(Ep. 208) Revenge of the Judges: What Borrowers Can Expect After the Texas Ruling

Hello and welcome to another episode of the Student Law Enforcement Center podcast. I'm your host Travis Hornsby. Today I am very excited to tell you that I'm recording this podcast with my baby boy. He's finally home from the NICU sleeping next to me and he has been sleeping through alarms and all kinds of loud noises and loud chatter so I expect he'll sleep soundly through this but if he doesn't if you hear some weird noises in the background that's not me that's him. Today we're going to talk about Revenge of the Judges. For the folks that do not have as many Baby Yoda socks as my family does that is a play off of Revenge of the Sith which was I think one of the movies where Anakin turns to the dark side. It's it's a joke but it does theme this episode very well because that's very much what we're seeing is really since March of 2020 when all this COVID pause stuff happened with student loans we've seen really a one-way trip towards more generosity all over the place more generous programs IDR plans waivers PS left rules you know all kinds of things right back the truck up would be the theme for student loans the past two three years but this really past couple weeks we have seen some judges strike back against many of the Biden administration's signature student loan initiatives and I want to talk about what's going on with that how that could affect you I also want to talk about some of the positive legal cases that have happened for the Biden administration on student loans the past couple weeks as well first let's start off with the one that I probably briefly mentioned in the last few weeks episode so a federal judge in Texas struck down the entire student loan cancellation program so the first federal judge that got to hear the student loan cancellation challenge was in the eastern district of Missouri and that judge didn't really say that the program was legal he just sort of said well nobody has standing to challenge it based off the plaintiffs that have sued and those were six republican states mostly attorneys general in those states that sued for a variety of reasons but the best argument that people thought that they had was that mojila which is a affiliate non-profit affiliate of the state of Missouri was harmed by the cancellation plan they would lose student loan servicing revenue and therefore Missouri since they created mojila the state of Missouri could sue on behalf of mojila to block student cancellation so that was their theory now the problem is mojila uh you know in the past when it's been sued judges in different courts have ruled that well you can't sue the state of Missouri if you're suing mojila because they're two separate nonies so the appeals court that had this judge basically said that he doesn't find that they're standing to block student loan cancellation and so that ruling got appealed to the eighth circuit eight circuits one of the most conservative circuit courts of appeal in the whole country and that court initially just did sort of an administrative stay which is sort of a a pause on biden's cancellation program pending a more formal ruling and recently they came out with a ruling that is more of a permanent injunction what's really called a preliminary injunction but it's more of a long-term serious pause while they're evaluating the case that's separate from what's going on in this texas situation so i know there's a lot of different cases out there so it can get kind of confusing right but think about it kind of like you've got your you know your this is going to maybe offend some judges or something or some legal people so i apologize if this does right but you've got your division three and the cases originate in division three right so that's like your lower level federal court judges in a lot of cases that's one single judge that's making a ruling on something and then you've got your your d2 judges which are like your circuit court of appeals and then you've got division one which is the supreme court so the thing is is people form shop they kind of try to find judges they think are more likely to rule in their favor and so everybody wants to get their case heard by that one single judge in a very conservative or very liberal jurisdiction for a case depending on what outcome you're trying to get and so the plaintiffs for trying to block suit on cancellation sought out circuit courts that they thought they'd have a higher probability of success with so they started off in the eastern district of missouri because they knew that would go up to the eighth circuit court of appeals which only has one judge appointed by a democratic president and then this separate case that was brought in texas is a separate circuit court of appeals so you have multiple angles of attack and this particular case was brought by a right-leaning group and their case was surrounding two borrowers who did not get as much benefit as they could have potentially gotten under the cancellation program so they found one borrower that had commercially held FFEL loans who didn't consolidate and was left out of the program and she's arguing that that was done arbitrarily and then there's another borrower who did not get a Pell Grant and so he was only eligible for $10,000 of cancellation instead of $20,000 of cancellation and the judge in that case is was appointed by President Trump. This judge looked at the case and basically said well we've got two individuals who are negatively impacted by the actions of you know the Biden administration on student loans and since they were harmed that's standing and since we have people that have standing now we can look at the merits of the case oh by the way the way that they are applying the HEROES Act to canceling student loans is a violation because it doesn't apply in this case and so therefore since the Biden administration was not using the HEROES Act properly therefore it's a violation of the Administrative Procedures Act which requires like a public comment period that's what they're doing right now coming up with the new IDR plan they're going through the long painstaking regulatory process to release this new IDR plan and they're moving it slowly right that's how you avoid these legal challenges based off violations of the Administrative Procedures Act so basically that judge you know essentially said okay these two people have standing I'm going to go straight to the merits of the case and what he specifically said was your standard sort of conservative judge argument which is Congress doesn't hide elephants and mouse holes which is this famous line from the Supreme Court about you know that you can't take some small nuance and assume that that's this massive loophole that Congress granted you also they raise the major questions doctrine which is this idea of you know basically if it's an issue of major economic and political significance then the court can kind of bend the rules a little bit this kind of a layman's explanation to this so what you've got is you've got a judge in Texas who says this whole thing's unconstitutional and has already thrown it out you've got another court in the Eighth Circuit that not really overturned the lower court judge but basically just said hey no this this is actually a reason that we need to pause this whole program while we figure out this case and the Biden administration has appealed both of those rulings now when you're at the Court of Appeals remember that's Division Two right so the above that is Division One that's the Supreme Court so Biden administration's already appealed the Eighth Circuit Court of Appeals to the Supreme Court to say that this is not appropriate that the court issued an injunction against them and they've also appealed this Texas judge's ruling to the Fifth Circuit Court of Appeals so you've got cases that are appealed now the Supreme Court and another circuit court now why is the Biden administration doing it that way I think that what they're hoping for is that if the Supreme Court overrules the injunction for the Eighth Circuit this is the shakier case of the two I think and the reason I say that is because there's really some serious questions as to whether or not Mujila actually has standing or not and if you can make an argument that Mujila does not have standing then you know the whole case is moot you can't really rule on the merits of the case because nobody has standing to sue whereas these other two borrowers that have economic injury they definitely have economic injury you could say and that it is kind of a questionable aspect too if those people have standing so really what's what's so interesting about this case is the administration is almost acting the way they're they're responding to these things that the merits of the case are something that they won't win on they're almost kind of admitting that by the way they're acting and then they're really trying to play standing whack-a-mole which is to say let's nip any of these lawsuits in the bud by saying that somebody doesn't have the jurisdiction to bring the challenge what does this all mean I think you know you're going to see all this stuff get brought in front of the supreme court the biden administration of course by appealing the eighth circuit court is trying to get the injunction lifted when the injunction is lifted what they can simply do is just try to cancel as much debt as possible as fast as possible to avoid it being reinstated later right they think that if they can get you know 100 200 300 billion canceled that nobody will be able to reinstate that and so that's what they're trying to do now the texas judge that ruling kind of messes this plan up because they're not allowed to even accept new applications for cancellation while this is working its way through the courts and so what does this do to the plan to restart student loans january 1st a lot of you you know higher income professionals higher debt professionals probably your eyes glaze over on the 10 20k cancellation stuff because you listen to this podcast you know because you have a larger debt than average and so maybe the cancellation program is irrelevant to you what's so fascinating is by them trying to do this cancellation plan they are responding in a way that might actually benefit high debt high income borrowers a lot more than if they you know had that cancellation program actually successfully go through what does that mean why does that matter well the way that the administration wants to respond is with every tool available right the administration wants to fight tooth and nail to get as much relief to borrowers as possible and how are they going to do that well if you are losing in court on the cancellation thing one of the levers you can pull pretty easily is extending the student loan pause you've done it a bunch of times in the past nobody's ever challenged it in court and it was started by a republican president so you can just keep extending that pause over and over again until that covid emergency is no longer in place the most obvious thing the biden administration is going to think about doing is while these cases are working their way through the courts the biden administration could simply extend the student loan pause which is a very simple way to say i don't want to deal with this problem right now that's what the temptation is and that's what i think that they are going to do because if you think about anything that the progressive wing of the democratic party's asked to the biden administration on student loans he has given them with the exception of magnitude so for example the progressive wing wanted 50k of cancellation he gave 10k and 20k for pell grant borrowers so he has always said yes to the progressive wing on student loans eventually and it's mainly just a question of the magnitude so while extending the pause is maybe the most obvious thing to do it doesn't necessarily mean that that's all that biden's going to try to do so another thing that biden could try to do is cancel student debt through the higher education act a lot of advocates have asked for him to do automatic cancellation instead of having an application that would be harder for people to challenge the higher education act is this compromise and settle authority that the administration has already successfully used in the borrower defense settlement case that's been through the courts that is a very tempting legal authority that progressives are going to be calling on the administration to do and i actually think they might actually try to do cancellation through a different path instead of trying to another thing that they could do is they could focus efforts on more generous versions of income driven repayment more generous forbearance and deferment counting there's a lot of different things that the biden administration could do also with pslf regulations where there was a document that leaked where the existing pslf rules give about a quarter of grad students access to pslf there's some rules that they're considering that that would make about 40 percent of graduate degree holders qualify for pslf just by expanding the definition of what counts in terms of professions so there's a lot of stuff that the biden administration could retaliate with when it comes to the student loan rulemaking process i'm going to move rapidly through this last little bit in the podcast episode because you know you never know how long baby's going to sleep there's a couple other issues going on as well right now a federal judge in california appointed by president clinton found that the borrower defense settlement of six billion dollars is a-okay to proceed so they approved the final settlement why is that a big deal remember this is when the department of ed just sort of named a ton of schools that they considered having attended one of these schools was reason enough to get your loans discharged there was a lot of ones on there like ross university for example that a lot of our clients have been to in terms of what should you do as a result of this i do think that this borrower defense settlement is probably going to get appealed possibly to the supreme court by the schools that were named on this borrower defense settlement because they don't want to have that reputational damage if you went to one of these for-profit schools you can type in borrower defense settlement school list on google and find out if your school's on that list some schools like ross university that a lot of our clients went to are on that list now to be a part of this settlement you would have had to have already applied but you can still throw your hat in the ring there's not a ton of downside so if you want to apply for borrower defense under these new rules that exist you can give it a shot worst case scenario you can get into a forbearance for about three years that's not the end of the world they will kind of evaluate you probably faster than that and the only reason i wouldn't apply for borrower defense is if you think that you were not defrauded by your school and if you might be maybe you could get more benefits through the psf waiver and idr waiver and focus on that just a few more updates for you the other big change of the week is the biden administration announced new rules for bankruptcy in student loans so this is probably going to allow a lot more people to be able to get their loans discharged in bankruptcy this is again an example of just aggressive use of executive power by the administration to try to bring more relief to borrowers so we would expect that to happen over the course of the next couple of years and that will help a lot of people who are trying to get their loans forgiven faster than the 20 or 25 year time clock that definitely have no chance of paying their loans back that want to go that bankruptcy route so that's also an encouraging thing to see obviously the ap called the house for the republican party and so what could change now that republicans hold the gavel on the education committee in the next couple of years i would expect a lot more oversight and just a lot more hearings they recently issued a letter a request letter to the omb and other other groups to retain a bunch of records surrounding cost estimates for different student loan programs idr waiver psf waiver cancellation i would just anticipate a lot of hearings the republicans are going to be leading going into the next couple of years to try to uh you know really highlight what they view as a very high cost of a lot of these programs um in terms of the student loan pause we could see people go after the student loan pause by going after the emergency order due to covet 19 could we see additional ways that opponents of the administration student loan relief will attack things like the student loan pause if they decide to extend it i do think it's possible we recently saw the senate vote to end the covet emergency there was 12 democratic senators including the majority leader chuck schumer that voted against the covet emergency now i think this is interesting because the people who voted against it are mostly in tight re-elections in 2024 if you look at the democratic senate map in 2024 it is really really awful for the democratic party so i think you've got a lot of potentially vulnerable senators that are voting to try to end the covet emergency without actually having to end it because the white house is going to veto this legislation and that's going to mean they would need two-thirds of majority in both houses of congress to pass and it's not going to pass which means the biden administration will be able to hold on to that covet emergency to manipulate the student loan program you know outside of the normal rules longer so i would anticipate that that's going to continue into 2023 we might see a lawsuit against the covet emergency used for the student loan program at some point like we saw with the eviction moratorium being attacked the question is do some of these student loan companies want to take that headline risk rather than just gamble that it's going to be allowed to expire my current guess would be that the emergency use of the covet emergency for the student loan pause would probably get thrown out by a court probably in the spring of 2023 if i just had to totally guess but there's lots of different things that you can do at your student loans right now to get a lot of savings so consolidate if you need to take advantage of the idr waiver which in most cases has all the benefits of the pslf waiver to sign up for the repayment program understand what repayment program is coming down the line so you can know whether or not you should be paying extra towards your student loans or not there's just all kinds of things that you can do to get your student loans set up in the right way going into the new year if you need help with that obviously we'd love to do a initial or a follow-up plan just go to studentloanplanner.com book to do that i am really pushing my luck right here baby is probably going to wake up and start yelling so i better end today's podcast if you have any questions or voicemail as you want to leave go to studentloanplanner.com voicemail leave a question we'd love to answer it if you have any questions really at all i'd love to hear it obviously reply back to the newsletter if you're subscribed to that and we will see a whole lot of legal action over the coming weeks on student loans i will keep you up to date on all that but just know that this is headed towards a supreme court showdown and who knows what happens next but if i if i was a gambling man i would say it's more likely than not we're going to see a student loan pause when you might ask generally we see a student loan pause announced about 30 days ahead of the payment restart date and the georgia senate runoff is december 6th so a lot of people in the democratic party are calling on biden to announce an extension of the student loan pause to try to help rafael warnock in georgia before december 6 so that's what i would probably anticipate if we see a extension of the student loan pause after what was announced as the final final student loan pause i do think you might see some groups start to challenge the pause in court it's just going to be a massive battle now from here on out both sides are using their leverage to the maximum initially it was a democratic party using their leverage of the executive branch to the maximum with student loans and republicans were just sort of criticizing it on twitter but that was it but now you see the republican party flexing their advantage in the courts and the question is how far will they go my guess is pretty far now that they've got the majority in the house we'll see what happens but it's going to be a very busy 2022 and 2023 when it comes to student loans thank you so much for listening this is the student loan planner podcast