In the wake of the Supreme Court striking down President Biden’s student loan forgiveness plan, conservative groups are taking aim at his other efforts to deliver debt cancellation to scores of Americans.
On Friday, the Cato Institute and Mackinac Center for Public Policy filed a lawsuit challenging the Biden administration’s plan to cancel $39 billion in federal student loans held by more than 804,000 borrowers who have been in repayment for more than 20 years. The automatic loan cancellation is born out of the Education Department’s attempt to fix decades of mismanagement of its income-driven repayment plans and is set to take place in the coming weeks.
The groups are asking the court to halt the program, which they argue violates federal law because the administration did not produce it through the rulemaking process and offer the public the opportunity to weigh in.
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“A forgiveness program of this magnitude should have gone through rulemaking,” said Sheng Li, an attorney at the New Civil Liberties Alliance, which is representing the groups in the lawsuit. “The administration cannot impose a policy like this without going through the proper channels.”
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Key details on Biden’s student loan forgiveness
- The Supreme Court rejected President Biden’s student loan forgiveness plan in the latest blow to the ambitious program.
- After more than three years, the student loan payment pause will end, and payments will resume in October.
- In 2022, the debt-relief plan drew legal challenges after it was unveiled, and it had been on hold since last November.
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A spokesman from the Education Department called the lawsuit “a desperate attempt from right-wing special interests to keep hundreds of thousands of borrowers in debt, even though these borrowers have earned the forgiveness that is promised through income-driven repayment plans. We are not going to back down or give an inch when it comes to defending working families.”
At issue is the department’s decision to allow borrowers who postponed payments for years through forbearance to count those years toward student loan forgiveness.
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The groups argue that Congress, which created the first income-driven plan in the 1990s, never gave the department the authority to count non-payments as payments. They say the same is true as of Public Service Loan Forgiveness, in which public sector and nonprofit workers can have the balance of their loans forgiven after 10 years of service. As a part of the income-driven adjustment plan, the department also gave people working toward public service forgiveness credit for periods of long-term forbearance.
The groups are asking the court to declare the forbearance-credit policy unlawful, set it aside and block any cancellation of student loans based on it. They argue that the policy harms nonprofit employers like them by reducing the value of PSLF as a recruitment tool if borrowers can get forgiveness in less than 10 years. Both outfits used similar arguments in separate lawsuits challenging the payment pause and Biden’s broader student loan forgiveness program.
In its first round of covid relief legislation, Congress said months in which borrowers benefited from the payment pause — a form of forbearance — would count toward loan forgiveness for public workers. Li argues that the statute was good for only six months and subsequent extensions by the Trump and Biden administrations were illegal.
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Roughly half of the more than $1 trillion in outstanding student loans made directly by the federal government are being repaid through one of four income-driven plans. The plans cap monthly payments at a given percentage of earnings, with the promise that the balance will be forgiven after 20 or 25 years of payments.
But a 2022 Government Accountability Office report found that the Education Department did not accurately track payments until a decade after the first income-driven plan was implemented. Researchers said the agency never provided borrowers regular updates on their progress toward debt cancellation or readily available information about forgiveness requirements.
To remedy past problems, Education Secretary Miguel Cardona announced in April 2022 that any month in which borrowers were in repayment status would count toward forgiveness, even if they were not enrolled in an income-driven plan. At the time, the department estimated that relaxing the rules would give 3.6 million people at least three years of additional credit.
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Given that projection, the Cato Institute and Mackinac Center say the $39 billion in debt in debt cancellation is only a fraction of the true cost of the plan. Assuming the per-borrower cost of cancellation remains unchanged, the groups estimate the adjustment program could cost taxpayers $175 billion in forgone payments and interest, according to the complaint.
The lawsuit arrives weeks after the Education Department said it began notifying eligible people of the impending debt relief. The announcement drew criticism from congressional Republicans, who called the policy an effort to sidestep the Supreme Court’s ruling that barred the president from sweeping debt cancellation without congressional approval.
“The Biden administration’s blatantly political attempt to circumvent the Supreme Court is shameful,” said Rep. Virginia Foxx (R-N.C.), the chairwoman of the House Education Committee. “The Biden administration is trampling the rule of law, hurting borrowers, and abusing taxpayers to chase headlines.”
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This is not the first time the Cato Institute or Mackinac Center has fought Biden’s student loan policies. Cato, a libertarian think tank, sued the Education Department last year to block Biden’s debt relief plan arguing the president exceeded his authority. The free market think tank Mackinac Center is still in court challenging the administration’s numerous extensions of the pandemic-related pause on student loan payments.
