Student Loan Repayment Rule Challenge ‘Just Barely’ Advances

Three Republican-led states seeking to invalidate a Biden administration rule to cut monthly student loan costs and quicken loan forgiveness for some borrowers narrowly survived the administration’s bid to knock the case entirely, a federal judge ruled.

Judge Daniel D. Crabtree, of the US District Court for the District of Kansas, held Friday that South Carolina, Texas, and Alaska did just enough to show that they were likely injured by the student loan regulation. The three states “just barely” established their public instrumentalities—government-operated nonprofits that student service loans—would suffer an injury in fact because their “allegations and declarations supporting their standing theory are conflicting,” Crabtree said.

While those three states have showed standing “at least for now,” eight other states didn’t sufficiently bring any legal theory to show they have standing to challenge the regulation, Crabtree said. The GOP-led states dismissed notably included Kansas, Alabama, and Louisiana—among others.

“These plaintiffs simply have no skin in the game,” Crabtree said, partially granting the administration’s motion to dismiss. “Their answer to Justice Scalia’s colloquial expression of standing—What’s it to you?—is this: It’s nothing.”

The coalition of Republican-led states filed this lawsuit in March, taking aim at a July 2023 US Department of Education rule known as the SAVE repayment plan. The rule allows borrowers to enroll in income-drive repayment plans to lower their monthly federal student loan bills to as low as zero, as well as cancel loans after 10 years of payments for anyone who borrowed $12,000 and after additional years for anyone who borrowed more.

This suit is part of a series of actions challenging Biden’s efforts to deliver on one of his major 2020 campaign promises. The Biden administration argued this suit should be thrown out because the SAVE plan didn’t cause any of the states direct harm.

Kansas Attorney General Kris Kobach, who led this group’s efforts, argued the regulations caused harm in three ways: reduced revenue for state organizations who own student loans, reduced tax revenue, and competitive harm to the states’ abilities to recruit and retain employees for their public service employment.

Crabtree agreed with the first theory advanced by the plaintiffs, citing US Supreme Court precedent established in Biden v. Nebraska. That 2023 ruling allowed Missouri to challenge a federal loan forgiveness program because the state’s Higher Education Loan Authority would be faced with reduced service fees, causing financial harm.

South Carolina, Texas, and Alaska have standing because they showed borrowers are likely to consolidate their Federal Family Education Loans into direct federal loans, which would likely reduce their respective private loan serving providers’ revenue, Crabtree held..

“In short, plaintiffs have shouldered their burden to show the SAVE Plan likely will reduce the revenue of South Carolina, Texas, and Alaska’s public instrumentalities—but just barely,” Crabtree said. “Their standing theory is weaker than the one that prevailed in Biden v. Nebraska.”

Regarding the other eight states, Crabtree concluded based on Tenth Circuit precedent that incidental harm of reduced state tax revenue doesn’t qualify as an injury in fact. The eight states didn’t show a fairly direct link of harm caused from the SAVE plan reducing tax revenues by shifting their ability to tax the forgiven loans as income for those individuals in the future. Crabtree also rejected the legal theory on reduced tax revenue because the regulation doesn’t force the states to change their tax code—therefore their injury is self-inflicted. And because the injury under the states’ last legal theory—reduced retention for public service employment—is speculative and indirect, it also failed, Crabtree said.

Each state is represented by its respective attorney general’s office.

The case is Kansas v. Biden, D. Kan., No. 6:24-cv-01057, order issued 6/7/24.