Patrick Semansky/AP Photo
Student debt relief advocates gather outside the Supreme Court in Washington, February 27, 2023.
The Roosevelt Institute and the Debt Collective’s bombshell report on the Supreme Court case over student debt cancellation, first reported by The New Republic, reveals that, for all the stories of the ethical failings of the current set of conservative justices, the real corruption has always been about how they rule. The reach for nakedly ideological decision-making is now so complete that the Court is poised to deny relief to 40 million student borrowers based on a claim of standing from a phantom plaintiff, which despite claims that it will be injured by the debt cancellation program, will in fact be enriched by it.
Looking more deeply at the case, it appears that the Education Department is actually explicitly immunized from any claims that debt cancellation will injure the companies that service the debt, like the Missouri Higher Education Loan Authority (MOHELA), which is at the heart of the conservative lawsuit. Moreover, MOHELA has so bungled one of the existing federal student debt forgiveness programs that their only hope to continue on without incurring significant legal liability is for cancellation to go forward.
MOHELA is the key plaintiff in the case, Nebraska v. Biden, because no federal judge has yet found any other plaintiff with standing to sue—that is, a plaintiff who can say they are harmed by the administration’s plan to forgive between $10,000 and $20,000 in student debt. Putting aside whether the HEROES Act grants the Education Department the authority to forgive debt after an emergency (there’s strong reason to believe it does), standing is fundamental to our system of jurisprudence. The working theory is that MOHELA, which collects monthly payments from student borrowers on behalf of the government and receives a servicing fee, would lose revenue if many of the loans they service were canceled.
The first problem that arises is that MOHELA has admitted in a letter to Rep. Cori Bush (D-MO) that their executives “were not involved with the decision of the Missouri Attorney General’s Office to file for the preliminary injunction in federal court.” Indeed, MOHELA has no relationship with the AG’s office, which was only able to obtain documents from the servicer through state sunshine law requests. The Supreme Court would be allowing the plaintiffs to win their case thanks to an unwilling conspirator.
Missouri has tried to paper over this by saying that if MOHELA lost revenue from debt cancellation, it might be unable to repay a $105 million obligation to the “Lewis and Clark Discovery Fund,” which funds in-state schools in the state. But in Supreme Court oral arguments, it was revealed that MOHELA hasn’t made a contribution to that fund in 15 years. MOHELA has also said in its own financial documents that it doesn’t plan to make any Lewis and Clark payments in the future.
Meanwhile, there has been no factual legal review of MOHELA’s financial operations and whether it would even be harmed, and by how much, as a result of the debt cancellation program. Only the Roosevelt Institute and the Debt Collective have done the work, and what they found stands at odds with the plaintiffs’ claims.
If the cancellation program zeroes out some of these loans, it will actually help MOHELA.
Since the pandemic’s payment pause, MOHELA picked up an additional five million loans to service, mostly through a contract for Public Service Loan Forgiveness (PSLF), a program that allows cancellation of outstanding debt after ten years for borrowers who work in public professions. Though roughly two million loans would be canceled under the Biden plan, MOHELA would still have 5.4 million loans to service afterward. This increase means that, by Roosevelt and Debt Collective’s estimates, MOHELA would earn $167 million in loan servicing fees annually after cancellation, a record figure. Even MOHELA’s more conservative internal estimate, which was done before it received contracts for an additional two million loans, shows expected annual revenues of $97 million, still more than it has ever made in a year. So MOHELA’s finances would be better off after cancellation.
Now, you may argue that just because MOHELA got more loans to service doesn’t mean they wouldn’t lose revenue from canceling two million loans. But there’s more to the picture.
First, part of the administration’s debt cancellation includes reinstating payments for the remaining balances; they have been paused since 2020. Under the “Fresh Start” feature, all accounts start out as current, unless the borrower is in school or under some other deferment. Servicers are paid out at $2.90 per month for each current account, rather than $2 per month for a delinquent account. So that aspect of the Biden administration’s program enriches MOHELA.
In addition, MOHELA is scheduled to get additional revenue to process forgiveness on all eligible loans, above the $11.49 per account in its current contract. Even at that level, Roosevelt and Debt Collective estimate a $61 million bounty.
Perhaps the biggest benefit is that MOHELA would be rescued from huge legal liability by getting to discharge some of its newest accounts. In a footnote, Roosevelt and Debt Collective note that MOHELA has already botched the PSLF portfolio, triggering thousands of complaints. The servicer has taken six months to process some PSLF delays, extended wait times up to four hours, and sent incorrect information to numerous borrowers.
If the cancellation program zeroes out some of these loans, it will actually help MOHELA. The Consumer Financial Protection Bureau initiated a bulletin last February about illegal PSLF servicing. MOHELA would have less liability for improper practices if there were simply fewer PSLF loans. That could be worth an untold amount of money.
“The best thing we could do for MOHELA is cancel a ton of PSLF accounts and give them enough breathing room to try to finally set up a servicing environment for PSLF that actually follows the regulations,” said Thomas Gokey with the Debt Collective. “MOHELA is in for a world of hurt for how they have botched PSLF so far.”
MOHELA has other potential liabilities associated with the case. Under California law, if a servicer interferes with a borrower’s right to debt forgiveness, it would violate the Student Borrower Bill of Rights, and be subject to as much as a $175 billion fine. And successfully suing the contract provider (in this case, the Education Department) could subject MOHELA to losing its contract, which expires at the end of the year.
Finally, there is one last highly relevant fact about MOHELA’s contract that incredibly has not been part of the case thus far. The standard servicing contract between private servicers and the Education Department’s Office of Federal Student Aid (FSA) said that FSA has the “sole discretion” to remove contracts from servicers, that the contractor cannot “object or protest” this, and that the contractor “further waives and releases all current or future claims” against the agency. In other words, if FSA decides to cancel student debt, servicers signed a contract saying they waive their right to contest it.
Maybe that’s why MOHELA never joined the lawsuit. But none of that matters to this Supreme Court. They are on the verge of accepting a standing argument of a fake plaintiff who never joined the case, based on an assertion of harm that in the final analysis is actually a benefit, while ignoring a signed contract that flatly prohibits the fake plaintiff from suing at all.
I know we’re in a post-fact era, but this is really something. If the Court doesn’t pay careful attention to this report, more than 40 million student borrowers could experience continued financial hardship because the justices would rather violate numerous principles of jurisprudence than let Joe Biden help anyone. The conservatives on the Court are obviously not mathematicians or experts in student debt servicing or financing. But they don’t appear to be judges, either, at least in the sense of following the law.
