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New Lawsuit Challenges ED’s Student Loan Forgiveness After Fixes to Income-Driven Repayment Plans

By Maria Carrasco, NASFAA Staff Reporter

A new lawsuit aims to stop the Department of Education (ED) from forgiving $39 billion in student loan debt after the department announced fixes to income-driven repayment (IDR) plans.

In July, ED announced that it is forgiving $39 billion in federal student loan debt for 804,000 eligible borrowers enrolled in IDR plans after a one-time adjustment was made to address “historical failures” of the federal student loan program, in which qualifying payments made under IDR plans were not accounted for. Borrowers are eligible for loan forgiveness if they made either 20 or 25 years of monthly IDR payments, depending on the plan, and were notified about their eligibility in July. 

Discharges of those borrowers’ loans are expected to begin on August 13. This forgiveness is separate from the Biden administration’s plans for a one-time student loan forgiveness of up to $20,000, which was recently struck down by the United States Supreme Court. 

This lawsuit was filed by the New Civil Liberties Alliance (NCLA) on behalf of the Cato Institute and the Mackinac Center for Public Policy. The groups argue that ED violated its authority and that the Constitution grants Congress “near-exclusive authority to cancel debt owed to the Treasury.” Additionally, ED through the IDR forgiveness is “crediting non-payments during periods of forbearance as monthly payments,” NCLA said in a press release

“No authority allows the Department to count non-payments as payments,” the lawsuit states. “In addition to illegally accelerating PSLF and IDR forgiveness by three years, the ‘One-Time Account Adjustment’ scheme will outright cancel a massive amount of debt owed to the Treasury.”

The groups also argue that forgiving these borrowers’ student loan debt would “erase their incentive” to seek student loan forgiveness through the Public Service Loan Forgiveness (PSLF) program and would hurt nonprofit organizations. 

“Newsflash for Secretary Cardona and Administrator Cordray: Non-payments are not payments,” said President and General Counsel of NCLA Mark Chenoweth, in a statement. “No amount of nonsense changes the essential fact Congress required debtors to make payments before receiving debt relief.”

An ED spokesperson said the Biden 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 ED spokesperson said. “We are not going to back down or give an inch when it comes to defending working families.”

 

Publication Date: 8/8/2023


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