Groups challenge Biden’s new student loan forgiveness plan in wake of Supreme Court defeat

Nonprofit organizations are challenging President Biden’s new student loan forgiveness plan, which was rolled out just after the Supreme Court batted down his last attempt in June.

The Cato Institute and the Mackinac Center for Public Policy, represented by the New Civil Liberties Alliance, filed a federal lawsuit in Michigan last week against the feds over the “One-Time Account Adjustment” plan, which would give more than 800,000 student loan borrowers forgiveness totaling about $39 billion.

The groups argue the move decreases the incentive for borrowers to work in the public service field — including at their institutions — and that the administration violated federal law in implementing the plan. They’ve asked the court to block the forgiveness.

“The Court should declare this forbearance-credit scheme unlawful, set it aside, and enjoin any cancellation of student loans based on it,” the lawsuit read.

The lawsuit claims the move to reduce required work from 10 years to seven years for certain borrowers will disadvantage organizations like Cato and Mackinac Center for Public Policy.

“By having their loans canceled three years early, 3.6 million borrowers will each make 36 fewer monthly payments, resulting in the cancellation of 130 million monthly payments. Thus, the $39 billion cancellation of debt for 804,000 borrowers that will occur in August 2023 is just the tip of the iceberg — 2.8 million other affected borrowers await similar future cancellation under the same illegal forbearance-credit scheme,” read the complaint.

Lawyers for the groups say the feds are trying to count nonpayments as payments, which shouldn’t be permitted.

“Newsflash for Secretary Cardona and Administrator Cordray: Nonpayments are not payments. No amount of nonsense changes the essential fact Congress required debtors to make payments before receiving debt relief,” said Mark Chenoweth, president and general counsel of the New Civil Liberties Alliance.

On July 14, the Department of Education released a press release touting its plan to notify 804,000 borrowers that they’re loan payments have been adjusted. The move will help ease $39 billion in student debt.

The discharges were reportedly part of a “fix” the Biden-Harris administration implemented to provide an accurate account of payments for those qualifying under Income Driven Repayment plans and those under Public Service Loan Forgiveness programs.

According to the Associated Press, the “fix” was to address “forbearance steering” where loan services suggested borrowers should go into forbearance, pausing payments for a certain period of time.

The IDR program usually requires 20-25 years of payments. Under the new adjustment, though, a borrower may be eligible for forgiveness after making 240 monthly payments, or roughly 20 years of monthly payments. That would erase about three years of debt still owed.

A spokesperson from the Justice Department did not immediately comment on the litigation.

The Education Department said the suit was “a desperate attempt from right-wing special interests to keep hundreds of thousands of borrowers in debt.”

“We are not going to back down or give an inch when it comes to defending working families,” the department told the Associated Press.

In June, the Supreme Court invalidated Mr. Biden’s previous student loan plan in a 6-3 ideologically divided ruling. The plan would have forgiven $400 billion in debt.

Chief Justice John G. Roberts Jr., writing the key opinion, said the law Mr. Biden cited for claiming the power to forgive loans, which was passed in the wake of 9/11 and aimed at helping members of the military afford college, could not be stretched as far as the president believes.