Court temporarily blocks Biden's student loan forgiveness program.

On Friday, the U.S. Court of Appeals for the Eighth Circuit temporarily blocked Joe Biden’s student loan debt cancellation program. It did so in a lawsuit brought by six states challenging the legality of that scheme.

The day before, a federal district court had dismissed the suit. The district judge, Bush 43 appointee Henry Autry, acknowledged that the suit raises “important and significant challenges” to the debt relief program, but found that the states raising them lack standing to bring the action.

The plaintiffs sought emergency relief from the Eighth Circuit. It court ordered that the loan forgiveness program be stayed temporarily, while it considers whether to issue an injunction that would block Biden’s program during the pendency of the appeal from the district court’s order dismissing the lawsuit.

Before issuing such an injunction, the court would have to find that the states are likely to succeed on the merits. Issuing the temporary stay entails no such finding.

The plaintiffs base their claim of standing on the view that they are injured financially by Biden’s debt cancellation program. Missouri, for example, has a state agency — the Higher Education Loan Authority of the State of Missouri (MOHELA) — that services student loans, including some loans that will be partially or fully forgiven by the Biden plan.

As Ilya Somin points out, the Biden program will reduce MOHELA's revenue from those loans. Even a small financial loss is enough to qualify for standing under Supreme Court precedent.

The district court did not deny that MOHELA will lose money under the Biden plan. Instead, it ruled that Missouri lacks standing to seek relief for MOHELA’s loss. Judge Autrey stated:

Missouri does impose some control over MOHELA, which is assigned by statute to its Department of Education, like authorization for the Governor to appoint five members of the seven-member board and requiring a yearly report on its income, expenditures, bonds, and other forms of indebtedness issued. . . .

However, when it was established, MOHELA's revenues and liabilities were specifically and completely independent of the State of Missouri. The enabling legislation stated in relevant part that "[t]he proceeds of all bonds or other forms of indebtedness issued by the authority and of all fees permitted to be charged by the authority and of other revenues derived shall not be considered part of the revenue of the state…shall not be required to be deposited into the state treasury, and shall not be subject to appropriation by the general assembly." [citation omitted] The statute also states that "[t]he state shall not be liable in any event for the payment of the principal of or interest on any bonds of the authority or for the performance of any pledge, mortgage, obligation, or agreement of any kind whatsoever which may be undertaken by the authority." Mo. Rev. Stat § 173.410….

These provisions make clear that the legislature intended to create a self-sustaining and financially independent agency. The express financial separation of MOHELA established by Missouri law and the lack of any obligation for Missouri to pay MOHELA's debts, strongly militates against finding MOHELA to be an "arm of the State."

Somin finds this analysis unpersuasive:

As Judge Autrey acknowledges, MOHELA is a state-controlled entity, part of the state Department of Education. Missouri law describes the agency as "a public instrumentality and body corporate" and describes its powers as "the performance of an essential public function." The fact that its revenues and finances are separate from those of the rest of the state's operations does not make it any less an agency of the State of Missouri.

If MOHELA's revenues suffer, the state necessarily suffers, as well, because the state ultimately owns MOHELA. If a single entity owns two different firms, A and B, that owner obviously suffers an injury when either A or B loses revenue—even if A's funds are completely segregated from B's, and vice versa. The same reasoning applies here.

One side of this argument is exalting form over substance. I think it’s the district court. However, a good deal of the law on standing strikes me as an exercise in that very form of exaltation (for ulterior motives about which reasonable people can disagree).

Accordingly, I make no prediction as to whether the Eighth Circuit will agree with Judge Autrey. As noted, its issuance of the temporary stay doesn’t preclude that result.

The Eighth Circuit ordered the parties to complete briefing by this coming Tuesday, October 25, on whether the court should enjoin Biden’s program. If the court decides not to, Missouri will have another way of trying to prevent its implementation. As Somin points out, Missouri can have MOHELA file basically the same suit in its own name.

Missouri law specifically gives MOHELA the right to sue, and five of its seven board members are appointed by the governor. In Somin’s words, “the state can likely prevail on MOHELA to file a lawsuit of its own.”

In that event, the view that, contrary to what Judge Autrey concluded, MOHELA actually is “an arm of the state” will find real-world support.