The group asks the court to suspend the program and give the public an opportunity to review it, arguing that the program violates federal law because the administration did not go through the rulemaking process to create it.
“A pardon program of this magnitude should have gone through rulemaking,” said Shen Lee, a New Liberal and Civil Rights Alliance attorney who represents the groups in the lawsuit. “Governments cannot impose such policies without proper channels.”
The Department of Education did not immediately respond to a request for comment on the lawsuit.
At issue is the Department’s decision to allow borrowers who defer payments for years on moratorium to count those years toward student loan forgiveness.
The group argues that Congress, which developed the first income-driven plans in the 1990s, never gave the department the authority to count unpaid bills as payments. They argue that the same is true for “public service loan forgiveness,” which allows public sector and nonprofit workers to have their loan balances forgiven after 10 years of service. The ministry also gave long-term grace period exemption credits to public service workers as part of an income-driven adjustment plan.
The group is asking the court to declare the moratorium credit policy illegal, shelve it, and block student loan cancellations based on it. They argue that if borrowers get the exemption within 10 years, the policy will degrade the PSLF’s value as a recruitment tool and harm nonprofit employers like them. The groups challenged payment suspensions and Mr. Biden’s extensive student loan forgiveness program, and made similar allegations in a separate lawsuit they won.
In the first round of the coronavirus relief bill, Congress said any month in which a borrower benefited from a suspension of payments, a form of deferment, would count toward forgiveness of loans to government employees. Lee argues that the law was in effect for only six months and that subsequent extensions by the Trump and Biden administrations were illegal.
About half of the more than $1 trillion in outstanding student loans issued directly by the federal government are paid off through one of four income-driven plans. The plan promises to limit monthly payments to a percentage of income and forgive the balance after 20 or 25 years of payments.
However, a 2022 General Accounting Office report found that the education ministry did not accurately track payments until 10 years after the first income-driven plan was implemented. The authorities have never provided debtors with regular updates on progress toward debt forgiveness or readily available information on forgiveness requirements, researchers said.
To rectify past problems, Education Secretary Miguel Cardona announced in April 2022 that months in repayment status will count toward the exemption, even if the borrower is not enrolled in an income-based plan. At the time, the ministry estimated that relaxing the rules would give 3.6 million people at least three years of extra credit.
Given this projection, the Cato Institute and the Mackinac Center say the $39 billion debt from debt cancellation is only a fraction of the plan’s actual cost. Assuming no change in termination costs per borrower, the group estimates that the reconciliation program could cost taxpayers $175 billion in unpaid payments and interest, according to the complaint. .
The lawsuit comes weeks after the Department of Education announced it had begun notifying eligible persons of impending debt relief. The announcement drew criticism from Congressional Republicans as a policy to circumvent a Supreme Court ruling barring the president from making sweeping debt cancellations without congressional approval.
“The Biden administration’s blatantly political attempt to circumvent the Supreme Court is shameful,” said Rep. Virginia Fox, the chairman of the House Education Committee. “The Biden administration is trampling the rule of law, harming borrowers and abusing taxpayers to chase headlines.”
This isn’t the first time the Cato Institute and the Mackinac Center have opposed Mr. Biden’s student-loan policies. Cato, a libertarian think tank, last year sued the Department of Education to block Mr. Biden’s debt-relief plan, alleging that the president exceeded his powers. The Mackinac Center, a free-market think tank, is still fighting in court to challenge the government’s repeated suspension of pandemic-related student loan payments.
