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Friday, Jun 21, 2024

A nonprofit just joined forces with a major student-loan lender in asking a federal court to end the payment pause, saying the relief has limited the 'financial incentive' to work in public service

A nonprofit just joined forces with a major student-loan lender in asking a federal court to end the payment pause, saying the relief has limited the 'financial incentive' to work in public service

The New Civil Liberties Alliance filed a lawsuit to end the current student-loan payment pause and prevent Biden from issuing another extension.
The lawsuits keep on coming to end President Joe Biden's student-debt relief.

On Thursday, the New Civil Liberties Alliance, a nonprofit law firm aimed at protecting constitutional freedoms, filed a lawsuit on behalf of the Mackinac Center, a nonprofit think tank based in Michigan that advocates for limited government. The lawsuit targets Biden's continued extensions of the student-loan payment pause, and it asks the federal court in the Eastern District of Michigan to end the current pause and prevent Biden from issuing a further extension.

After Biden announced up to $20,000 in broad student-debt relief at the end of August, two conservative-backed lawsuits paused the plan's implementation. As a result, Biden extended the student-loan payment pause, with waived interest, through 60 days after June 30, or 60 days after the Supreme Court issues a final decision on the relief's legality, whichever happens first.

But Mackinac Center wrote in its complaint that "only Congress can categorically suspend repayment obligations for all student-loan borrowers nationwide. And only Congress can cancel the accrual of interest on student debt owed to the United States."

"The Department initially claimed a short extension was needed to enable Congress to decide whether to extend the suspension legislatively," the complaint said. "But electorally accountable lawmakers in Congress declined to extend the suspension of payment obligations and interest accrual any further, even as they repeatedly legislated all manner of other forms of Covid-19 relief. So, the Department apparently decided to ignore the law and extended the Payment-and-Interest Pause by administrative fiat."

The key argument the group is making relates to the Public Service Loan Forgiveness (PSLF) program, which is intended to forgive student debt for government and nonprofit workers after ten years of qualifying payments. It wrote in its complaint that as a nonprofit, PSLF offers an incentive for people with student debt to work at the group, but the payment pauses have taken away that incentive.

"If interest continues to accrue, then a borrower's outstanding debt that will be forgiven under PSLF after ten years is greater than if interest does not accrue. The borrower therefore has greater incentive to work for a public-service employer and to have that debt forgiven under PSLF. In other words, the benefit public-service employers receive under PSLF is greater if interest continues to accrue on student debt than if interest does not accrue," the complaint said.

"Conversely, if interest stops accruing, outstanding debt that will be forgiven under PSLF is less than it otherwise would be," it continued. "The financial incentive to work for a public-service employer thus falls commensurately."

The libertarian think tank Cato Institute filed a lawsuit in October challenging Biden's broad debt relief and used a similar argument, saying that the relief would undermine hiring efforts under PSLF. That lawsuit did not progress.

Still, Mackinac Center joins the efforts of SoFi Bank — a student-loan refinancing company — that filed a lawsuit last month to end the payment pause, and at the very least, return borrowers ineligible for Biden's broad debt relief back into repayment. The bank cited revenue loss that is said was directly caused by the continued payment pause extensions.

The Education Department has not yet commented on this lawsuit, but it previously said that SoFi's challenge would put millions of borrowers "at serious risk of financial harm."
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