Student Loan Cancellation Update as Federal Court Asked to Block Biden Plan

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Giulia Carbonaro is a Newsweek reporter based in London, U.K. Her focus is on the U.S. economy, housing market, property insurance market, local and national politics. She has previously extensively covered U.S. and European politics. Giulia joined Newsweek in 2022 from CGTN Europe and had previously worked at the European Central Bank. She is a graduate in Broadcast Journalism from Nottingham Trent University and holds a Bachelor's degree in Politics and International Relations from Università degli Studi di Cagliari, Italy. She speaks English, Italian, and a little French and Spanish. You can get in touch with Giulia by emailing: g.carbonaro@newsweek.com.

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Two conservative groups filed a lawsuit in Michigan on Friday asking a federal court to block President Joe Biden's plan to cancel $39 billion in student loans for hundreds of thousands of Americans that he announced late last month.

The Biden administration announced on July 14 that it would cancel a total of $39 billion in student loans for 804,000 borrowers starting August 13, a more modest plan than the one initially announced in August last year that would have cost an estimated $400 billion.

The original plan, which gave the president power to revise the student loan program during national emergencies, was hotly contested by Republicans and was struck down by the U.S. Supreme Court last month. According to a majority of the justices, Biden didn't have the authority to forgive that much debt without Congress' approval.

The new plan is based on a different principle, though it has a similar goal. It would accurately count the number of years that borrowers enrolled in income-driven repayment (IDR) plans didn't get the debt forgiveness they were entitled to, as the payments that should have moved them toward becoming debt-free were not accounted for.

Joe Biden
President Joe Biden announces new actions to protect borrowers after the U.S. Supreme Court struck down his student loan forgiveness plan, in the Roosevelt Room at the White House on June 30, 2023, in Washington,... Chip Somodevilla/Getty Images

Borrowers on most plans are entitled to have their debt forgiven after 20 or 25 years of payments, depending on what and when they borrowed, and their plan type, but due to "past administrative failures" their progress wasn't kept into account.

But even the new plan is being met with some resistance from conservatives.

Friday's lawsuit, which claims that the president and his administration overstepped their role and power in announcing the new student loan forgiveness plan, was filed by the New Civil Liberties Alliance on behalf of the Mackinac Center for Public Policy and the Cato Institute.

It calls for a judge to declare Biden's plan illegal and block the Education Department from carrying out the administration's plan while the case is being decided.

"No authority allows the Department to count non-payments as payments," reads the lawsuit, adding that the decision came as "a press release that neither identified the policy's legal authority nor considered its exorbitant price tag."

The two groups accuse the Biden administration and the Education Department of setting "an accelerated schedule" for the new plan "apparently designed to evade judicial review."

"Cato is challenging the Biden administration's latest attempt to forgive student loans because it is a policy that Congress has not authorized and that the executive branch is therefore powerless to adopt," Clark Neily, Cato's senior vice president for legal studies, told Newsweek.

"The Constitution divides power among different branches and levels of government in order to protect liberty and promote democratic decision-making. The courts play a vital role in enforcing those limits and preventing public officials from exercising powers they do not lawfully possess."

The Education Department called the suit "a desperate attempt from right-wing special interests to keep hundreds of thousands of borrowers in debt," as reported by the Associated Press. "We are not going to back down or give an inch when it comes to defending working families."

The Biden administration's original student loan forgiveness plan was also hit by a series of lawsuits filed by Republicans opposing the measure, a move that led to the program being blocked for months before being effectively sunk by the Supreme Court.

The Cato Institute previously sued the Biden administration for the original, broader plan.

Newsweek reached out to the Mackinac Center for Public Policy by email on Monday for comment.

Update 8/8/23, 6:40 a.m. ET: This article was updated to include a comment by Clark Neily from the Cato Institute.

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About the writer

Giulia Carbonaro is a Newsweek reporter based in London, U.K. Her focus is on the U.S. economy, housing market, property insurance market, local and national politics. She has previously extensively covered U.S. and European politics. Giulia joined Newsweek in 2022 from CGTN Europe and had previously worked at the European Central Bank. She is a graduate in Broadcast Journalism from Nottingham Trent University and holds a Bachelor's degree in Politics and International Relations from Università degli Studi di Cagliari, Italy. She speaks English, Italian, and a little French and Spanish. You can get in touch with Giulia by emailing: g.carbonaro@newsweek.com.

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Giulia Carbonaro is a Newsweek reporter based in London, U.K. Her focus is on the U.S. economy, housing market, property ... Read more