Two think tanks are calling on a federal court to block the Biden administration's revised plan to cancel $39 billion in student loans, arguing that the plan exceeds the administration's authority.
The New Civil Liberties Alliance, representing the free market think tank Mackinac Center for Public Policy and the libertarian think tank the Cato Institute, filed a lawsuit in Michigan on Friday.
The groups allege that the administration has overstepped its power by announcing student loan debt relief for 800,000 borrowers worth $39 billion. This plan was rolled out by the Department of Education shortly after the Supreme Court struck down a broader student loan forgiveness plan proposed by President Biden.
The lawsuit requests that a judge declare the latest debt forgiveness plan illegal and block the Department of Education from implementing it until the case is decided.
In response to the lawsuit, the Department of Education released a statement claiming that it is "a desperate attempt from right-wing special interests to keep hundreds of thousands of borrowers in debt." The department emphasized its commitment to defending working families and stated that it will not back down.
This legal challenge follows several complaints from Republicans seeking to halt the Biden administration's proposals to reduce or eliminate student debt for millions of borrowers. President Biden has expressed his intention to pursue an alternative approach to cancel student debt after the Supreme Court rejected his initial plan in June.
The administration is also promoting a more generous repayment plan that opponents have criticized as a "backdoor attempt" to cancel loans. On July 14, the administration announced a plan to forgive loans for 804,000 borrowers enrolled in income-driven repayment plans. These plans have historically offered cancellation after 20 or 25 years of payments. However, due to past administrative failures, inaccurate payment counts have hindered borrowers' progress towards forgiveness, according to the Department of Education.
Secretary of Education Miguel Cardona stated, "By fixing past administrative failures, we are ensuring everyone gets the forgiveness they deserve, just as we have done for public servants, students who were cheated by their colleges, and borrowers with permanent disabilities, including veterans. This Administration will not stop fighting to level the playing field in higher education."
The new plan is described as a "one-time adjustment" that considers certain periods of past nonpayment as if borrowers had been making payments during that time. This adjustment has moved 804,000 borrowers closer to the 20 or 25-year threshold required for cancellation and has brought millions of others closer to that goal.
The Department of Education explains that the plan aims to address a practice known as forbearance steering. This occurs when student loan servicers, contracted by the government, encourage borrowers to enter forbearance, a temporary pause on payments due to financial hardship, even if enrolling in an income-driven repayment plan would be more beneficial.
The lawsuit argues that Biden's plan undermines the Public Service Loan Forgiveness (PSLF) program, which the Mackinac Center and Cato Institute rely on to employ borrowers who are working towards student loan cancellation. The groups claim that Biden's action unlawfully accelerates progress towards relief, diminishing the benefit for nonprofit employers.
The Cato Institute previously sued the Biden administration over the student debt cancellation plan that was struck down by the Supreme Court.
Additionally, the Mackinac Center is challenging Biden's pause on student loan payments, which will end this fall as payments resume in October.
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