In a sweeping legal defeat of the former Biden administration, the U.S. Court of Appeals for the Eighth Circuit ruled that the administration’s student loan forgiveness efforts were unconstitutional. The ruling effectively declares illegal the vast majority of the $188.8 billion in loan forgiveness granted to 5.3 million borrowers.

This decision comes after the U.S. Supreme Court’s 2023 ruling in Biden v. Nebraska, which struck down an earlier $430 billion forgiveness plan. Despite this, the administration continued to push widespread debt cancellation through executive action, a move that legal experts and lawmakers argued was an overreach of executive authority.

The Mackinac Center for Public Policy and Cato Institute, in partnership with the New Civil Liberties Alliance as lead counsel, challenged this latest loan forgiveness attempt in multiple lawsuits. The Center also filed amicus briefs in support of other legal efforts to stop the administration’s actions.

The court’s ruling makes it clear that the U.S. Secretary of Education does not have the authority to unilaterally erase hundreds of billions of dollars in student debt. The court decision featured several strong statements reinforcing this point:

• “The agency’s consistently wrong interpretation cannot rewrite the statute’s text to change its meaning.”

• “We are hard pressed to conclude that Congress, by directing the Secretary to enact a repayment plan with varying payments based on income over a period not exceeding twenty-five years, believed it authorized the Secretary to wipe out any remaining principal or interest of any borrower in as few as ten years of low or no payments.”

• “It makes little sense to enact these programs if the Secretary has always had the statutory power to wipe away debt through accounting tricks.”

• “The Secretary envisions the ability to establish [repayment] plans as a nearly limitless power to transform federal loans into grants by virtue of modifying payment thresholds and forgiveness timelines.”

The financial burden of the now-invalidated forgiveness plan was substantial. According to the Tax Foundation, with approximately 154 million tax returns filed in 2022, the cost of the plan would have amounted to an estimated $1,200 per taxpayer.

“We are pleased with the court’s decision and that this enormous fiscal damage has been stopped,” said Patrick Wright, vice president of legal affairs at the Mackinac Center for Public Policy. “But this whole brazen forgiveness scheme to circumvent Congress in order to give $188 billion to politically favored voters was shameful and worthy of congressional investigation.”

The decision reinforces the constitutional principle that only Congress has the power of the purse, preventing the executive branch from unilaterally forgiving billions in debt at taxpayer expense.

For more information, read the court’s decision here and see the Mackinac Center case page here.