A new legal challenge may threaten one of the Biden administration’s signature student loan forgiveness initiatives. The administration has focused on other programs after the Supreme Court struck down Biden’s broader student debt relief plan in June.
The new lawsuit comes just as the Education Department is preparing to implement the first wave of approvals under that program. And hundreds of thousands of other borrowers have already received relief.
Here’s the latest.
Lawsuit Challenges Student Loan Forgiveness Under IDR Account Adjustment
The latest lawsuit was filed last Friday by the New Civil Liberties Alliance on behalf of the Cato Institute and the Mackinac Center for Public Policy — conservative groups which have challenged several other Biden administration student debt relief initiatives.
The target of this suit is the IDR Account Adjustment, a temporary initiative that allows the Education Department to retroactively credit borrowers with time toward their 20- or 25-year student loan forgiveness term, including certain past periods of deferment and forbearance. The credit can also apply toward Public Service Loan Forgiveness for borrowers who were working in qualifying nonprofit or government employment at the time.
Last month, the Education Department notified over 800,000 borrowers that they qualify for student loan forgiveness under the IDR Account Adjustment. The relief, totalling over $39 billion, is expected to be implemented in the coming weeks.
But the newest legal challenge is seeking to block this relief. The challengers argue that Congress did not authorize the Education Department to enact student loan forgiveness by counting past non-payment periods as time spent in repayment for purposes of IDR and PSLF.
“No authority allows the Department to count non-payments as payments,” says the Complaint. “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.”
Devastating Potential Impacts On Student Loan Forgiveness
The lawsuit, if successful, could have devastating impacts on hundreds of thousands of student loan borrowers. In addition to reversing the loan forgiveness approvals issued last month, the challenge also seeks declaratory judgments vacating the IDR Account Adjustment, blocking additional borrowers from receiving IDR and PSLF credit under the initiative.
Equally concerning is that the Biden administration has already granted billions of dollars in student loan forgiveness under the program, primarily to borrowers working in public service careers, as the IDR Account Adjustment effectively extended and expanded many elements of the earlier Limited PSLF Waiver. While the lawsuit does not explicitly call for a reversal of IDR and PSLF credit already granted — and does not expressly call for a nullification of student loan forgiveness already approved — this past credit could potentially be in jeopardy if the IDR Account Adjustment is retroactively vacated.
Problems With Lawsuit Seeking To Block Student Loan Forgiveness
While the lawsuit presents significant potential risks to student loan borrowers, there are also potential problems for the challengers.
One possible issue for the challengers is the concept of standing. To have standing, a party must be able to demonstrate that they would suffer a concrete and identifiable injury as a direct result of the challenged program. The challengers, which are nonprofit organizations, argue that they would be harmed because the retroactive credit provided by the IDR Account Adjustment would devalue PSLF and reduce the incentive for borrowers to choose public service careers. This type of speculative and somewhat vague form of injury may not be sufficient to confer standing on the organizations (not to mention that the relief they are seeking — reversing student loan forgiveness credit — would seemingly harm the very borrowers the organizations are purportedly trying to recruit and retain).
Another possible problem for the challengers is the timing of their suit. The IDR Account Adjustment was first announced in April 2022 — well over a year ago. Hundreds of thousands of borrowers have already benefited from the initiative or have taken action in reliance on the program. The Education Department will likely call into question why the challengers waited so long to file the suit, if the purported injury is in fact as imminent and dire as claimed.
Next Steps For Student Loan Forgiveness Challenge
The challengers are seeking an injunction to block the Education Department’s approval of $39 billion in student loan forgiveness under the IDR Account Adjustment, among other relief. It is unclear if the court — the U.S. District Court for the Eastern District of Michigan — could issue a ruling before the department implements this first wave of relief. The department could start processing student loan forgiveness as soon as next week.
For now, borrowers will have to wait and see how the legal process plays out.
Further Student Loan Forgiveness Reading
Student Loan Forgiveness Just Got Easier For These Borrowers
Education Department Adds New Deadline For Student Loan Borrowers As Payments Resume
5 Student Loan Forgiveness Updates As Payments Resume In A Matter Of Weeks
Here’s When The Next Student Loan Forgiveness Notifications Will Go Out
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