Lawsuit Challenges Biden Administration’s Student Loan Forgiveness Plan

The lawsuit requests a judge to declare the cancellation illegal and halt the Education Department from implementing it until the case is resolved. Represented by the New Civil Liberties Alliance, the Mackinac Center for Public Policy and the Cato Institute are the plaintiffs in this suit.

In response, the Education Department criticized the lawsuit as “a desperate attempt from right-wing special interests” to keep borrowers in debt. The department affirmed its commitment to defend working families and stood firm against any backtracking.

This legal challenge is part of a larger pattern of Republicans opposing the Biden administration’s initiatives to reduce or eliminate student debt for millions of Americans. Despite the Supreme Court ruling, President Biden is determined to pursue an alternative cancellation plan. His administration is also introducing a more lenient repayment plan, which opponents view as a covert method of achieving cancellation.

On July 14, the Biden administration announced its intention to forgive loans for 804,000 borrowers enrolled in income-driven repayment plans. These plans have historically provided cancellation options after 20 or 25 years of consistent payments. However, due to past administrative errors, borrowers found themselves falling behind on their progress towards forgiveness. Consequently, the latest action was deemed a “one-time adjustment” that factored in periods of nonpayment and propelled borrowers across the 20- or 25-year threshold required for cancellation. Additionally, this adjustment brought millions of other borrowers closer to reaching that crucial milestone.

Addressing Forbearance Steering and Public Service Loan Forgiveness

A recent move by President Biden has sparked a legal battle surrounding student loans. The aim of this action was to tackle a concerning practice known as forbearance steering, which occurs when government-contracted student loan servicers incorrectly encourage borrowers to enter forbearance instead of enrolling in income-driven repayment plans that would better suit their needs during times of financial hardship.

As part of this one-time fix, past periods in forbearance are now recognized as progress towards Public Service Loan Forgiveness (PSLF). This program offers loan cancellation to individuals who have made 10 years’ worth of payments while working in government or nonprofit positions.

The groups behind the lawsuit, the Mackinac Center and Cato Institute, employ borrowers who are actively pursuing loan cancellation through the PSLF program. They believe that Biden’s action unlawfully fast-tracks progress towards relief, thereby diminishing the benefit for nonprofit employers.

In their allegations, the plaintiffs argue that this reduction in the PSLF service requirement harm public service employers who rely on the program to attract and retain highly educated employees.

It is worth noting that the Cato Institute has previously taken legal action against the administration regarding a cancellation plan that was ultimately struck down by the Supreme Court. Moreover, the Mackinac Center is separately challenging Biden’s temporary suspension of student loan payments, which is currently scheduled to end on October 1.

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