Judge dismisses suit to halt Biden’s student debt relief for longtime borrowers

A federal judge on Monday denied a bid by two conservative groups to block the Biden administration from canceling the federal student loans of more than 800,000 people who have been in repayment for more than 20 years.

The Cato Institute and Mackinac Center for Public Policy filed a lawsuit earlier this month, saying the administration violated federal law by failing to produce the forgiveness policy through the traditional rulemaking process and offer the public the opportunity to comment. The groups also claimed the policy would harm their recruitment efforts and asked the court to stop the federal government from canceling any debt as the case proceeds.

U.S. District Judge Thomas L. Ludington of the Eastern District of Michigan issued an 18-page order dismissing the case, concluding the groups lacked the standing to stop one of the administration’s latest efforts to alleviate the burden of student debt.

“We disagree with the court’s conclusion regarding legal standing and are reviewing our legal options,” said Sheng Li, an attorney at the New Civil Liberties Alliance, which is representing the conservative groups in the lawsuit.

The decision landed on the same day the Education Department began discharging $39 billion in federal student loans held by more than 804,000 borrowers who have been in repayment for more than 20 years.

“On Day One of my Administration, I promised to fight for hardworking families and to fix problems in the student loan system that have been failing borrowers for too long. I’m proud that my Administration is delivering on that promise,” President Biden said in a statement Monday, touting the start of the debt relief effort.

With the debt forgiveness, the Biden administration is trying to fix decades of mismanagement of income-driven repayment plans for federal student loan borrowers. The plans cap monthly payments at a given percentage of earnings, with the promise that the balance will be forgiven after 20 or 25 years of payments.

A 2022 Government Accountability Office report found the department did not accurately track payments until a decade after the first income-driven plan was implemented. State and federal authorities also accused student loan servicers of too often steering borrowers into long-term forbearances, a less time-consuming option but one that doesn’t count toward loan forgiveness. As a result, very few borrowers have received forgiveness through the programs.

In response, the Biden administration announced in April 2022 that any month in which borrowers were in repayment status would count toward forgiveness - even if they were not enrolled in an income-driven plan. The department estimated that relaxing the rules would give 3.6 million people at least three years of additional credit. The adjustment helped over 800,000 people hit the payment benchmark needed to receive loan forgiveness.

But Cato and the Mackinac Center said Congress, which created income-driven repayment plans in the 1990s, never gave the Education Department authority to give credit for nonpayment.

The groups also challenged credit provided to borrowers in long-term forbearance seeking Public Service Loan Forgiveness, in which public sector and nonprofit workers can have the balance of their loans forgiven after 10 years of service. Cato and the Mackinac Center argued that the policy harms nonprofit employers like them by reducing the value of forgiveness as a recruitment tool if borrowers can get debt relief in less than 10 years.

In his opinion, Judge Ludington said the groups could not prove that the adjustment would impact any current employees or that they will “imminently hire any employee who will have received such credit.”

“Even if plaintiffs could show that the adjustment concretely increased their labor costs or decreased the effectiveness of their recruitment efforts,” the judge said, “plaintiffs do not show how this would increase competition and no such increase is obvious.”