Lawsuit filed to stop new student loan income-driven repayment plan

The New Civil Liberties Alliance (NCLA) filed a lawsuit on Friday against the Biden administration’s new student loan income-driven repayment (IDR) plan. 

The lawsuit comes after the Department of Education launched a beta website this week for the Saving on Valuable Education (SAVE) application, the new IDR plan the White House has dubbed the “most generous” for student borrowers. 

The NCLA, on behalf of the Cato Institute and the Mackinac Center for Public Policy, filed a suit in the U.S. District Court for the Eastern District of Michigan to stop the implementation of this plan. 

The NCLA is arguing the new IDR plan violates the  Constitution’s Appropriations Clause, which allows Congress to be in charge of what debt owed to the Treasury can be canceled. 

Under the SAVE plan, loan forgiveness would come quicker for many borrowers. For one, the plan allows anyone who has an original principal balance of $12,000 on their student loan to get forgiveness after ten years of payments. 

It also allows certain periods of deferment and forbearance to count towards the time needed to get full forgiveness on an individual’s loan. 

“In the Nebraska case, the Supreme Court struck down the Department of Education’s brazen attempt to pull a billion-dollar ‘elephant’ out of a statutory ‘mousehole.’ This time the Department’s loan-cancellation scheme does not even pretend to have a statutory ‘mousehole,'" Sheng Li, Litigation Counsel for NCLA, said. "The PSLF and IDR statutes require borrowers to make a certain number of monthly payments before earning forgiveness. By trying to count non-payments as payments, the strategy seems to be to cancel $39 billion faster than a court can review and stop this blatantly unlawful act,” 

Along with the $39 billion the NCLA says the department could cancel almost immediately, it would allow debt to be canceled for 2.8 million more IDR borrowers in the future. 

“Instead of promulgating the plan through the required notice-and-comment and negotiated rulemaking process under the Administrative Procedure Act, the Department simply issued a press release that did not identify any laws to justify it,” NCLA wrote.

The challenge to the SAVE plan comes two months before student loan borrowers will be forced back into repayment after the three-year COVID-19 student loan pause. 

The Hill has reached out to the Department of Education for comment.