On 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

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

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 tax-revenue 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 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 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 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 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 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 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 116^th 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

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 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 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 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 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 "major-questions 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 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 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.

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 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

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

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 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.

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 direct-loan 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 discharge-processing revenue, according to the federal petitioners, could offset lost servicer revenue caused 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 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

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 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 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

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

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 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 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

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, 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 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, then-candidate 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 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 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 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' tax-injury 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

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 "self-inflicted" 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 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 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 cases lacked.⁴³³

Throughout the course of the cancellation policy litigation, the applicability of the major-questions doctrine on the construction of the HEROES Act has remained prominent. The U.S. District Court for the Northern District of Texas, the only court thus far to issue a holding on the scope of the HEROES Act, held that the major-questions doctrine applies and that the "broad or general language" of waiver and modification is insufficiently clear congressional authorization.⁴³⁴

Consistent with the OLC opinion described above, the federal petitioners have argued that the HEROES Act is distinguishable from prior cases in which the Supreme Court has applied the major-questions doctrine because the provisions of the HEROES Act are not the kind of "vague, cryptic, ancillary, or modest" provisions at issue in previous cases.⁴³⁵ In their view, the major-questions doctrine is not an opportunity to question any economically or politically significant agency action.⁴³⁶ Rather, the Court has only applied the doctrine where an agency claims an "extraordinary grant of regulatory authority."⁴³⁷

In contrast, the HEROES Act's modification authority is not part of the ordinary HEA framework that governs the day-to-day aspects of federal student loan assistance. Instead, Congress enacted the HEROES Act to authorize the Secretary to respond to extraordinary events, such as wars or national emergencies, to provide "additional relief" to ensure that borrowers are not placed in a worse position as a result of such events.⁴³⁸ In the federal petitioners' view, broad grants of authority to provide such emergency benefits do not "pose a serious threat to individual liberty" and therefore do not implicate the same separation of powers concerns as broad claims of regulatory authority.⁴³⁹

For their part, the plaintiffs argue that the application of the major-questions doctrine to the cancellation policy is appropriate principally because the authority to discharge loan balances is a "breathtaking" and "new application of the statute."⁴⁴⁰ Additionally, the Nebraska plaintiffs argue that the national emergency trigger for the exercise of the HEROES Act is not a significant limit on the use of an asserted cancellation authority, because "Presidents routinely declare such emergencies over all sorts of matters."⁴⁴¹ The plaintiffs also argue that major-questions cases are not limited to cases involving regulatory actions, and point to King v. Burwell, a case in which the Court declined to defer to an Internal Revenue Service interpretation providing a more generous tax credit.⁴⁴² In Burwell, the Court held that there was "reason to hesitate before concluding that Congress" implicitly delegated to the agency the authority to answer a question involving billions of dollars in spending and health insurance prices for millions of individuals.⁴⁴³ The federal petitioners argue that Burwell is distinguishable from other major-questions cases because it did not impose a clear statement rule and the Court ultimately upheld the agency's interpretation of the statute.⁴⁴⁴

With respect to the terms of the HEROES Act specifically, the plaintiffs argue that the cancellation policy cannot be achieved through a waiver or modification of the provisions cited by the Secretary.⁴⁴⁵ As noted above, those provisions address discharge or cancellation in specific contexts.⁴⁴⁶ Plaintiffs argue that justifying the cancellation policy as a "waiver" of these provisions is not correct, because the Secretary is not merely refraining from insisting on compliance with those provisions, but instead altering the terms to impose entirely different limitations.⁴⁴⁷ Additionally, plaintiffs argue that such changes are not fairly construed as "modifications" because they are not "small" or "moderate" changes.⁴⁴⁸ In response, the federal petitioners note that the HEROES Act directs the Secretary to publish notice of "terms and conditions to be applied in lieu of" waived and modified statutory and regulatory provisions.⁴⁴⁹ They argue that this language evidences Congress's intent that HEROES Act relief could be qualified with such added "terms and conditions."⁴⁵⁰ The federal petitioners also argue that adopting the modest reading of "modify" used by the Court in MCI does not make sense because, under that reading, the Secretary would have the authority to eliminate legal obligations wholesale through a waiver or modify them to a marginal degree but oddly would not be able to do something in between.⁴⁵¹

Ensuring Affected Individuals Not Placed in a Worse Position

Separately from whether loan discharge fits the HEROES Act's waive-or-modify categories, the parties also dispute whether the cancellation policy meets the Act's additional requirements limiting such "waivers or modification" to those "as may be necessary to ensure that . . . affected individuals are not placed in a worse position financially in relation to that financial assistance because of their status as affected individuals."⁴⁵²

The HEROES Act defines "affected individual" to include, among other persons, any individual who "resides or is employed in an area that is declared a disaster area by any Federal, State, or local official in connection with a national emergency" or who "suffered direct economic hardship as a direct result of a" national emergency.⁴⁵³ The HEROES Act in turn defines a "national emergency" as "a national emergency declared by the President of the United States."⁴⁵⁴

President Trump issued a national emergency declaration for the COVID-19 pandemic on March 13, 2020.⁴⁵⁵ President Trump also issued major disaster declarations related to COVID-19 in all fifty states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.⁴⁵⁶ The national emergency declaration was annually renewed multiple times by the Biden Administration and ultimately terminated on April 10, 2023.⁴⁵⁷ The major disaster declarations remain in effect. As a result, all borrowers who currently reside in the United States appear to be "affected individuals" under the HEROES Act.⁴⁵⁸ Those borrowers who do not reside in the United States might alternatively qualify under the "economic hardship" definition of "affected individuals."⁴⁵⁹ The litigants do not appear to disagree that the scope of "affected individuals" encompasses all borrowers within the United States.⁴⁶⁰ However, the plaintiffs argue that no determination of economic hardship has been made with respect to overseas borrowers.⁴⁶¹

Assuming that the scope of "affected individuals" is sufficiently broad, the next question is whether the cancellation policy ensures that they are not placed in a worse position as a result of their status as affected individuals. The federal petitioners argue that the Secretary "deem[ed]" relief "necessary to ensure" that lower-income affected individuals "are not placed in a worse position" because of the COVID-19 pandemic.⁴⁶²

For their part, the plaintiffs argue that the cancellation policy exceeds the HEROES Act because it places many borrowers in a "far better position" than at the beginning of the pandemic.⁴⁶³ This is in contrast to prior exercises of the HEROES Act, which they argue merely "maintain[ed] the status quo," such as delaying commencement of loan repayment, pausing collection on defaulted loans, providing additional deferment and forbearance options, and pausing ongoing payment obligations.⁴⁶⁴ The federal petitioners disagree with this characterization, noting that its Supporting Analysis found that the pandemic had created a "risk that delinquency and default rates will rise above pre-pandemic levels."⁴⁶⁵

The litigants also contest the relationship between the harms the cancellation policy attempts to address and the COVID-19 pandemic. The federal petitioners have asserted that the cancellation policy is necessary to avoid an expected rise in delinquencies and defaults once repayment restarts.⁴⁶⁶ However, the state plaintiffs argue that the asserted risks of default or delinquency for borrowers are also attributable to conditions that predated the pandemic.⁴⁶⁷

Is the Cancellation Policy Procedurally Valid?

Nebraska and Brown both raise the question of whether the HEROES Act provides substantive authority to adopt the cancellation policy, but the cases also include claims challenging the policy's procedural validity. In Nebraska, the plaintiffs allege that the Secretary's adoption of the policy is arbitrary and capricious because the Secretary did not provide a reasonable explanation for his action. In Brown, the plaintiffs attack the policy for being adopted without the Secretary observing allegedly applicable requirements for public participation in the policy's development. The sections below discuss these disputed questions of the policy's procedural validity.

Arbitrary-and-Capricious Claim

The last count of the Nebraska plaintiffs' complaint alleges that the cancellation policy violates the APA because it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."⁴⁶⁸ This portion of the APA requires that an agency action be "reasonable and reasonably explained."⁴⁶⁹ The agency must "examine the relevant data and articulate a satisfactory explanation for" its decisions.⁴⁷⁰ When performing this review, a court "simply ensures that the agency has acted within a zone of reasonableness."⁴⁷¹ Arbitrary-and-capricious review is "narrow" and does not allow a court to replace the agency's policy judgment with the court's own.⁴⁷²

When the Supreme Court applies the arbitrary-and-capricious standard, a litigant typically bases that claim on arguments that the agency relied on statutorily irrelevant factors; did not consider an important part of an issue; or explained the decision in a way that contradicts the evidence before it.⁴⁷³ A litigant also might claim that the justification that the agency offered for its action is pretextual or "contrived" because there is a sufficiently large "disconnect between the decision made" and the stated explanation.⁴⁷⁴ The Nebraska plaintiffs invoke each of these bases to have the policy invalidated as arbitrary and capricious.

Whether the Secretary Considered Alternatives to the Cancellation Policy

First, the Nebraska plaintiffs say that ED did not consider "any alternative[]" actions that the Secretary might take.⁴⁷⁵ According to these plaintiffs, statements in the Supporting Analysis comparing loan discharges to a borrower enrolling in ED's income-driven repayment (IDR) plans allegedly focused instead on actions that the borrower might take to lower their monthly payment.⁴⁷⁶

The Supporting Analysis stated that the visibility of the cancellation policy and the benefits it offered would draw more borrowers to apply for the benefit than have enrolled in IDR as a result of ED's Office of Federal Student Aid's efforts to increase enrollment in IDR.⁴⁷⁷ ED cited a Federal Reserve Bank of Philadelphia study for the proposition that "lower-income individuals were much less likely to expect to make full payments notwithstanding the existence of IDR plans."⁴⁷⁸ The Federal Reserve elaborated on this point, stating that the lower-income borrowers it surveyed did not expect to make full payments after the payment pause "even though many of those borrowers are likely to be eligible for or are already receiving payment reductions via income-driven repayment."⁴⁷⁹ Thus, ED appears to have considered alternatives to cancellation, including its efforts to increase IDR enrollment, but concluded that the option of (or actual enrollment in) IDR would not forestall the delinquencies or defaults it is attempting to avoid.

Reliance Interests

Second, the Nebraska plaintiffs argue that ED did not consider any reliance interests implicated by the existing state of federal student loans.⁴⁸⁰ In particular, the Nebraska plaintiffs fault ED for not considering "the States' legitimate reliance interests" as "lenders, secondary market participants" (i.e., participants in the SLABS market), and as "loan servicers."⁴⁸¹ ED does not dispute the claim that it did not consider these interests. Instead, ED argues that it was not required to consider any such interests, because they either are not "cognizable" or not "serious."⁴⁸²

The federal petitioners say that the Nebraska plaintiffs' interests are not cognizable for the same reasons that the interests fail to show financial harm for standing purposes.⁴⁸³ However, even interests that are assertedly not legally cognizable can form an important enough part of an issue that an agency risks acting arbitrarily or capriciously by ignoring those interests. The Supreme Court's 2020 decision in Department of Homeland Security v. Regents of the University of California is an example.⁴⁸⁴ There, the Court examined rescission of the Deferred Action for Childhood Arrivals (DACA) program, part of which provided forbearance of removal for certain aliens without legal immigration status.⁴⁸⁵ The Court explained that an agency might act arbitrarily and capriciously by not considering a reliance interests that is not "legally cognizable," meaning not backed by "substantive rights."⁴⁸⁶ DACA recipients had no substantive right to forbearance.⁴⁸⁷ Yet it was arbitrary for the Department of Homeland Security to rescind the DACA program without considering the DACA recipients' interests in continued forbearance.⁴⁸⁸ The lack of a substantive right to continued forbearance merely affected the weight of this reliance interest.⁴⁸⁹ Thus, the Nebraska plaintiffs' second arbitrary-and-capricious argument would appear to turn not on whether their interests as FFELP loan holders, SLABS market participants, or student loan servicers are "cognizable" but whether the interests are "serious" enough to have warranted express consideration by the Secretary.

Considering Important Aspects of a Problem and the Consolidation Limit

Third, the plaintiff states contend that the Secretary ignored other aspects of the cancellation policy: its costs and ED's duty under the Federal Claims Collections Standard (FCCS) Act⁴⁹⁰ "to try to collect a claim of the United States Government."⁴⁹¹ The federal petitioners dispute that they ignored the policy's cost, citing their FCRA estimates of the policy.⁴⁹² Moreover, the federal petitioners argue that if the HEROES Act authorizes student loan cancellation, the FCCS does not impose a conflicting demand to collect on amounts to be discharged.⁴⁹³

The Nebraska plaintiffs also argue that the Secretary did not reasonably explain the "arbitrary distinction between borrowers who applied to consolidate non-federally held FFEL Loans before September 29 and those who did not," which they view as an illegitimate attempt at "[e]vading judicial review."⁴⁹⁴ The federal petitioners respond, though, that the fact that the policy would not provide relief for all borrowers does not mean that the relief it would provide is either unreasonable or not reasonably explained.⁴⁹⁵

Pretext

Fifth and finally, the Nebraska plaintiffs contend that the Secretary's use of the pandemic as justification for the cancellation policy is pretextual.⁴⁹⁶ The evidence of pretext offered has a few facets. One facet is the Nebraska plaintiffs' contention that the "current economic conditions" that serve as the stated basis of the policy are not "solely" or even "primarily" attributable to the pandemic.⁴⁹⁷ Another is that the contention that ED's pandemic-related justification for the policy is, in truth, a pretext for the President to "fulfill his campaign promise" to cancel debt once Congress did not.⁴⁹⁸ The plaintiffs argue that the Administration has used the pandemic as cover to address what it has elsewhere characterized as decades-old "systemic failings in federal student-loan programs."⁴⁹⁹

The ordinary rule in arbitrary-and-capricious review is that a court is limited to the "agency's contemporaneous explanation in light of the administrative record."⁵⁰⁰ A court cannot reject an agency's stated reasons because the agency "might have been influenced by [unstated] political considerations or prompted by an Administration's priorities."⁵⁰¹ The Supreme Court has characterized pretext as a "narrow exception" to this general rule "against inquiring into the mental processes of administrative decisionmakers."⁵⁰² When the Court has applied the pretext exception, it has done so based on apparently much stronger evidence of contrivance than that offered by the Nebraska plaintiffs.⁵⁰³

Department of Commerce v. New York saw the Court apply the pretext exception. There, the Court considered a claim that the Secretary of Commerce's decision to reinstate a citizenship question on the 2020 Census questionnaire was arbitrary and capricious.⁵⁰⁴ The Commerce Department's stated reason for the addition was that DOJ had asked for the question so that it could use the collected citizenship data to better enforce the Voting Rights Act (VRA).⁵⁰⁵ To assess that proffered reason, the Court reviewed an administrative record that was "rare" in terms of its size.⁵⁰⁶ According to the Court, the record disclosed that the Secretary of Commerce decided to seek addition of the citizenship question "about a week into his tenure" but did not then offer a reason for the addition to his senior staff.⁵⁰⁷ The Commerce Department then asked entities other than DOJ's VRA enforcement arm whether they would request that the question be included in the Census questionnaire.⁵⁰⁸ The Commerce Department also considered its authority to add the question without a request from another agency.⁵⁰⁹ Eventually, the Secretary of Commerce contacted the Attorney General directly.⁵¹⁰ DOJ's VRA enforcement arm began showing interest in the question, but even then "the record suggests that DOJ's interest was directed more to helping the Commerce Department than to securing the data."⁵¹¹ To the Court, "the VRA enforcement rationale—the sole stated reason—seem[ed] to have been contrived."⁵¹²

There arguably is not a complete administrative record regarding the loan cancellation policy in Nebraska, much less one as "rare" and "extensive" as in the Census litigation.⁵¹³ In Brown, the federal petitioners unsuccessfully asked the district court not to consolidate the plaintiffs' preliminary injunction motion with trial on the merits. ED said the merits decision "should await production of the administrative record."⁵¹⁴ ED otherwise filed the same documents as its stated justification in both cases.⁵¹⁵ The filed documents do not reveal the same sort of evolving justifications present in the Census litigation. Absent a contrivance finding, the Supreme Court will likely assess whether the policy is "reasonable and reasonably explained" by focusing on the justification that ED offered in decisional documents such as the Supporting Analysis, rather than on other possible, unstated reasons.⁵¹⁶

Public-Participation Claim

The Brown plaintiffs' complaint includes a single claim under the APA.⁵¹⁷ That claim seeks to "hold unlawful and set aside agency action, findings, and conclusions found to be without observance of procedure required by law."⁵¹⁸

The Brown plaintiffs allege that the Secretary was required to seek public participation in developing the cancellation policy.⁵¹⁹ In particular, they assert that the Secretary should have followed a two-step process: negotiated rulemaking under the HEA,⁵²⁰ followed by notice-and-comment rulemaking under the APA.⁵²¹ The Secretary did not follow these procedures.⁵²²

The federal petitioners dispute that the policy is subject to either of these public participation requirements, and they offer two arguments explaining why. Both arguments rely on provisions of the HEROES Act that except the Secretary's waivers and modifications from public participation requirements. Both exception provisions appear in 20 U.S.C. § 1098bb. The exceptions reference APA notice-and-comment rulemaking and HEA negotiated rulemaking in particular.

Section 1098bb(b)(1) references APA notice-and-comment rulemaking. It states that, notwithstanding the APA's notice-and-comment requirement, "the Secretary shall, by notice in the Federal Register, publish the waivers or modifications of statutory and regulatory provisions the Secretary deems necessary to achieve the purposes of this section."⁵²³ Section 1098bb(d) references HEA negotiated rulemaking. It states that the HEA provision "shall not apply to the waivers and modifications authorized or required by this part."⁵²⁴

The federal petitioners posit two views of how these provisions except secretarial actions from public participation requirements. One view is that because the HEROES Act in fact authorizes the policy, both public participation exceptions apply to the policy.⁵²⁵ Whether the HEROES Act authorizes the policy is discussed elsewhere in this report.⁵²⁶

The second view is that the HEROES Act's procedural exceptions apply to the Secretary's waivers or modifications regardless of whether the Act authorizes those actions.⁵²⁷

More specifically, the federal petitioners argue that "the notice-and-comment exception does not depend on whether, as a substantive matter, the HEROES Act actually authorizes the Secretary's action."⁵²⁸ Rather, the notice-and-comment exception only requires that the Secretary determine that "the HEROES Act applies and that waivers or modification are necessary."⁵²⁹

The federal petitioners further argue the HEROES Act "cannot plausibly be read to condition the procedural exception" from negotiated rulemaking "on the substantive validity of the Secretary's action."⁵³⁰ Negotiated rulemaking prepares "'proposed regulations' for public comment."⁵³¹ Yet, as noted above, the federal petitioners say that the Secretary's determination that the HEROES Act applies means that a particular action does not need to undergo public comment. If the Secretary does not need to publish his action for public comment, the federal petitioners contend, then he also does not need to engage in negotiated rulemaking that is aimed at producing regulations for comment.⁵³²

The HEROES Act states that negotiated rulemaking does not apply to "the waivers and modifications authorized or required by" the Act.⁵³³ To say that an action is "authorized by" a statute is to say that the statute "sanction[s]" or gives "legal authority" for the action.⁵³⁴ While this rule is not inflexible,⁵³⁵ courts generally prefer to read a statute in a way that avoids treating text as surplus.⁵³⁶ Moreover, if secretarial action is excepted from negotiated rulemaking by virtue it of being excepted from notice-and-comment rulemaking, the Act arguably would not require a separate subsection that specifically references negotiated rulemaking.⁵³⁷ Thus, the Supreme Court might conclude that unless the HEROES Act authorizes secretarial action, the Act's negotiated rulemaking exception does not apply.

The exception for notice-and-comment rulemaking is perhaps a closer call. The Supreme Court has sometimes reasoned that when Congress includes language in one part of a statute but omits it elsewhere "Congress acts intentionally and purposefully in the disparate inclusion."⁵³⁸ Unlike the subsection of § 1098bb that addresses negotiated rulemaking, the notice-and-comment subsection does not state that its exception applies to waivers and modifications "authorized by" the Act.⁵³⁹

The Brown plaintiffs argue, though, that reading the notice-and-comment rulemaking exception in context of the section as a whole shows that the HEROES Act excepts from notice-and-comment rulemaking only waivers and modifications that are authorized by the Act. Section 1098bb begins by stating in paragraph (a)(1) that the Secretary "may waive or modify any statutory or regulatory provision applicable to the student financial assistance programs under" Title IV of the HEA "as the Secretary deems necessary in connection with a war or other military operation or national emergency to provide the waivers or modifications authorized by" paragraph (a)(2)."⁵⁴⁰ Paragraph (a)(2) then states that the Secretary "is authorized to waive or modify any provision described in paragraph (1) as may be necessary to ensure that" stated purposes are achieved.⁵⁴¹ The Brown plaintiffs say that these are "the waivers and modifications" that the Act then excepts from notice-and-comment rulemaking in paragraph (b)(1): waivers and modifications authorized under subsection (a).⁵⁴² Therefore, if the Secretary acts outside of the authorization of subsection (a), the Secretary may not rely on the exception to notice-and-comment rulemaking in subsection (b).

Potential Implications of Nebraska and Brown

Nebraska and Brown pose multiple contested legal issues, and it is difficult to predict how the Court might resolve questions such as the plaintiffs' Article III standing or the scope of authority that Congress delegated to the Secretary by enacting the HEROES Act. Despite this uncertainty, decisions in Biden and Brown are likely to have implications falling into at least three general categories. Most directly, the decisions likely will determine whether ED may begin discharging debt under the cancellation policy. The decisions may also shape the Secretary's authority to invoke the HEROES Act in the future to waive or modify provisions of law in times of war, other military operations, or national emergencies. Finally, the decisions could shape legal doctrines with effects extending beyond federal student loan programs.

Potential Effects on the Cancellation Policy

The immediate consequences of the Supreme Court's decisions in Nebraska and Brown will be for the cancellation policy itself. For the policy to be implemented, the Court would likely reach one of two general conclusions: (1) that all of the plaintiffs lack standing, meaning that federal courts do not have jurisdiction to consider the merits of any claim, or (2) that the claims of plaintiffs who the Court concludes have standing lack merit. If the Court reaches such a conclusion, it would likely set aside the Eighth Circuit stay pending appeal and affirm the Missouri trial court's judgment. Further, the Court would also presumably vacate or reverse the Texas district court's judgment of vacatur.

On the other hand, if the Court determines that a plaintiff has standing and that the HEROES Act does not authorize the policy, the Court's opinion could direct that plaintiffs are to prevail in their suits. For example, the Court might affirm the Texas district court judgment of vacatur. In that event, ED would be unable to implement the cancellation policy.⁵⁴³

It is also possible (though perhaps not probable) for the Court's decisions to leave issues for lower courts to decide, in which case the cancellation policy's fate would not be finally determined by the Court's opinion. For example, the Court could potentially agree with Missouri that financial harm suffered by MOHELA directly harms the state as well. The Court could determine, though, that the parties should further litigate in the lower courts the extent of financial harm, if any, that MOHELA is likely to suffer on account of the policy, such as the amount of "fees for discharging accounts" that MOHELA might realize from implementing the policy.⁵⁴⁴

Potential Effects on HEREOS Act Authority

Decisions in Nebraska and Brown may also shape the Secretary's authority to invoke the HEROES Act in times of war, other military operations, or national emergencies. Perhaps most importantly, the decisions could accelerate the end of the existing payment pause. The end date of the existing pause is expressly contingent, in part, on when the Nebraska and Brown litigation resolves. The payment pause will end 60 days after the earlier of (1) the date that the litigation is resolved, whether by a ruling in favor of the plaintiffs or the federal petitioners, or (2) June 30, 2023.⁵⁴⁵

Moreover, private lenders that offer refinancing for existing student loans have challenged the existing payment pause as unlawful.⁵⁴⁶ If those private lender claims are not mooted by the payment pause ending by its own terms, the Court's decisions could inform resolution of that suit as well.

The scope of authority that the HEROES Act grants to the Secretary is the core merits question in both Nebraska and Brown. If the Court reaches this scope-of-authority question, its decision could significantly impact the waivers and modifications that could issue in the future under the Act. For instance, if the Court agrees with the federal petitioners' reading of the HEROES Act, future Administrations could perhaps provide similar loan cancellation so that borrowers are not placed in a worse position financially because of a war, other military operation, or national emergency.

On the other hand, if the Court agrees with the plaintiffs' more narrow reading of the HEROES Act, future Administrations would have relatively less authority to provide relief to borrowers and others under the Act. Much will depend on the particular rationale provided by the Court. The Court could, for example, hold that broad-based cancellation is never permissible under the HEROES Act. Alternatively, the Court could decide that loan cancellation is not per se unlawful, but that in this instance the causal connection between the COVID-19 national emergency and the policy was not sufficient under the Court's reading of the Act.

Potential Effects on Broader Legal Doctrine

Though the core merits question in both Nebraska and Brown is the Secretary's authority under the HEROES Act, the cases also pose questions for the Court that could have consequences outside of the federal student loan context: Article III standing and the Court's major-questions doctrine.

States shape contemporary legal doctrine in their capacity as plaintiffs challenging federal government action,⁵⁴⁷ and the Court's resolution of the varied Article III standing theories in Nebraska could either facilitate or limit this role in certain cases. For example, the Court could clarify when alleged financial impacts to state investments or state tax revenues constitute injury-in-fact. The Court's decision could also help clarify whether financial separation between a state and a separate entity that the state established and controls prevents the state from directly basing its own standing on harm suffered by that entity.

If the Court reaches the HEROES Act scope-of-authority question, its rationale could provide further guidance regarding how the federal courts should apply the major-questions doctrine. In particular, the Court's decisions in Nebraska or Brown may address whether the doctrine applies to agency claims of statutory authority to provide a benefit in a similar manner as the doctrine applies to agency assertions of statutory authority to impose a regulatory requirement.⁵⁴⁸