELA to suffer a net revenue loss because ED

would compensate MOHELA for processing policy-related discharges. This new dischargeprocessing revenue, according to the federal petitioners, could offset lost servicer revenue caused

226 See supra notes 58–60 and accompanying text.

227 See supra notes 61–62 and accompanying text.

228 See HIGHER EDUC. LOAN AUTH. OF THE STATE OF MO., FINANCIAL STATEMENTS 4 (2022). As of June 2022,

MOHELA had been allocated 5.2 million federal accounts for servicing. Id.

229 Id. at 4, 23.

230 See supra note 136 and accompanying text. As discussed above, though, ED does not anticipate that all eligible

borrowers will apply for cancellation. See supra note 164 (noting ED’s use of an 81-percent participation rate in its cost

estimates).

231 State Pls.’ Br., supra note 104, at 16.

232 State Pls.’ Br., supra note 104, at 16.

233 State Pls.’ Br., supra note 104, at 16.

234 Federal Pet’rs’ Br., supra note 104, at 28 (“The plan may not cause a significant drop in MOHELA’s revenue at

all.”).

235 Transcript of Oral Argument at 18:8–16, Nebraska v. Biden, No. 22-506 (Feb. 28, 2023),

https://www.supremecourt.gov/oral_arguments/argument_transcripts/2022/22-506_5426.pdf.

Congressional Research Service

22

Student Loan Cancellation Under the HEROES Act

by the policy, so that MOHELA potentially would not suffer a net revenue loss and thus no

financial harm.236

In the lower courts, the parties do not appear to have specifically focused on these potentially

offsetting servicer fees.237 As a result, it is unclear (for example) what rate ED would use to

compensate MOHELA for policy-related discharges.238 It is possible that the Supreme Court

could conclude, though, that one-time fees associated with discharging loans under the policy

likely would not offset the recurring fees that those same accounts would otherwise generate over

a longer term absent discharge.239

Direct Harm Theory

With respect to Missouri’s first theory of how harm to MOHELA harms the state, the parties offer

differing descriptions of the relationship between MOHELA and Missouri. Missouri argues that

MOHELA “is a Missouri-created and -controlled public instrumentality.”240 The federal

petitioners, by contrast, emphasize features of state law separating MOHELA from the state.241

Missouri argues that its description of the MOHELA-Missouri relationship fits within Supreme

Court cases that permitted a sovereign to litigate claims on behalf of its separately incorporated

public entity, while the federal petitioners seek to distinguish those cases.

There is support in Missouri state law for the parties’ differing views of the Missouri-MOHELA

relationship. On the one hand, MOHELA’s statutory charter describes the Missouri Authority as

an entity created for a public purpose that operates like a public entity with related privileges.

Missouri established MOHELA as a “public instrumentality” to pursue goals such as ensuring

that eligible students would have access to student loans.242 Missouri granted MOHELA statutory

authorities and stated that when it used these authorities, it would be performing “an essential

public function.”243 Likewise, the Missouri General Assembly declared MOHELA a “separate

public instrumentality of the state,” whose income and property are exempt from all state-law

236 See id. at 72:9–16 (“JUSTICE JACKSON: So we don’t know really what the ultimate loss would be to MOHELA,

even if we believe that MOHELA is part of the state [of Missouri]? GENERAL PRELOGAR: That’s right. The states

haven’t offered any evidence in that regard to substantiate their assertion of standing); see also id. at 71:23-72:8

(Solicitor General argument) (contending that MOHELA would receive “fees for discharging accounts” under the

policy that would have to be factored into a calculation of the net loss in servicer fees, if any, that MOHELA might

experience).

237 See, e.g., Defs. Memo. of Law in Oppo. to Plfs. Mot. for Prelim. Inj. at 15, Nebraska v. Biden, No. 4:22-cv-01040

(E.D. Mo. Oct. 7, 2022)) (arguing that Missouri’s servicer injury theory was impermissibly speculative because the

policy could either “reduce MOHELA’s portfolio” or “create increased demand for Direct Loans” and thereby increase

the “pool of debt available for MOHELA to service”).

238 A June 2020 contract states that ED pays MOHELA specified amounts for “discharge processing.” DEP’T OF EDUC.,

CONTRACT NO. 91003120D0002 WITH MOHELA 4 (June 23, 2020) (filed as Exh. C to Decl. of Michael E. Talent,

Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. filed Sept. 29, 2022)). However, this task relates to “discharge

categories authorized under the Higher Education Act.” Id. at 11 (emphasis added).

239 See supra note 233 and accompanying text (framing the possible extent of account closures).

240 State Pls.’ Br., supra note 104, at 16.

241 Federal Pet’rs’ Br., supra note 104, at 29 (“Missouri and MOHELA are legally separate entities. Missouri thus

cannot establish its own standing by asserting that the [policy] injures MOHELA.”).

242 MO. REV. STAT. § 173.360. To this end of improving access to student loans, the charter specifically authorized

MOHELA to originate FFELP loans. See id. § 173.387.

243 Id. § 173.360.

Congressional Research Service

23

Student Loan Cancellation Under the HEROES Act

taxation.244 MOHELA’s proceedings and actions “shall comply with all statutory requirements

respecting the conduct of public business by a public agency.”245

MOHELA is also accountable to Missouri state officials. It is led by a seven-member board.246

The governor appoints five members, by and with the advice and consent of the Missouri Senate,

while the two other members are Missouri state officials.247 The governor may remove any

authority member for cause.248 Statute also “assign[s]” MOHELA to the state’s Department of

Higher Education and Workforce Development (the Missouri Department).249 MOHELA must

report financial information to the Missouri Department annually.250 MOHELA must also receive

the Missouri Department’s approval before it may sell certain of its student loan notes.251

These features of MOHELA’s charter describe state control over the Missouri Authority’s

activities. However, other features of its charter describe structural and financial separation

between MOHELA and the state. MOHELA is a separate legal entity—that is, it is a “body politic

and corporate.”252 It has many powers of a corporation, including authority to “sue and be sued

and to prosecute and defend.”253 Missouri is not “liable in any event for the payment of the

principal of or interest on any bonds of the authority” or the performance of any MOHELA

agreement; MOHELA’s debt is not the debt of the state or any of its political subdivisions.254 Its

student loan notes are not “public property.”255 MOHELA and Missouri cannot rely on each

other’s assets to pay their separate expenses. That is, MOHELA cannot use its assets “for the

payment of debt incurred by the state,”256 and in turn MOHELA’s assets generally are not

“revenue of the state” or “subject to appropriation by” the General Assembly.257

These differing descriptions of the MOHELA-Missouri relationship are background for

arguments concerning Court precedent in two areas—original jurisdiction cases brought by states

and suits brought by the United States, both of which saw the sovereign government assert

interests that the opposing party argued belonged to one of the sovereign’s separately

incorporated public entities, capable of suing in its own name.258

244 Id. § 173.415.

245 Id. § 173.365.

246 Id. § 173.360.

247 Id. (stating that a member of the state’s coordinating board and its commissioner of higher education shall serve on

MOHELA’s board). The nine-member coordinating board heads the Missouri Department of Higher Education and

Workforce Development, and the commissioner of higher education (commissioner) acts as its chief administrative

officer. See, e.g., MO. CONST. art. IV, § 52; MO. REV. STAT. §§ 173.005 & 173.007. The governor appoints coordinating

board members, by and with the advice and consent of the Missouri Senate. MO. REV. STAT. § 173.005. The

coordinating board, in turn, appoints the commissioner. Id. § 173.007.

248 MO. REV. STAT. § 173.360.

249 Id. § 173.445.

250 Id.

251 Id. § 173.385.8.

252 Id. § 173.385.1.

253 Id. § 173.385.3.

254 Id. § 173.410.

255 Id. § 173.425.

256 Id. § 173.386.

257 Id. § 173.425; but see infra notes 293–298 and accompanying text (discussing the Lewis and Clark Discovery Fund

(LCD Fund)).

258 The Court has also concluded that when the government “creates a corporation by special law, for the furtherance of

governmental objectives, and retains for itself permanent authority to appoint a majority of the directors of that

Congressional Research Service

24

Student Loan Cancellation Under the HEROES Act

Original Jurisdiction Case Law: Possible Application of Arkansas v. Texas

The Constitution defines the Supreme Court’s original jurisdiction as including “cases” in “which

a state is a party,”259 meaning that, with the Supreme Court’s leave, a state can file its complaint

directly in the Court rather than in a district court.260 A state may invoke this original jurisdiction

only to pursue a “direct interest of its own” and not to “seek recovery” on behalf of others.261

Seventy years ago in Arkansas v. Texas, though, the Court declined to dismiss a suit brought by a

state for injuries suffered in the first instance by a state-created and -controlled entity that was not

itself a party to the litigation. Texas sought dismissal of Arkansas’s original-jurisdiction action

challenging Texas’s efforts in its own courts to enjoin a contract to finance a new hospital at the

University of Arkansas (the University).262 The contract named the University as a party to the

agreement but not the state of Arkansas as such.263

Texas claimed that the University’s injury was not also Arkansas’s injury.264 The Court

disagreed.265 State law established the University, the Court wrote, as “an official state

instrumentality” in a way that meant that “any injury under the contract to the University is an

injury to Arkansas.”266 Looking beyond state law’s description of the University, the Court also

held that “in substance the claim is that of the State,” which was the “real party in interest.”267

It is unclear how the framework set forth by the Court in Arkansas, used there to decide when

harm suffered by a separately incorporated state entity is shared by the state that created it, might

apply to MOHELA in the student loan cancellation litigation. The federal petitioners assert that

because Missouri created MOHELA as “a separate legal entity,” the state cannot maintain that it

and the state “are one and the same” for standing purposes.268 Yet Arkansas had also established

its University as a “body politic and corporate” with all the powers of a corporation.269 These

powers include, as the Arkansas Supreme Court explained in 1963, the power to sue and be

corporation,” the corporation may be subject to constitutional limitations such as the First Amendment. Lebron v. Nat’l

R.R. Passenger Corp., 513 U.S. 374, 399 (1995). Missouri argues that under this precedent, MOHELA is part of the

state despite those aspects of its charter that indicate separation. See id. at 391 (noting that Amtrak’s statutory charter

that it was not “an agency or establishment of the United States Government” (internal quotation marks omitted)).

Missouri’s argument concludes that because MOHELA is part of the state, and because the Missouri attorney general

has authority to protect state interests in litigation, the state can sue in MOHELA’s name. See State Pls.’ Br., supra note

104, at 17–18. The federal petitioners respond that Lebron and related cases address only whether MOHELA is a state

actor for purposes of the Constitution’s individual rights protections or the separation of powers; the Lebron line of

cases does not expressly address questions of standing. Reply Br. of Federal Petitioners, at 5 Biden v. Nebraska,

No. 22-506 (U.S. Feb. 15, 2023) [hereinafter Reply Br.].

259 U.S. CONST. ART. III, § 2.

260 SUP. CT. R. 11 (describing procedure in original actions).

261 See, e.g., State of Oklahoma ex rel. Johnson v. Cook, 304 U.S. 387, 396 (1938).

262 346 U.S. 368 (1953).

263 Id.

264 Id. at 369.

265 Id. at 370.

266 Id.

267 Id. at 371.

268 Federal Pet’rs’ Br., supra note 104, at 30.

269 State of Ark., 346 U.S. at 370 (internal quotation marks omitted).

Congressional Research Service

25

Student Loan Cancellation Under the HEROES Act

sued.270 MOHELA and the University otherwise had similar structural connections to the states

that created them.271

The ability to sue and be sued thus does not distinguish MOHELA from the University at issue in

Arkansas, but the two entities do differ in a potentially important respect. In Arkansas, the Court

noted that the state owned “all the property used by” the University, including the medical center

whose construction Texas was preventing.272 The Court also stated that Arkansas was the real

party in interest to the construction contract.273 These statements appear to focus on the benefit

that Arkansas derived from its suit. If Texas were compelled to allow construction, Arkansas

would then own new University property.274 If Missouri prevails in its suit, by contrast,

MOHELA would perhaps retain servicer fees it might otherwise lose with broad loan

cancellation, but those fees would not be directly accessible to Missouri under existing state

law.275

Federally Chartered Corporations Case Law: Possible Application of Cherry

Cotton Mills, Inc. v. United States

The Supreme Court has also considered whether the United States could litigate claims that

allegedly belonged to a federally chartered corporation that was absent from the suit and able to

bring the same claim on its own. Decided in 1946, Cherry Cotton Mills, Inc. v. United States

concerned two debts: a federal tax refund, and the taxpayer’s separate debt to the Reconstruction

Finance Corporation (RFC).276 The Department of the Treasury issued the taxpayer’s refund

check to the RFC to partially offset the RFC debt.277 The taxpayer claimed the offset was

improper, and sued the United States to recover the refund.278 The United States counterclaimed

to recover the RFC debt, arguing that the debt to the RFC was a claim “on the part of the

Government.”279

The RFC was not a party to the suit,280 and it had the power to sue on debts that were owed to

it.281 The taxpayer thus argued that the RFC’s debt should not be the basis for a government

270 See Cammack v. Chalmers, 284 Ark. 161, 163 (1984) (“The legislature designates the Board of Trustees of the

University as the corporate entity capable of being sued.”). The federal petitioners argue that the “university could not

sue or be sued in its own name” because the Arkansas Supreme Court had described the state’s district agricultural

schools as lacking those powers. Reply Br., supra note 258, at 5. However, the Arkansas statutes established state

district agricultural schools separately from the University, and those separate statutory authorities vested only the

University with “all the powers of a corporate body.” Ark. Code Ann. § 6-64-202.

271 For example, both were led by multimember boards appointed by state officials and described in state law as public

instrumentalities serving public purposes. Compare State of Ark., 346 U.S. at 370, with MO. REV. STAT. § 173.360.

272 State of Ark., 346 U.S. at 370.

273 Id. at 371.

274

Id. at 370.

275 See supra note 257 and accompanying text.

276 327 U.S. 536, 537 (1946).

277 Id. at 537–38.

278 Id. at 538.

279 Id. (internal quotation marks omitted).

280 See id.

281 Act of Jan. 22, 1932, Pub. L. No. 72-2, § 4, 47 Stat. 1, 2 (1932) (providing that the Reconstruction Finance

Corporation “shall have the power” “to sue and be sued, to complain and to defend, in any court of competent

jurisdiction, State or Federal”).

Congressional Research Service

26

Student Loan Cancellation Under the HEROES Act

counterclaim; just like a privately owned corporation, the RFC would have to pursue recovery of

its debt in separate litigation.282

The Supreme Court nonetheless allowed the counterclaim to proceed.283 The counterclaim statute,

the Court reasoned, “was intended to permit the Government to have adjudicated in one suit all

controversies between it and those granted permission to sue it.”284 This intended purpose

encompassed the RFC’s claims. Though Congress had referred to the RFC as a corporation, in

actuality it was “an agency selected by Government to accomplish purely Governmental

purposes” because of the United States’ pervasive control over the RFC.285

The Court offered specific examples of this pervasive control, and the parties dispute whether

these examples are sufficiently similar to Missouri’s relationship with MOHELA. The Court in

Cherry Cotton Mills noted that the President appointed all of the RFC’s directors and that the

RFC was tasked with accomplishing a public purpose.286 Missouri argues that the same is true of

the relationship between it and MOHELA.287 The Court also noted that the United States was

financially tied to the RFC: all of the RFC’s money “came from” the United States, and the

United States both received all of the RFC’s profits and bore all of its losses.288 The federal

petitioners stress that the same is not true of Missouri’s ties to MOHELA.289

Cherry Cotton Mills is also not a perfect fit for Missouri’s standing theory. Except for

MOHELA’s obligation to make Lewis and Clark Discovery Fund (LCD Fund) distributions, no

direct financial connection exists between the state and MOHELA.290 Missouri would not suffer

the same type of direct pocketbook injury on account of servicer injury that the United States

would suffer from having RFC debts go uncollected.291 To say that a case is not a perfect fit for a

theory does not mean that the case provides no support, and Missouri’s nonfinancial connections

to MOHELA resemble those present in Cherry Cotton Mills. The question confronting the Court,

then, is which of these connections—financial connections, other forms of control, or both—is

most legally salient for deciding whether a sovereign may assert the rights of a separately

incorporated entity with its own power to vindicate those interests.

Indirect Harm Theory

Missouri’s direct-harm theory posits that MOHELA’s injuries are also injuries of the state. The

state’s indirect-harm theory contends that the cancellation policy will financially harm MOHELA

and thereby affect its ability to make two types of related payments to the state.292

282 See Cherry Cotton Mills, Inc., 327 U.S. at 538.

283 Id. at 539.

284 Id.

285 Id.

286 Id.

287 State Pls.’ Br., supra note 104, at 18.

288 Cherry Cotton Mills, Inc., 327 U.S. at 539.

289 Reply Br., supra note 258, at 6.

290 See supra notes 254–257 and accompanying text.

291 See, e.g., MO. REV. STAT. § 173.410 (“The state shall not be liable in any event for the payment of the principal of or

interest on any bonds of the authority or for the performance of any pledge, mortgage, obligation, or agreement of any

kind whatsoever which may be undertaken by the authority.”).

292 State Pls.’ Br., supra note 104, at 21 (“By hindering MOHELA’s contributions to the State, the Program risks

financial injury to Missouri.”).

Congressional Research Service

27

Student Loan Cancellation Under the HEROES Act

Missouri refers to the first type of payments as “distributions.”293 MOHELA must make

distributions worth $350 million to Missouri’s LCD Fund.294 When the LCD Fund has a balance,

the Missouri General Assembly is able to appropriate from the Fund to support capital projects at

the state’s public colleges and universities and the Missouri Technology Corporation’s work with

colleges and universities.295

MOHELA states that as of June 30, 2022, it still owed the LCD Fund $105.1 million and last

made a distribution in 2008.296 When further distributions will occur is unclear. State law allows

MOHELA to ask the state for an extension of the due date.297 In FY2017, MOHELA received an

extension to September 30, 2024, “with one year extensions for each additional $5 million” of

educational-assistance contributions.298

MOHELA’s payments to state educational funds that assist Missouri students are the second type

of payments that Missouri says will be indirectly impacted by the cancellation policy. MOHELA

contributes to Missouri Department of Higher Education and Workforce Development

programs.299 These contributions include $65 million paid to the state’s Access Missouri

Financial Assistance Program.300 MOHELA made these payments to the Access Missouri

program in fiscal years 2011, 2012, and 2013 in exchange for the state granting extensions of

prior LCD Fund distribution due dates.301

The federal petitioners argue that Missouri’s indirect-harm theory faces two problems, one that is

mainly legal and other mainly factual. On the legal front, the federal government argues that the

rights Missouri attempts to assert are not its own.302 That is, the federal government argues that

Missouri looks to sue for injuries suffered as a legal matter by MOHELA. The federal petitioners

argue that the state’s attempt to rely on these injuries is no different from an ordinary creditor

trying to base its standing on injury to its debtor, which the Court’s case law does not allow.303

293 See MO. REV. STAT. § 173.385.2.

294 Id.

295 Id. § 173.392.2; see also id. § 348.251.2 (authorizing the Missouri governor to establish “a private not-for-profit

corporation named the ‘Missouri Technology Corporation,’ to carry out the provisions” of the Revised Statutes).

296 HIGHER EDUC. LOAN AUTH. OF THE STATE OF MO., FINANCIAL STATEMENTS 20–21 (2022).

297 MO. REV. STAT § 173.385.2 (“Notwithstanding the ability of the authority to delay any distribution required by this

subsection” if the lack of delay would have certain adverse effects on MOHELA, “the distribution of the entire three

hundred fifty million dollars of assets by the authority to the Lewis and Clark discovery fund shall be completed no

later than September 30, 2013, unless otherwise approved by the authority and the commissioner of the office of

administration.” (emphasis added)).

298 HIGHER EDUC. LOAN AUTH. OF THE STATE OF MO., FINANCIAL STATEMENTS 21 (2022).

299 Id. at 10 (listing MOHELA’s annual contributions to scholarship funds including those administered by Missouri

such as the A+ Scholarship Program); see also MO. REV. STAT. § 160.545.

300 See, e.g., MO. REV. STAT. § 173.1104 (describing eligibility rules for the Access Missouri Financial Assistance

Program (Access Missouri)).

301 HIGHER EDUC. LOAN AUTH. OF THE STATE OF MO., FINANCIAL STATEMENTS 9 (2022). MOHELA continues

contributing to Department of Higher Education and Workforce Development programs, but it is unclear whether

future extensions of the distribution due date are contingent on such contributions. MOHELA’s financial statements

describe an agreement with the state for “one year extensions” beyond FY24 “for each additional $5 million” in

payments MOHELA makes to a different recipient program, the Missouri Scholarship and Loan Foundation (the

Foundation). MOHELA created the Foundation as a nonprofit to assist Missouri residents attending Missouri

postsecondary institutions. Id. at 9–10, 29.

302 Federal Pet’rs’ Br., supra note 104, at 27.

303 Federal Pet’rs’ Br., supra note 104, at 27 (stating that this standing theory equates to “the proposition that, if A

causes financial harm to B, and B owes money to C, C has standing to sue A”).

Congressional Research Service

28

Student Loan Cancellation Under the HEROES Act

To distinguish its standing theory from the ordinary debtor example, Missouri relies on the

Court’s 1990 decision in Franchise Tax Board of California v. Alcan Aluminum Ltd.304 There, the

Court found that two corporations had Article III standing to challenge California taxes on their

respective wholly owned subsidiaries.305 The allegedly illegal taxes threatened to lower the value

of their holdings in the subsidiaries.306 Missouri thus likens MOHELA to a wholly owned

subsidiary, citing its control over MOHELA and the distributions that the Missouri Authority

must make to the state.307 Whether the Court accepts Missouri’s analogy to Aluminum Ltd.

appears to depend on how closely it views the statutory relationship between Missouri and

MOHELA.308

On the factual front, the federal government argues that Missouri can only speculate that the

policy’s effects on MOHELA will cause it to default on payments to the LCD Fund.309 The Court

has said that to show standing, “possible future injury” is not enough.310 Injury must be “certainly

impending.”311 The Court has also usually been reluctant “to endorse standing theories that rest

on speculation about the decisions of independent actors.”312 Whether the Court views Missouri’s

predictions of the cancellation policy’s effects as certainly impending harm or mere speculation

will likely depend on its view of the extent of the harms that MOHELA may suffer, such as server

injury, because of the policy.313 The larger that harm, the more likely that the policy will affect

MOHELA’s ability to make required distributions or contributions to educational assistance

programs for distribution extensions.

Consolidation Injury

Missouri, Nebraska, and Arkansas claim a second type of financial harm, the cancellation policy’s

alleged effects on lender-held FFELP loans. Since unveiling the policy, ED has maintained that

304 493 U.S. 331 (1990). Missouri also relies on Hunt v. Washington State Apple Advertising Commission, in which the

Court stated that the interests of the Washington State Apple Advertising Commission (the Commission) “may” have

been impacted by a North Carolina statute that barred the sale of apples labeled as “Washington Apples,” even though

Commission did not itself participate in the “Washington Apples” market. 432 U.S. 333, 341, 345 (1977). The

Commission received annual assessments from Washington producers based on the sales volume of that market. Id. at

345. If the label requirement impacted sales of Washington Apples, “it could reduce the amount of the assessments due

the Commission and used to support its activities.” Id. Despite these comments, the Court appears to have based its

finding of Article III standing on a separate theory of representational standing. Under that theory, the Commission was

able to sue on behalf of Washington Apple producers in the same manner as a trade association representing the

interests of its members. See id. (“We . . . agree with the District Court that the Commission has standing to bring this

action in a representational capacity.”).

305 Alcan Aluminum Ltd., 493 U.S. at 335–36.

306 Id.

307 State Pls.’ Br., supra note 104, at 21 (“By hindering MOHELA’s contributions to the State, the Program risks

financial injury to Missouri.”).

308 See Alcan Aluminum Ltd, 493 U.S. at 335–36 (agreeing with the appellate court’s holding that standing existed

because the parent corporation’s ownership interest in the subsidiaries gave the parents a “personal stake” in the

litigation that ensured the parties would be adverse to one another and “sharply” present issues for determination by

federal courts).

309 Federal Pet’rs’ Br., supra note 104, at 28.

310 Whitmore v. Arkansas, 495 U.S. 149, 158 (1990).

311 Id.

312 Clapper v. Amnesty Int’l USA, 568 U.S. 398, 414 (2013).

313 See supra “Servicer Injury” and infra “Consolidation Injury” (describing the types of financial harms that

MOHELA alleges).

Congressional Research Service

29

Student Loan Cancellation Under the HEROES Act

lender-held FFELP loans would not themselves be eligible for cancellation.314 ED has also

maintained that certain Direct Consolidation Loans would be eligible for cancellation.315 ED has

said that so long as a Direct Consolidation Loan consolidated loans that were disbursed before

June 30, 2022, it would be a loan type eligible for cancellation.316 At first, ED set no deadline by

which a borrower would need to apply for consolidation.317 All lender-held FFELP loans capable

of being consolidated into the FDLP would have met the June 30 criterion because FFELP loans

disbursed no later than June 2010.318 Thus, borrowers of lender-held FFELP loans could initially

access cancellation by obtaining a Direct Consolidation Loan.

The states argue that because the borrower of a lender-held FFELP loan could access cancellation

through consolidation into the FDLP, the cancellation policy as originally announced created an

incentive to consolidate into the FDLP.319 ED pays the remaining balance of a lender-held FFELP

loan using a Direct Consolidation Loan’s proceeds.320 This form of loan prepayment, the states

argue, injured them.321

How those consolidation injuries allegedly manifest themselves varies by state. Missouri claims

injury from the fact that MOHELA holds FFELP loans.322 Along with receiving interest income

from the loans, MOHELA uses the loans as security for the SLABS that it issues.323 The

consolidation of MOHELA-held FFELP loans eliminates their future interest income and also

allegedly undermines the value of associated MOHELA-issued SLABS by reducing future yield

to investors.324 The Arkansas Student Loan Authority (ASLA) also holds FFELP loans.325 ASLA

receives an administrative fee based on the amount of its total outstanding FFELP balances.326 It

estimates that $5 million-$6 million of its $100 million FFELP loan portfolio was consolidated

into the FDLP between August 24 and September 29, 2022.327 Additionally, the Nebraska

Investment Council invests in SLABS payable from lender-held FFELP loans.328 As with

Missouri’s claim of injury, Nebraska argues that consolidation reduces the value of its SLABS

holdings.329

Standing theories that rest on alleged consolidation injuries raise two primary questions. First, the

states’ incentive-to-consolidate theory depends on an FFELP borrower deciding to prepay their

loans through a Direct Consolidation Loan to gain cancellation eligibility. The federal petitioners

314 See supra note 109 and accompanying text.

315 See supra note 110 and accompanying text.

316 See supra note 110 and accompanying text.

317 See supra note 116 and accompanying text.

318 See supra note 27 and accompanying text.

319 State Pls.’ Br., supra note 104, at 27–28.

320 See supra note 55 and accompanying text.

321 State Pls.’ Br., supra note 104, at 26–27.

322

See HIGHER EDUC. LOAN AUTH. OF THE STATE OF MO., FINANCIAL STATEMENTS 51 (2022).

323 See, e.g., supra note 46 and accompanying text.

324 See supra note 49 (MOHELA SLABS Offering Memorandum explaining that “rates of payment of principal on the

Notes and the yield on the Notes may be affected by prepayments of the Financed Eligible Loans”).

325 See Decl. of Tony Williams at ¶¶ 5–6, Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. Sept. 29, 2022).

326 Id. at ¶ 6.

327 Id. at ¶ 7.

328 Decl. of Michael Walden-Newman at ¶¶ 4–7, Nebraska v. Biden, No. 4:22-cv-01040 (E.D. Mo. filed Sept. 29,

2022).

329 State Pls.’ Br., supra note 104, at 27.

Congressional Research Service

30

Student Loan Cancellation Under the HEROES Act

argue, though, that the states can only speculate that a particular consolidation related to the

policy and not to other factors.330 A plaintiff might lack Article III standing if the “independent”

action of a third party breaks the causal chain between the defendant’s conduct and the plaintiff’s

injury.331 In that event, judicial relief will not “remove” harm that results from the actions of a

third party who is not before the court.332 However, if the defendant’s conduct has a

“determinative” or “coercive” effect on the third party’s action, the Court’s cases do not consider

the third party’s decision to be “independent” of the defendant’s.333

There is no record evidence of why particular borrowers made consolidation decisions. Rather,

for proof of the incentive to consolidate, plaintiffs rely on ASLA’s experience with consolidation

between August 24 and September 29, 2022, as well as the amount of cancellation benefits

available, up to $20,000. Whether this evidence is enough to show the policy’s determinative

effects on consolidation decisions is unclear, but the Court might place the most weight on the

amount of cancellation benefits available after consolidation.334 Perhaps, as the government

argues, there are costs to consolidation that affect a borrower’s calculus.335 For those FFELP

borrowers who were aware of the policy and chose consolidation, however, the prospect of

cancellation of debt, tax free under federal law,336 is likely to have weighed heavily in their

decisions.

The second question raised by the states’ asserted consolidation injuries is the effect of ED’s

September 2022 consolidation limit on the states’ consolidation injury theory. The parties appear

to alternatively cast the limit as bearing on two separate but related issues. The federal petitioners

claim that the consolidation limit defeats efforts to demonstrate an injury for standing purposes.

The state plaintiffs claim that the limit raises only questions of mootness, but that the federal

petitioners have failed to carry their burden of showing mootness.

The federal petitioners argue that the consolidation limit is not a change to the cancellation policy.

According to the petitioners, earlier statements concerning the policy that did not include the

consolidation limit reflected the Secretary’s intentions concerning the policy at that time, before

the policy had been finalized with publication of ED’s modifications in the Federal Register in

October 2022.337 Even before the Nebraska plaintiffs filed suit on September 29, the Secretary

had decided to adopt the consolidation limit, and the limit was part of the policy as finalized.338 In

the federal government’s telling, then, during the time period relevant to the Nebraska plaintiffs’

suit and its request for prospective injunctive relief, there was no incentive to consolidate, and

thus no injury on account of incentivized consolidation.339

330 Federal Pet’rs’ Br., supra note 104, at 26.

331 Bennett v. Spear, 520 U.S. 154, 169 (1997) (internal quotation marks omitted).

332 Warth v. Seldin, 422 U.S. 490, 505 (1975).

333 Spear, 520 U.S. at 169.

334 The state plaintiffs do not offer evidence of how frequently borrowers of ASLA-held FFELP loans consolidated into

the FDLP before the policy was announced, so it is unclear how the $5-6 million volume compares to time periods

before the policy was announced.

335 Federal Pet’rs’ Br., supra note 104, at 26 (arguing that the costs of consolidation include “a longer repayment period

and the loss of discounts associated with the existing loans”).

336 See 26 U.S.C. § 108(f)(5).

337 See Reply Br., supra note 258, at 10.

338 See Reply Br., supra note 258, at 10–11.

339 See Reply Br., supra note 258, at 10–11.

Congressional Research Service

31

Student Loan Cancellation Under the HEROES Act

The state plaintiffs, by contrast, contend that the September 2022 consolidation limit goes not to

standing but to mootness. Mootness concerns whether a circumstance that occurred after the

filing of the complaint deprived the plaintiff of a personal stake that it once had in the outcome of

the litigation.340 The states argue that the consolidation limit relates to mootness because although

ED publicly announced the limit the same day that the Nebraska plaintiffs filed suit, the

announcement did not occur until hours after the complaint’s filing.341

As the Supreme Court has explained, the distinction between standing and mootness matters

because the law assigns burdens differently based on the doctrine that is at issue.342 The party

invoking a federal court’s jurisdiction—here, the states—must demonstrate standing.343 The

federal petitioners, though, bear “the burden to establish that a once-live case has become

moot.”344 When the government claims that a case is moot because it has voluntarily ceased

allegedly unlawful conduct, its burden of showing mootness is “heavy.”345 Voluntary cession

“does not moot a case unless it is absolutely clear that the allegedly wrongful behavior could not

reasonably be expected to recur.”346

In one respect, the consolidation limit resembles an effort at voluntary cessation where the

alleged injurious conduct might recur because ED has expressed an interest in extending relief to

lender-held FFELP loans in the future. Alongside the limit, ED explained that it was “assessing

whether there are alternative pathways to provide relief to borrowers with federal student loans

not held by ED,” arguably suggesting a willingness on ED’s part to resume conduct that, in the

states’ view, would encourage consolidation and alleged, attendant financial harm.347 Moreover,

press reports published before the Nebraska plaintiffs filed suit raised the prospect of claims

apparently predicated on consolidation injuries.348

In another respect, though, the limit might not implicate some concerns that underlie the Supreme

Court’s voluntary cessation case law, such as attempts to insulate agency action from ongoing

judicial review. Even though the consolidation limit was not publicly announced until after the

Nebraska plaintiffs filed suit, ED instructed its vendor to carry out that announcement the day

before the plaintiffs filed suit,349 and it included the limit in the “finalized” policy.350 At that time,

340 See, e.g., Genesis Healthcare Corp. v. Symczyk, 569 U.S. 66, 72 (2013).

341 State Pls.’ Br., supra note 104, at 28 (“The day the States sued but after the complaint was filed, the Department

updated its website to say that borrowers with privately held FFEL Loans could no longer become eligible for the

Program through consolidation.” (emphasis added)).

342 W. Virginia v. Env’t Prot. Agency, 142 S. Ct. 2587, 2607 (2022).

343 Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992).

344 W. Virginia, 142 S. Ct. at 2607.

345 Id.

346

Id. (internal quotation marks omitted).

347 See supra note 119 and accompanying text.

348 See, e.g., Ayelet Sheffey, The CEO of a Major Student-Loan Company Says He Won’t Sue Biden on Debt

Cancellation Even Though He ‘Clearly’ Has Standing, BUS. INSIDER (Sept. 16, 2022),

https://www.businessinsider.com/navient-ceo-wont-sue-biden-student-loan-debt-forgiveness-standing-2022-9 (last

visited Apr. 14, 2023) (quoting Navient Chief Executive Officer that the company “would clearly have standing as a

holder of FFELP loans, but it’s not clear whether or not some political entity that might have standing in their state

because of a state agency that owns FFELP loans will or will not decide to sue”).

349 See supra note 117 and accompanying text.

350 See Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and

William D. Ford Federal Direct Loan Program), 87 Fed. Reg. 61512, 61514 (Oct. 12, 2022).

Congressional Research Service

32

Student Loan Cancellation Under the HEROES Act

there was no pending lawsuit that invoked a theory of consolidation injury.351 ED also does not

appear to have taken further action of establishing alternative pathways for relief for borrowers of

lender-held FFELP loans.

Procedural Injury

While the Nebraska plaintiffs advance several standing theories whose particulars sometimes

vary state to state, the Brown plaintiffs advance a single standing theory alleging that both

borrower plaintiffs suffered the same type of injury and that an order vacating the policy will

remedy this injury for both plaintiffs. In particular, the Brown plaintiffs seek to establish standing

to challenge the cancellation policy based on a procedural injury theory.

In a procedural injury case, a plaintiff claims that Congress gave him a “procedural right to

protect his concrete interests.”352 The plaintiff suffers an “injury” for Article III standing purposes

when an agency denies the plaintiff the procedural right in a way that harms a concrete interest.353

As with standing more generally, a plaintiff alleging a procedural injury must show that the relief

he seeks will redress the harm suffered. The Court, however, has stated that in some respects

procedural injury theories are “special.”354 That is because “normal standards for redressability”

do not apply.355 All that the plaintiff must show is that there is “some possibility” that requiring

the agency to honor the procedural right will cause it to reconsider the action that is harmful to

the plaintiffs’ concrete interest.356

The procedural-injury framework first requires a plaintiff to identify a procedural right. The

Brown plaintiffs assert a right to participate in the development of rules and regulations pertaining

to Title IV programs conferred by the HEA and the APA.

First, the Brown plaintiffs argue that the cancellation policy should have been the subject of

negotiated rulemaking under the HEA because it is a “regulation” that “pertain[s]” to Title IV.357

Under this process, the Secretary must obtain “advice and recommendations” from those involved

in Title IV programs, including “students.”358 He then submits “draft regulations” to negotiated

rulemaking.359 The Secretary selects participants in negotiated rulemaking from individuals

nominated by stakeholder groups.360 If the participants in negotiated rulemaking agree on the

regulation, the Secretary’s published proposed regulation must presumptively conform to the

351 While the Court is considering appeals in only Nebraska and Brown, other plaintiffs have filed lawsuits challenging

the cancellation policy on various grounds, some of which are still pending in lower courts. To date Nebraska is the

only suit to feature a consolidation injury standing theory.

352 Massachusetts v. E.P.A., 549 U.S. 497, 517 (2007) (internal quotation marks omitted).

353 See Summers v. Earth Island Inst., 555 U.S. 488, 496 (2009) (explaining that “deprivation of a procedural right

without some concrete interest that is affected by the deprivation—a procedural right [in a vacuum]—is insufficient to

create Article III standing”).

354 Lujan v. Defs. of Wildlife, 504 U.S. 555, 572 n.7 (1992).

355 Id.

356 Massachusetts, 549 U.S. at 517–18.

357 Br. of Resp’ts’ at 26, Dep’t of Educ. v. Brown, No. 22-535 (U.S. Jan. 27, 2023) [hereinafter Borrower Pls.’ Br.]; see

also 20 U.S.C. § 1098a(b)(2) (describing the actions to which negotiated rulemaking applies).

358 20 U.S.C. § 1098a(a)(1), (b)(1).

359 Id. § 1098a(b)(1). However, the Secretary may exempt certain regulations from negotiated rulemaking if he

determines that process would be impracticable, unnecessary, or contrary to the public interest. See id. § 1098a(b)(2).

360 Id. § 1098a(b)(1).

Congressional Research Service

33

Student Loan Cancellation Under the HEROES Act

agreement.361 The Secretary may, however, reopen negotiated rulemaking or depart from the

agreements reached if he provides a written explanation of his decision.362

Second, the Brown plaintiffs argue that the policy is a “rule” under the APA.363 The Brown

plaintiffs argue that, under the APA’s notice-and-comment rulemaking provisions, the Secretary

should have published notice of the proposed rule, given “interested persons an opportunity to

participate in the rule making,” and considered the views presented before finalizing the rule.364

The procedural-injury framework next requires a plaintiff to identify a concrete interest

threatened by denial of the procedural right. The Brown plaintiffs describe this interest as

“‘pocketbook injury’”: a desire to have their student loan debts canceled.365 Plaintiff Myra Brown

would not receive any cancellation because she is the borrower on current, lender-held FFELP

loans, a loan type not eligible for cancellation under the policy.366 Plaintiff Alexander Taylor

would receive up to $10,000 in cancellation. However, though he earns less than $25,000 a year,

he would not receive an additional $10,000 in cancellation because he was not a Pell Grant

recipient.367

As noted above, the Brown plaintiffs must show that there is “some possibility” that if the policy

is vacated and ED is required to follow HEA and APA procedural requirements, it will reconsider

those aspects of the policy that deny cancellation benefits and adopt a new policy.368 As proof of

this possibility, the Brown plaintiffs state that during the 2020 presidential election, thencandidate Biden stated he would “forgive all undergraduate tuition-related federal student debt

from two- and four-year public colleges and universities for debtholders earning up to

$125,000.”369 The Brown plaintiffs appear to argue that this and other statements are evidence of a

willingness to adopt a more generous cancellation policy that would grant them cancellation

benefits (in plaintiff Brown’s case) or greater benefits (in plaintiff Taylor’s case).370

ED argues that the Brown plaintiffs have not shown that an order vacating the policy would

redress the concrete harms they allege: the denial of cancellation benefits. The plaintiffs contend

the HEROES Act’s exceptions from HEA and APA procedural requirements do not apply to the

policy because the Secretary lacks substantive authority under the Act to cancel loans.371 Under

361 Id. § 1098a(b)(2).

362 Id.

363 Borrower Pls.’ Br., supra note 357, at 26.

364 5 U.S.C. § 553(c).

365 Borrower Pls.’ Br., supra note 357, at 26 (quoting Collins v. Yellen, 141 S. Ct. 1761, 1779 (2021)).

366 Decl. of Myra Brown at ¶¶ 2, 4–5, Brown v. U.S. Dep’t of Educ., No. 4:22-cv-00908-O (N.D. Tex. filed Oct. 10,

2022).

367 Decl. of Alexander Taylor at ¶¶ 2–3, 5, 7, Brown v. U.S. Dep’t of Educ., No. 4:22-cv-00908-O (N.D. Tex. filed Oct.

10, 2022).

368 Massachusetts v. E.P.A., 549 U.S. 497, 517–18 (2007).

369 See, e.g., Borrower Pls.’ Br., supra note 357, at 10, 29 (internal quotation marks omitted).

370 The Brown plaintiffs would not benefit from then-candidate Biden’s campaign statement because the cancellation it

described would not have applied to loans borrowed to attend private universities. See Decl. of Myra Brown at ¶¶ 2, 4,

Brown v. U.S. Dep’t of Educ., No. 4:22-cv-00908-O (N.D. Tex. filed Oct. 10, 2022) (stating that she obtained FFELP

loans to pay for graduate school at Southern Methodist University); Decl. of Alexander Taylor at ¶ 2, Brown v. U.S.

Dep’t of Educ., No. 4:22-cv-00908-O (N.D. Tex. filed Oct. 10, 2022) (stating that he obtained FDLP loans to attend the

University of Dallas). The Brown plaintiffs appear to cite the statement as proof, generally, of a willingness on the

Administration’s part to adopt a different version of cancellation benefits.

371 Federal Pet’rs’ Br., supra note 104, at 32.

Congressional Research Service

34

Student Loan Cancellation Under the HEROES Act

that theory, the federal petitioners say that “the Secretary would lack authority to provide loan

forgiveness to any borrower—Brown and Taylor included.”372

It is unclear how the Supreme Court might analyze redressability. Plaintiffs argue that it is

“myopic” to focus only on the HEROES Act when considering whether ED would have authority

to provide more generous cancellation benefits.373 The plaintiffs say that the federal petitioners

“boast[]” in their brief that the HEA itself—not just the HEROES ACT—“allows for substantial

debt forgiveness.”374

In particular, Section 432(a)(6) of the HEA states that the Secretary may “enforce, pay,

compromise, waive, or release any right, title, claim, lien, or demand, however acquired,

including any equity or any right of redemption.”375 In other litigation, ED has said that it used

Section 432’s compromise-and-waive language to provide student loan discharges for at least

seven groups of borrowers.376 These discharge groups, announced between 2019 and 2022, range

in size from 7 to 560,000 borrowers.377 The aggregate, estimated loan discharge amounts across

the groups is more than $11.6 billion.378 ED says it used Section 432 as authority for an eighth

proposed group discharge, a class settlement in Sweet v. Cardona. In November 2022, a district

court granted final approval of the Sweet settlement.379 As to that eighth group, ED estimates that

the settlement will yield at least $7.5 billion in loan discharges.380

Measured in terms of the estimated loan amounts that it will discharge, the cancellation policy is

more than twenty-two times as large ($430 billion, using CBO’s estimate of the face amount of

loans that might be canceled under the policy381) as all alleged prior uses of Section 432 authority

(about $19.1 billion).382 Moreover, only one district court appears to have agreed that Section 432

authorizes group-based discharge, addressing a circumstance that the district court said entailed

forgiveness of “over six billion dollars in loans.”383 If Section 432 were used to replace the

HEROES Act for cancellation on a much larger scale, that shift in legal rationale could raise

questions of statutory authority like those raised by use of the HEROES Act.

One question, then, for the Brown plaintiffs is whether the Supreme Court would factor into its

redressability analysis whether an alternative source of statutory authority exists to provide such

cancellation. If the Court concludes that the parties have not identified an alternative source of

372 Federal Pet’rs’ Br., supra note 104, at 32.

373 Borrower Pls.’ Br., supra note 357, at 30.

374 Borrower Pls.’ Br., supra note 357, at 30.

375 20 U.S.C. § 1082(a)(6).

376 See Joint Resp. to Nov. 4, 2022 Order at 2, Sweet v. Cardona, No. 3:19-cv-03674-WHA (N.D. Cal. Nov. 9, 2022).

In their opening brief the federal petitioners likewise refer to some of these same group discharges as having been

accomplished under Section 432. See Federal Pet’rs’ Br., supra note 104, at 4 n.1.

377 See Joint Resp. to Nov. 4, 2022 Order at 2, Sweet v. Cardona, No. 3:19-cv-03674-WHA (N.D. Cal. Nov. 9, 2022).

378 See id.

379 Order Granting Final Settlement Approval at 25, Sweet v. Cardona, 3:19-cv-03674-WHA (N.D. Cal. Nov. 16,

2022).

380 Id. at 5. If implemented the settlement could result in the discharge of additional amounts for another group of

borrowers, “Post-Class Applicants,” whose loans do not figure in the $7.5 billion estimate. See id. at 5–6.

381 See supra note 163.

382 See supra notes 377–380 and accompanying text.

383 See Order Granting Final Settlement Approval at 5, 8, Sweet v. Cardona, 3:19-cv-03674-WHA (N.D. Cal. Nov. 16,

2022) (“Upon a plain reading,” Section 432(a)(6) “bestows the Secretary with broad discretion over handling—and

discharging—student loans.”).

Congressional Research Service

35

Student Loan Cancellation Under the HEROES Act

statutory authority, it might conclude that the Brown plaintiffs’ injuries are not redressable for the

reasons the federal petitioners advance. Alternatively, the Court might reason that it would not

need to consider whether an alternative source of statutory authority exists unless some other

party with standing to do so challenges the reconsidered policy in a future case. No Supreme

Court case cited by the parties appears to directly answer these redressability questions.

Tax Revenue Injury

A theory of standing asserted by several of the state plaintiffs in Nebraska arises from the

treatment of discharges of student loan debt for purposes of federal income taxes. Under the

Internal Revenue Code (IRC), discharges of debt are generally included as gross income for

purposes of an individual’s federal income taxes unless excluded under IRC Section 108.384

Historically, Section 108 excluded from gross income student loan discharges that were

contingent upon the borrower working in a certain profession for a period of time or granted on

account of the borrower’s death or permanent disability.385

However, in 2021, ARPA temporarily expanded the categories of discharged student loans that

could be excluded from gross income.386 Specifically, Section 108 now excludes any discharges

of most student loans that occur between 2021 and 2025.387 As a result of the ARPA amendments,

individuals who receive some debt relief under the cancellation policy would not appear to incur

additional federal tax liability for that cancellation.

Like the IRC, many states with income taxes also include discharges of debt as income. Several

of the plaintiff states similarly exclude discharges of loans that would be excluded for federal

income tax purposes under Section 108, including the temporarily expanded exclusion of student

loan discharges for tax years 2021 through 2025.388 These states argue that the cancellation policy

will consequently result in lost state tax revenue.389 They argue that by canceling debt now, the

cancellation policy will reduce the amount of loan discharges that would otherwise have occurred

after January 1, 2026 (and would therefore be taxable under federal law and, consequently, also

under state law).390 The U.S. District Court for the Eastern District of Missouri rejected this

argument, holding that claims of future lost tax revenues were merely speculative and that the

states were not prohibited from enacting changes to their tax codes to avoid the anticipated loss in

revenue.391

The question of whether the loss of tax revenue resulting from another jurisdiction’s actions is a

cognizable harm for Article III purposes may be informed by three decisions of the Supreme

Court. First, Florida v. Mellon, decided in 1927, involved a challenge to a federal inheritance tax,

which provided a credit for similar state inheritance taxes paid on an estate.392 Because Florida

did not have an inheritance tax, it argued that the federal policy would create an incentive to

384 I.R.C. §§ 61(a)(11), 108.

385 Id. § 108(f) (2020).

386 American Rescue Plan Act of 2021, Pub. L. No. 117-2, § 9675, 135 Stat. 185.

387 I.R.C. § 108(f)(5).

388 Borrower Pls.’ Br., supra note 357, at 23 (citing Neb. Rev. Stat. § 77-2714.01(1); Iowa Code § 422.7; Kan. Stat.

Ann. § 79-32,117(a); S.C. Code § 12-6-40).

389 Borrower Pls.’ Br., supra note 357, at 23.

390 Borrower Pls.’ Br., supra note 357, at 23.

391 Nebraska v. Biden, No. 4:22-cv-1040, 2022 WL 11728905 (E.D. Mo. Oct. 20, 2022).

392 Florida v. Mellon, 273 U.S. 12, 15 (1927).

Congressional Research Service

36

Student Loan Cancellation Under the HEROES Act

move property out of the state, resulting in lower general tax revenues for Florida.393 The Court

disagreed, holding that such an injury was too remote and speculative and could also potentially

be addressed by increasing the state’s rate of taxation.394

Second, in the Court’s 1976 decision in Pennsylvania v. New Jersey, Pennsylvania challenged a

New Jersey law that taxed nonresident income earned domestically, taxed resident nondomestic

income, and excluded resident nondomestic income subject to another state’s taxes.395

Pennsylvania provided a tax credit to residents for taxes paid to other states.396 As a result, the

taxes imposed by New Jersey on nonresidents resulted in tax credits against Pennsylvania

taxes.397 The Court held that Pennsylvania was not injured by the New Jersey law because

nothing required Pennsylvania to offer a tax credit for taxes imposed by other states.398 Therefore,

any claimed injuries to Pennsylvania’s tax revenues were self-inflicted.399

Third, in Wyoming v. Oklahoma, decided in 1992, Wyoming invoked the Supreme Court’s

original jurisdiction to bring a dormant commerce clause challenge to an Oklahoma law. The

Oklahoma law required Oklahoma coal power plants to use at least 10% Oklahoma-mined coal.

The law expressly evidenced an intent to reduce Oklahoma’s use of Wyoming-mined coal.

Wyoming argued that it was injured because the Oklahoma law would reduce Wyoming coal

production, resulting in less tax revenue from Wyoming coal-mining activities. The Court agreed,

holding that the loss of specific tax revenues, as opposed to a loss of general tax revenues

attributable to a decline in the state’s general economy, constituted direct injury for purposes of

Article III standing.400

The outcomes in Wyoming v. Oklahoma and Pennsylvania v. New Jersey may appear to be

divergent. To distinguish the two cases in subsequent litigation involving a state’s claims of

financial injury caused by changes in the laws of another sovereign, lower courts have noted that

in Pennsylvania v. New Jersey, the plaintiff states explicitly tied their finances to other states’

taxes on nonresident income, while Wyoming’s tax on domestic coal production was not

explicitly tied to the legislative enactments of Oklahoma.401

The federal petitioners in the student loan cancellation litigation have argued that the states’ taxinjury challenge to the cancellation policy is foreclosed by Pennsylvania v. New Jersey.402

Because the state plaintiffs have chosen to enact their state income tax codes in a way that

directly incorporates by reference the federal treatment of discharges of debt, their claimed injury

is self-inflicted, as was Pennsylvania’s claimed injury.403

393 Id. at 17–18.

394 Id. at 18.

395 Pennsylvania v. New Jersey, 426 U.S. 600 (1976).

396 Id. at 663.

397 Id.

398 Id. at 664.

399 Id.

400 Wyoming v. Oklahoma, 502 U.S. 437, 448 (1992).

401 See California v. Azar, 911 F.3d 558, 574 (9th Cir. 2018) (federal rule exempting employers from mandate to cover

contraception would increase costs to state and local programs that provide contraception); Texas v. United States, 809

F.3d 134, 158 (5th Cir. 2015) (challenge to DAPA), aff’d by an equally divided court sub nom. United States v. Texas,

579 U.S. 547 (2016).

402 Federal Pet’rs’ Br., supra note 104, at 23.

403 Federal Pet’rs’ Br., supra note 104, at 23.

Congressional Research Service

37

Student Loan Cancellation Under the HEROES Act

For their part, the state plaintiffs argue that the situation is more like the Court’s decision in

Wyoming.404 They argue that they are alleging the loss of specific tax revenues, like the coal tax

revenues Wyoming claimed.405 They also argue that the case is distinguishable from the “selfinflicted” harm in Pennsylvania v. New Jersey because their tax codes were enacted before the

cancellation policy existed.406

Is the Cancellation Policy Substantively Valid?

Assuming that the Court finds that one or more parties have standing to challenge the cancellation

policy, the Court would then turn to the question of whether the cancellation policy is a lawful

exercise of ED’s authority. Perhaps the most important part of this lawfulness inquiry, raised in

both Nebraska and Brown, is whether the HEROES Act authorizes the cancellation policy. This

section discusses disputed questions of the policy’s substantive validity.

Scope of HEROES Act Authorization

The HEROES Act allows the Secretary to “waive or modify any statutory or regulatory provision

applicable to the” Title IV programs “in connection with a . . . national emergency” to ensure that

“affected individuals are not placed in a worse position financially . . . because of their status as

affected individuals.”407 In the case of the cancellation policy, Secretary Cardona stated that he

was modifying statutory and regulatory provisions of the HEA that address loan cancellation and

discharge in particular circumstances, such as the death or permanent disability of the borrower,

to provide more broad-based relief.408 The Secretary also characterized these actions generally as

a waiver available to eligible borrowers.409 At the Supreme Court, the federal petitioners similarly

argue that the conditions under which borrowers are obliged to repay loans or obtain cancellation

or discharge, are “unquestionably statutory or regulatory provisions” applicable to the federal

student loan programs. Those provisions, the petitioners argue, are consequently susceptible to

waiver or modification by the Secretary to ensure that borrowers are not “worse off in relation to

their student-loan obligations because of the pandemic.”410

Therefore, examining whether the cancellation policy is authorized by the HEROES Act appears

to require answering the following questions: (1) Is cancellation of loan balances under the

cancellation policy a waiver or modification under the HEROES Act?; and (2) Does the

cancellation policy ensure that affected individuals are not placed in a worse financial position

because of their status as affected individuals? Each of these questions is discussed below.

Waiver, Modification, and the Major-Questions Doctrine

A central question during the debates leading up to and after the announcement of the

cancellation policy is how far the Secretary’s authority to “waive or modify” statutory and

404 State Pls.’ Br., supra note 104, at 24.

405 State Pls.’ Br., supra note 104, at 25.

406 State Pls.’ Br., supra note 104, at 25.

407 20 U.S.C. § 1098bb(a)(1).

408 Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and

William D. Ford Federal Direct Loan Program), 87 Fed. Reg. 61512, 61514 (Oct. 12, 2022).

409 Id.

410 Federal Pet’rs’ Br., supra note 104, at 36.

Congressional Research Service

38

Student Loan Cancellation Under the HEROES Act

regulatory provisions extends.411 In particular, much of the debate has focused on whether a

discharge of loan balances can fairly be included as a “waiver or modification” under the Act.

The federal petitioners assert that the Secretary has waived and modified Sections 437 and 464(g)

of the HEA, and accompanying regulations, to implement the cancellation policy.412 These

provisions respectively authorize the discharge of FDLP and Perkins loans made to borrowers

who are unable to complete programs of study due to a school closure.413 At oral argument, the

Solicitor General argued that

the straightforward way to think about how the verbs [waive or modify] map onto the

Secretary’s action is that he waived elements of those provisions that contain eligibility

requirements for discharge and cancellation that are inapplicable under this program and

then modified the provisions to contain the limitations that he had announced as part and

parcel of announcing this loan forgiveness. 414

Stated otherwise, the Secretary waived the requirement under Sections 437 and 464(g) that a

borrower was unable to complete a program of study due to a school closure in order to receive a

discharge. The Secretary then modified Sections 437 and 464(g) to limit such relief to individuals

who met the income and other requirements described above.415

Whether the HEROES Act provides ED with the authority to implement the cancellation policy

likely turns on how broadly the text of the Act is read. When interpreting statutory provisions, the

Supreme Court begins with the text itself to determine whether the statutory language is plain.416

If so, then that plain meaning should control.417 At the same time, the Supreme Court has said that

provisions of a statute should not be read in isolation,418 and that courts must read those

provisions’ words in the context of the overall statutory scheme.419

Dictionary definitions of “waive” generally mean “[t]o refrain from insisting on.”420 Arguably

then, the HEROES Act’s authorization for the Secretary to waive a statute or regulation could be

read to mean that the Secretary could refrain from insisting on compliance with that law.

Similarly, dictionaries generally define “modify” as “[t]o make somewhat different,” “to make

small changes to,” “to make more moderate or less sweeping,” or “to reduce in degree or

extent.”421

In a January 12, 2021, memorandum written by ED’s then-Principal Deputy General Counsel

Reed Rubinstein (the Rubinstein memorandum), Rubinstein concluded that the terms “waive” or

“modify” under the HEROES Act did not include discharging loan balances.422 The Rubinstein

411 See 20 U.S.C. § 1098bb(a)(1).

412 87 Fed. Reg. at 61514 (citing 20 U.S.C. §§ 1087, 1087dd(g) and 34 C.F.R. §§ 674.51–674.64, 682.402).

413 20 U.S.C. §§ 1087, 1087dd(g). Section 437 nominally applies to FFELP, but is made applicable to the FDLP

through 20 U.S.C. §§ 1087a, 1087e.

414 Transcript of Oral Argument at 6:10–:18, Nebraska v. Biden, No. 22-506 (Feb. 28, 2023),

https://www.supremecourt.gov/oral_arguments/argument_transcripts/2022/22-506_5426.pdf.

415 See supra at “Cancellation Policy Design.”

416 King v. Burwell, 576 U.S. 473, 486 (2015).

417 Id.

418 Id.

419 Id.

420 Waive, BLACK’S LAW DICTIONARY (11th ed. 2019).

421 Modify, BLACK’S LAW DICTIONARY (11th ed. 2019).

422 Rubinstein Memo, supra note 98.

Congressional Research Service

39

Student Loan Cancellation Under the HEROES Act

memorandum focused on the term “modify” and relied heavily on the Supreme Court’s reading of

that term in MCI Telecommunications Corp. v. AT&T Co.423 In that 1994 case, the Supreme Court

interpreted a provision of the Communications Act of 1934 that required certain entities to file

tariffs with the Federal Communications Commission (FCC) but also authorized the FCC, “for

good cause shown,” to “modify any requirement” that the tariffing provision imposed.424 The FCC

purported to invoke that modification authority to make tariff filing optional for many

communications industry participants.425 Based on its dictionary definition, the Court concluded

that “modify” contemplates only a “moderate change” to the thing being modified and cannot be

used to enact “fundamental” changes.426 In the Court’s view, rendering a “crucial provision of the

statute” like the tariffing requirement inapplicable to “40% of a major sector of the industry” was

“much too extensive to be considered a ‘modification’” under the plain meaning of that term.427

More recently in 2022, the Supreme Court in West Virginia v. EPA described its holding in MCI as

an example of the major-questions doctrine.428 Under that doctrine, “separation of powers

principles and a practical understanding of legislative intent” make the Court “reluctant to read

into ambiguous statutory text” a delegation of authority to make a “radical or fundamental

change” to a statutory scheme without “clear congressional authorization.”429 Therefore, the

Court in West Virginia held that EPA’s general authority to regulate power plant emissions did not

empower the agency to “force a nationwide transition away from the use of coal to generate

electricity.”430 In another recent major-questions doctrine case arising during the COVID-19

pandemic, the Court held that the Centers for Disease Control and Prevention could not leverage

its authority to “make and enforce such regulations . . . to prevent the introduction, transmission,

or spread of communicable diseases” to create a nationwide residential eviction moratorium.431

Finding that the use of the HEROES Act to discharge loan balances would be a fundamental

change to the federal student loan programs, the Rubinstein memorandum concluded that

discharge was not within the scope of the Secretary’s authority to “waive or modify” under the

Act. After the Court’s decision in West Virginia v. EPA, OLC issued an opinion rejecting the

conclusions of the Rubinstein memorandum.432 OLC asserts that the major-questions doctrine

should not constrain the construction of the HEROES Act because the “sweeping” waiver or

modification language of the Act is unlike the “vague” or “ancillary” statutory text to which the

Court applied the major-questions doctrine in MCI and West Virginia. The HEROES Act text,

OLC contends, provides the “clear congressional authorization” that those other case

This text is long and has been trimmed here. Open the source document for the complete record.