Lawsuit filed to stop new student debt relief plan

Correction: The New Civil Liberties Alliance is challenging the Biden administration’s forgiveness of student loans for more than 804,000 borrowers. The nature of the legal challenge was incorrect in an earlier version of this story.

The New Civil Liberties Alliance (NCLA) filed a lawsuit Friday against the Biden administration’s new student debt relief plan. 

The lawsuit comes after the Department of Education said it would cancel the student loans for more than 804,000 borrowers, totaling $39 billion. The forgiveness comes through an adjustment under income-driven repayment (IDR), and the borrowers in question have been paying on their student loans for more than 20 years.  

The NCLA, on behalf of the Cato Institute and the Mackinac Center for Public Policy, filed a suit in the U.S. District Court for the Eastern District of Michigan to stop the implementation of this plan. 

The NCLA is arguing the plan violates the Constitution’s Appropriations Clause, which allows Congress to be in charge of what debt owed to the Treasury can be canceled. 

“The Biden-Harris Administration is fighting every day to fix the broken student loan system and make sure borrowers get the relief they earned, need, and deserve. This lawsuit is nothing but 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,” an Education Department spokesperson said. “We are not going to back down or give an inch when it comes to defending working families.”

Under IDR, borrowers get student debt relief after making payments for a certain number of years. The core of the argument in the case is if the department is allowed to count years where a borrower was in forbearance or deferment, therefore, not making payments on their loans.

NCLA is arguing the department would have had to go through the negotiated rulemaking process and offered a public comment period to implement the action. 

“In the Nebraska case, the Supreme Court struck down the Department of Education’s brazen attempt to pull a billion-dollar ‘elephant’ out of a statutory ‘mousehole.’ This time the Department’s loan-cancellation scheme does not even pretend to have a statutory ‘mousehole,’” said Sheng Li, Litigation Counsel for NCLA. 

“The [Public Service Loan Forgiveness] and IDR statutes require borrowers to make a certain number of monthly payments before earning forgiveness. By trying to count non-payments as payments, the strategy seems to be to cancel $39 billion faster than a court can review and stop this blatantly unlawful act,” Li continued. 

NCLA says the plan would allow debt to be canceled for 2.8 million more IDR borrowers in the future. 

“Instead of promulgating the plan through the required notice-and-comment and negotiated rulemaking process under the Administrative Procedure Act, the Department simply issued a press release that did not identify any laws to justify it,” the NCLA wrote.
The challenge comes as borrowers will be set to begin repayment on their student loans in October, with interest starting up in Sept. 

This story was updated at 10:50 a.m. on Aug. 7.