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Student Loan Payment Pause Faces New Legal Challenge

By Hugh T. Ferguson, NASFAA Managing Editor

A new lawsuit is seeking to upend the Department of Education’s (ED) continuation of the pause on federal student loan payments and interest accrual, arguing that all of the department’s approved extensions lack authority.

The most recent lawsuit was filed by the New Civil Liberties Alliance (NCLA) last week on behalf of the Mackinac Center for Public Policy, a free-market think tank, and argues that all of ED’s extensions of the payment pause that were offered without congressional approval are illegal and unconstitutional.

“The Department has repeatedly extended the payment-and-interest pause for a total of two-and-a-half years (and counting) beyond the six-month period Congress authorized,” the filing argues. “The Department has shifted among different purported legal authorities for these extensions and, for some extensions, has failed to invoke any legal authority at all.”

The lawsuit also argues that the cancellation of interest accrual diminishes the benefits that the Public Service Loan Forgiveness (PSLF) program offers as a competitive recruitment tool to “hire and retain” college-educated workers.

“If interest stops accruing, outstanding debt that will be forgiven under PSLF is less than it otherwise would be,” the legal filing states. “The financial incentive to work for a public-service employer thus falls commensurately.”

According to the filing, Mackinac Center for Public Policy has 45 employees and utilizes the PSLF program as an active recruiting tool.

This lawsuit is a broader challenge than a separate case seeking to end the payment pause, which argued that only the most recent extensions no longer relied on authority that enabled the administration to continue the pause.

NCLA in its lawsuit calls for an immediate end of the payment pause and interest accrual, and asks the court to find that each of the eight extensions exceeded the department’s authority; prohibit ED from making further extensions; restart monthly payment obligations; declare that ED does not have authority to count non-payments during the pause toward the 120 monthly payments required for PSLF debt forgiveness; and prohibit ED from counting non-payments as payments under the PSLF statute.

In the coming weeks the United States Supreme Court is expected to issue a ruling on the administration’s student loan debt cancellation program, which is expected to trigger the timeline for when student loan repayments will officially resume.

Stay tuned to Today’s News for more developments on the student loan debt cancellation program and utilize NASFAA’s debt cancellation web center for more information.

 

Publication Date: 4/11/2023


Jennifer A | 4/11/2023 5:46:00 PM

This is an absurd case. As someone who is working at an institution that offered PSLF benefits, it is laughable to think this payment pause causes “the financial incentive to work for a public-service employer [to] fall commensurately.” If anything, it has made working for my employer all the more beneficial knowing that my loans will be paid off and that interest wasn't a burden while I was working toward that 120 payment requirement. And for this lawsuit to suggest that ED does not have authority to count non-payments toward the 120 payment requirement for PSLF debt forgiveness (including the months of the payment pause) is just harmful to so many people who are working jobs that are public-service forward (like K-12 teachers) and make so much less than they deserve. Why should they have to suffer repayment of loans that accrue more interest than their monthly payment covers? It's just wrong. And why do these loan servicers want to punish borrowers so badly? Oh, that's right, cause it's all about that bottom line and getting their money. I hope all 45 employees from Mackinac Center for Public Policy resign from their job in protest to this lawsuit.

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