The Cato Institute and Mackinac Center for Public Policy filed a lawsuit challenging the Biden administration’s plan to cancel $39 billion in federal student loans held by more than 804,000 borrowers who have been in repayment for more than 20 years.
The Education Department did not immediately respond to requests for comment on the lawsuit.
The groups argue that Congress, which created the first income-driven plan in the 1990s, never gave the department the authority to count non-payments as payments. They say the same is true as of Public Service Loan Forgiveness, in which public sector and nonprofit workers can have the balance of their loans forgiven after 10 years of service.
Roughly half of the more than $1 trillion in outstanding student loans made directly by the federal government are being repaid through one of four income-driven plans. 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.
Given that projection, the Cato Institute and Mackinac Center say the $39 billion in debt in debt cancellation is only a fraction of the true cost of the plan. Assuming the per-borrower cost of cancellation remains unchanged, the groups estimate the adjustment program could cost taxpayers $175 billion in forgone payments and interest, according to the complaint.The lawsuit arrives weeks after the Education Department said it began notifying eligible people of the impending debt relief.
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