738 F.Supp.3d 1113
E.D. Mo.2024Background
- Missouri and six other states sued the U.S., President Biden, and Education Secretary Cardona challenging the Department of Education’s Final Rule that creates the SAVE plan (amending REPAYE) and that was partially implemented early. Key SAVE changes: raise exempt income from 150% to 225% of FPL; cap undergraduate payments at 5% of discretionary income; shorten forgiveness timelines for low principal balances (as low as 10 years); stop charging accrued interest beyond borrower payments.
- The Final Rule was published July 10, 2023; several provisions (including interest subsidy and certain forgiveness accelerations) were designated for early implementation and hundreds of thousands of borrowers have received forgiveness under that early implementation.
- Plaintiffs argue the Secretary exceeded statutory authority (invoking the major-questions doctrine), violated the APA (arbitrary and capricious rulemaking, insufficient notice/comment and flawed cost estimate), and that States will suffer harms (MOHELA servicing fee losses, lost tax revenue, recruitment and competitive harms).
- Defendants contend the HEA grants broad authority to design ICR plans (including repayment schedules, income definitions, and interest capitalization limits), and that the Final Rule is a lawful exercise of that authority; they dispute standing and venue arguments.
- The court found Missouri has standing via injury to MOHELA, venue proper in the Eastern District of Missouri, denied dismissal, and concluded Plaintiffs are likely to succeed on the claim that the Secretary lacked authority to implement the loan-forgiveness provisions. The court enjoined any further loan forgiveness under SAVE pending final resolution, but declined to vacate the entire rule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing (Missouri via MOHELA) | MOHELA will lose servicing fees and other revenue when SAVE forgiveness accelerates; that injury confers Missouri standing. | Any harms are speculative or offset by benefits to MOHELA; MOHELA requested account reallocation, undermining injury. | Missouri has standing through MOHELA; prior forgiveness and many accounts primed for forgiveness make injury concrete. |
| Venue | Plaintiffs filed in E.D. Mo.; Missouri is a resident there. | Defendant: Missouri "resides" in Western District (capital) so venue improper. | State "resides" throughout its borders; venue in E.D. Mo. is proper. |
| Statutory authority / Major Questions (loan forgiveness) | HEA does not clearly authorize broad, accelerated loan forgiveness via ICR rules; major-questions doctrine requires clear congressional authorization. | HEA grants broad discretion to set ICR repayment terms (timing, discretionary income, interest rules) and historically the Department implemented forgiveness under ICR regs. | Court: Most SAVE provisions fall within Secretary's HEA authority, but the loan-forgiveness acceleration lacks clear congressional authorization; Plaintiffs have a fair chance of success on that claim and major-questions concerns apply. |
| APA challenges (arbitrary & capricious; notice/comment; cost estimate; early implementation) | Rule relied on flawed/cavalier cost estimates, insufficient 30-day comment period, and failed to consider harms (state tax revenue, PSLF effects, inflation); early implementation was inadequately explained. | No APA requirement for a specific cost analysis or 60-day comment period; agency considered relevant comments and explained early-implementation in the Federal Register; errors (if any) harmless. | Court: Plaintiffs unlikely to succeed on these APA arguments; cost-estimate and comment-period claims fail and agency addressed major comments; early implementation complied with HEA §1089(c)(2). |
Key Cases Cited
- Biden v. Nebraska, 143 S. Ct. 2355 (2023) (Supreme Court found States had standing via harm to state instrumentality and applied major-questions scrutiny to a mass-forgiveness program)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (standing requirements: injury-in-fact, causation, redressability)
- Nken v. Holder, 556 U.S. 418 (2009) (stay/preliminary-injunction factors and standards)
- Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008) (standard for preliminary injunction; likelihood of success and irreparable harm)
- Spokeo, Inc. v. Robins, 578 U.S. 330 (2016) (concrete and particularized injury requirement for standing)
- Clapper v. Amnesty Int'l USA, 568 U.S. 398 (2013) (injury must be certainly impending; speculative future injuries insufficient)
- Util. Air Regul. Grp. v. EPA, 573 U.S. 302 (2014) (Chevron/major-questions and limits on agency authority for issues of vast economic and political significance)
- Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109 (8th Cir. 1981) (four-factor test for preliminary injunction in the Eighth Circuit)