Before the ink dried on the United States Supreme Court decision that struck down an unconstitutional student-loan cancellation program, the United States Department of Education rushed to announce several equally unlawful loan cancellation schemes. If left unchecked, one of these plans could cost American taxpayers $175 billion.
CASE UPDATE: On May 17, 2024, the Sixth Circuit Court of Appeals has dismissed an appeal based on standing. The Mackinac Center, NCLA and Cato Institute are considering their legal options.
In June 2023, the United States Supreme Court struck down an unconstitutional $430 billion student-loan cancellation program that had previously been announced by the United States Department of Education. Before the ink had dried on the Supreme Court decision however, the Department of Education rushed to announce several equally unlawful loan cancellation schemes.
This new plan would mean the immediate cancelation of $39 billion owed to the Treasury by more than 800,000 student-loan borrowers, starting on August 13th. Additionally, the plan was put on an accelerated schedule, apparently designed to evade judicial review.
The $39 billion cancellation is part of a broader plan to wipe out the federal student-loan debt of more than 3.6 million borrowers. The Department of Education is crediting borrowers with at least three years of “forbearance” from making monthly payments on their loans under the Public Service Loan Forgiveness (PSLF) and Income-Drive Repayment (IDR) programs.
The PSLF and IDR programs allow borrowers to have loans forgiven either by making qualified payments based on income, or by making payments while working for certain employers, such as the government or charities.
The issue, however, is that the PSLF and IDR statutes are both clear that they require monthly payments for periods of 10 or 20 years respectively. By attempting to allow three years of non-payments to count as payments, the Department of Education is violating both the spirit and the letter of these programs.
In addition to illegally accelerating PSLF and IDR loan-forgiveness timelines, the “One-Time Account Adjustment” scheme will outright cancel a massive amount of debt owed to the Treasury. If enacted, 800,000 borrowers would see their debt cancelled three years early, at a cost of $39 billion. But that’s just the tip of the iceberg. If 3.6 million borrowers each make 36 fewer monthly payments, resulting in a total of 130 million fewer payments, the cost to taxpayers will be $175 billion.
On August 4, 2023, the New Civil Liberties Alliance filed suit on behalf of the Mackinac Center for Public Policy and the Cato Institute. The Alliance argues the Department of Education’s actions violate the Constitution’s Appropriations Clause, which grants Congress near-exclusive authority to cancel debt owed to the Treasury. Even if Congress has delegated some authority to the Department of Education, it would still have needed to adopt this plan through the required rulemaking process under the Administrative Procedure Act. Instead, the Department simply issued a press release that did not identify any law providing the authority to enact the Department’s plan.
The Department of Education’s plans are bad policy, unlawfully enacted. Neither the President nor the administrative state has the authority to forgive student loans without Congressional approval. The Mackinac Center has previously challenged and will continue to challenge unlawful violations of the Constitution’s separation of powers.
On August 11th, the lawsuit was dismissed due to lack of standing. The Mackinac Center Legal Foundation filed an appeal on August 15th.
The Sixth Circuit Court of Appeals affirmed the district court's decision and dismissed the case on standing. The NCLA, Mackinac Center, and Cato Institute are reviewing their legal options.
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