STUDENT LOANS: The Shifting Grounds for Relief

STUDENT LOANS: The Shifting Grounds for Relief

In Lujan v. Defenders of Wildlife (1992) 504 US 555, 575-578, a very conservative jurist, Associate Justice Antonin Scalia, wrote the following:

   “To permit Congress to convert the undifferentiated public interest in executive officers’ compliance with the law into an “individual right” vindicable in the courts is to permit Congress to transfer from the President to the courts the Chief Executive’s most important constitutional duty, to “take Care that the Laws be faithfully executed,” Art. II, § 3. It would enable the courts, with the permission of Congress, “to assume a position of authority over the governmental acts of another and co-equal department,” Massachusetts v. Mellon, 262 U. S., at 489, and to become” ‘virtually continuing monitors of the wisdom and soundness of Executive action.’ “

This was another way of saying that there are cases in which the court should not get involved, such as those involving the specific statutory actions of a co-equal branch of government (i.e., “non-justiciable” cases).

Consequently, even when Congress passes a law that has a public benefit, it does not automatically grant citizens a “private right of action” to block that law. Any citizen who disliked any law could ask the courts to prevent it from going into effect, which would lead to chaos.

The student loan forgiveness program announced by President Biden is on hold. And it may be an example of what Justice Scalia warned of in Lujan. The Supreme Court will be hearing arguments regarding the loan forgiveness program in a few weeks. (“Supreme Court Agrees to Decide on Biden’s Stalled Student Loan Forgiveness Plan, “Los Angeles Times, December 1, 2022). The arguments against the program, based on the 8th Circuit Court of Appeal decision, and another decision in Texas, raise the specter of placing the Supreme Court in the position of deciding on the appropriateness of day to day, or administrative actions by both Congress and the President.

In other words, the current student loan case invites the courts to get involved in non-justiciable cases. Albert, Lee A., “Justiciability and Theories of Judicial Review: A Remote Relationship,” 50 So. Cal. Law Review 1139, 1165-1166 (1977)

Pres. Biden and Education Sec’y Cardona base the program on the 2003 HEROES Act, which authorizes the Secretary to “waive or modify any statutory or regulatory provision applicable to the student financial assistance programs” if the Secretary “deems” such waivers or modifications “necessary to ensure” at least one of several enumerated purposes, including that borrowers are “not placed in a worse position financially” because of a national emergency. 20 U.S.C. § 1098bb(a)(1), (2)(A).”

The “national emergency” cited by Pres. Biden and Sec’y Cardona was the COVID pandemic, which began in 2020, and is far from over. “Tripledemic Update: RSV, Covid And Flu,” Forbes, December 13, 2022.

In the 8th circuit case, the state of Missouri claimed that it would be harmed by receiving less repayment revenue, should be loan forgiveness program go into effect. State of Nebraska, et al. v. Joseph R. Biden, Jr., et al., Case No. Case No. 22-3179.

This reasoning is problematic because: 1) No loans have been forgiven, so no money has been lost; 2) research shows that when borrowers are released from paycheck to paycheck jobs as a result of debt relief, those borrowers find better paying jobs, which would cause them to pay more in taxes to the state (Harvard Business School/Working Knowledge, “Forgiving Student Loan Debt Leads to Better Jobs, Stronger Consumers,” May 22, 2019); 3) the government has several different laws upon which they can rely for student loan relief [e.g., Higher Education Act (“HEA”), beginning at 20 US Code Sec. 1082; the Federal Family Education Loan Program, beginning at 20 USC 1071; the Federal Claims Collection Act, found beginning at 31 USC Sec. 3701, the Direct Loan Program of Title IV of the HEA, and federal regulations, such as 31 CFR 30.70 and 31 CFR 902.1 (a); see Open Letter to Sen. Elizabeth Warren, Legal Services Center of Harvard Law School, September 14, 2020]. For example, the HEA states that the Secretary of Education has the power “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” 20 U.S.C. § 1082(a)(6) p. 3 (emphasis added);

And 4) striking down the program is exactly the type of mischief that Justice Scalia warned against in Lujan, as stated above.

Finally, if the quibble is with the HEROES Act as a basis for the program, shouldn’t the Supreme Court defer to the Executive, based on this undisputed alternative authority? Or, simply require the President to resubmit the program, citing to his alternative statutory authority rather than the HEROES Act, instead of gutting the program?

We may have an answer in June 2023.

 

THIS POST DOES NOT CONSTITUTE LEGAL ADVICE; PLEASE CONSULT AN ATTORNEY

 

STUDENT DEBT PROGRAM: Where’s the Relief?

STUDENT DEBT PROGRAM: Where’s the Relief?

​On August 24, 2022, President Joe Biden announced a proposed plan, through the Department of Education, to forgive a portion of student loan debt owed by millions of Americans. The plan proposed to allow cancellation of up to $10,000 for certain loan recipients, and up to $20,000 for Pell Grant recipients. This forgiveness would be given only to holders of federal loans, and would not guarantee full cancellation of all debt owed by every borrower, such as those who owe more than $20,000 in Pell grants. The program also does not apply to those whose loans come from private lenders, such as Sallie Mae.  
As of this writing, over 26 million borrowers have applied for relief, and the Biden Administration has approved certain applicants for relief. But no loan relief has been granted.
No relief has been granted because several Republican Attorneys General, from Nebraska, Missouri, Kansas, Iowa, Arkansas, and South Carolina, sued to stop the program (Eastern District of Missouri, Case No. 4:22CV1040, filed 9/29/2022). Briefly, the States claimed that the loan relief would harm them financially, based on lost loan repayments (the States apparently did not discuss how they might benefit from increased tax payments if the borrowers were not tied to low-wage jobs to make their current payments; nor did the States discuss how much more money they would receive through the federal infrastructure bill).
Eastern District of Missouri Judge Autrey threw the case out, based on lack of “standing” (i.e., lack of an actual harm that the States had suffered), but the 8th Circuit Court of Appeals, which oversees several Midwestern states, placed this loan relief program on hold, pursuant to an injunction. State of Missouri, et al. v. Joseph R. Biden, etc., et al., Case No. 22-3179, published 11/14/22
Unfortunately, the 8th Circuit’s logic, particularly on the issue of immediate, actual harm (“standing”) appears disingenuous, and suggests a political motive behind the decision. For example, the 8th Circuit ruled that the state of Missouri has standing, because a loan fund created by the state of Missouri would potentially lose money if some of the loans granted through that fund were reduced or forgiven. That no relief has yet been granted means that no funds have yet been lost. And thus the state of Missouri has no standing. Lujan v. Defenders of Wildlife (1992) 504 US 555, 575-578 [opinion of Scalia, J].
Even more worrisome is the court’s assertion that because a federal decision causes a state to lose money, the state can sue to stop that program. Taken to its logical extreme, if the federal government decides from year to year to spend less money on highway repair for roads in Ohio than in Kansas, Ohio can sue and stop the program. Or if, year to year, the federal government decides to grant more funds for cancer research to universities in Minnesota than in California, California can sue to stop the program. This is the sort of chaos that Scalia warned against; the courts would assume day to day authority over the acts of a co-equal branch of government. Lujan v. Defenders of Wildlife (1992) 504 US at 577.
In other words, the 8th Circuit Court’s reasoning leads to chaos, and no federal spending program could ever be approved, because by definition, some agency, state, or individual will receive less money than another.
Additionally, how these States might benefit eventually from the improved financial health of borrowers apparently played no role in the 8th Circuit’s decision.
The Biden Administration has asked the US Supreme Court to intervene and overturn the 8th Circuit. (SCOTUS Blog, 11/18/2022) However, given the Court’s extreme conservative nature, as well as its willingness to disregard long-established precedent, a favorable ruling is not assured.

Student Loans May Be Discharged In Full

Student Loans May Be Discharged In Full

BANKRUPTCY LAW (Student Loans): A former medical student was entitled to $440,000 in debt relief, because he was able to meet the following standards pursuant to Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395, 396 (2nd Cir. 1987).

“Under [11 U.S.C.] § 523(a)(8), [debtor]’s student loans may be discharged in full, in part, or not at all, based upon the extent to which the court finds the repayment of these loans would constitute an undue hardship. Craig, 579 F.3d at 1045-46. Both [debtor] and the [Department of Education] concede the court has authority to enter a partial discharge pursuant to its equitable authority under § 105(a). Saxman v. Educ. Credit Mgmt. BJR Corp. (In re Saxman), 325 F.3d 1168, 1174 (9th Cir. 2003) (holding that a debtor is entitled to a discharge of that portion of the student loan that meets the requirements of § 523(a)(8)); Educ. Credit. Mgmt. Corp. v. Jorgensen (In re Jorgensen), 479 B.R. 79, 86 (B.A.P. 9th Cir. 2012) (applying each element of the Brunner test to the partial discharge analysis).The Ninth Circuit in United Student Aid Funds v. Pena (In re Pena), 155 F.3d 1108, 1112 (9th Cir. 1998), adopted the three part test (“Brunner test”) for determining undue hardship articulated in Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395, 396 (2nd Cir. 1987):
>
(i) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans;

(ii) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

(iii) the debtor has made good faith efforts to repay the loans.”
> The debtor’s dire circumstances met this test.
>
> See the Court’s decision in In re Koeut, 622 B.R. 72 (2020)

 

A Former Medical Student Was Entitled To $440,000 In Debt Relief

A Former Medical Student Was Entitled To $440,000 In Debt Relief

BANKRUPTCY LAW (Student Loans): A former medical student was entitled to $440,000 in debt relief, because he was able to meet the following standards pursuant to Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395, 396 (2nd Cir. 1987).

“Under [11 U.S.C.] § 523(a)(8), [debtor]’s student loans may be discharged in full, in part, or not at all, based upon the extent to which the court finds the repayment of these loans would constitute an undue hardship. Craig, 579 F.3d at 1045-46. Both [debtor] and the [Department of Education] concede the court has authority to enter a partial discharge pursuant to its equitable authority under § 105(a). Saxman v. Educ. Credit Mgmt. BJR Corp. (In re Saxman), 325 F.3d 1168, 1174 (9th Cir. 2003) (holding that a debtor is entitled to a discharge of that portion of the student loan that meets the requirements of § 523(a)(8)); Educ. Credit. Mgmt. Corp. v. Jorgensen (In re Jorgensen), 479 B.R. 79, 86 (B.A.P. 9th Cir. 2012) (applying each element of the Brunner test to the partial discharge analysis).The Ninth Circuit in United Student Aid Funds v. Pena (In re Pena), 155 F.3d 1108, 1112 (9th Cir. 1998), adopted the three part test (“Brunner test”) for determining undue hardship articulated in Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395, 396 (2nd Cir. 1987):

(i) the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans;

(ii) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

(iii) the debtor has made good faith efforts to repay the loans.”

The debtor’s dire circumstances met this test.

See the Court’s decision in In re Koeut, 622 B.R. 72 (2020)

BANKRUPTCY LAW (Homestead Exemption)

BANKRUPTCY: Student Loans Can be Discharged

BANKRUPTCY: Student Loans Can be Discharged

The popular wisdom is that student loans are not dischargeable in bankruptcy. One will often hear a potential client say, “I know I can’t discharge a student loan.”

This is not true. Although the bar is high, student loans can be discharged in bankruptcy.

The debtor must initiate a trial in the bankruptcy court, against the lender. (The case is heard by the bankruptcy judge; there is no jury in bankruptcy court).

Then, the debtor must make a very thorough, detailed evidentiary showing:

“In Polleys [(Educational Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302 (10th Cir.2004)], we held that under the Brunner test [(Brunner v. New York State Higher Education Servs. Corp., 831 F.2d 395 (2d Cir.1987)] in order to establish an undue hardship a debtor must prove:

“(1) that the debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if forced to repay the loans;

“(2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and

“(3) that the debtor has made good faith efforts to repay the loans.

“Under the Brunner analysis, if the court finds against the debtor on any of the three parts, the inquiry ends and the student loan is not dischargeable. Id. at 1307 (internal citation omitted).”

In re Aldrete, 412 F.3d 1200 (10th Cir., 2005), cited in In re Nys, 446 F.3d 938 (9th Cir., 2006).

Therefore, a debtor who seeks discharge of a student loan in bankruptcy must make a very thorough, detailed showing. And the debtor (and the lender) have the right of appeal, no matter how the Bankruptcy Court decides.

A difficult road, yes; but not an impossible one.

WARNING: THIS POST DOES NOT CONSTITUTE LEGAL ADVICE, AND READING IT DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. PLEASE CONSULT WITH AN ATTORNEY!!

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