Active: Federal lawsuit filed in Southern District of Indiana

On August 24, 2022, President Biden revealed his plans to cancel federal student debt. The announcement itself wasn’t much of a surprise. Student loan cancellation surfaced as an issue on his way to the White House and has continued to be discussed through the administration after he was elected.

The price tag is astonishing: Biden directed the Department of Education to cancel either $10,000 or $20,000 in student debt held by more than 40 million borrowers, for a one-time cost of more than $500 billion.

Most alarming, however, is the speed, informality, and utter lawlessness used to set the plan in motion. Not since President Trump imposed a nationwide eviction moratorium before the 2020 elections has a president abused his power so blatantly.

Lacking legislative authority to carry out the president’s wishes, the Education Department turned to The HEROES Act. Enacted in 2003 in response to the Iraq war, The HEROES Act allows the government to modify loans to assist veterans and their families as needed during times of war or other national emergencies.

The Education Department issued a memo insisting the military-focused HEROES Act granted the agency student debt-cancelling powers to combat the financial harms caused by the pandemic. But President Biden himself recently declared that the pandemic “is over.” So The HEROES Act is a flimsy pretext for a major policy change that Congress has declined to enact. And even if the Education Department had this power, it should have gone through typical notice and comment rulemaking.

The first wave of cancellations is expected to launch in early October, with automatic cancellations for eight million borrowers in preexisting loan repayment programs.

This includes Frank Garrison, a public interest attorney who holds federal student loan debt, including Pell Grants. He has paid his loans for the past six years as a part of a Public Service Loan Forgiveness program (PSLF). Congress created that program to incentivize nonprofit and public service by offering full loan forgiveness after 10 years of payments. Frank anticipates full forgiveness in approximately four years. Frank’s enrollment in PSLF means ED’s new $20,000 loan cancellation will automatically apply to his loans.

Frank lives in Indiana, which taxes the upcoming cancellation as income but does not tax his future PSLF loan forgiveness. Frank will be stuck with a tax bill that makes him financially worse off than continuing with his repayment program under PSLF. He did not ask for cancellation, doesn’t want it, and has no way to opt out of it.

Hundreds of thousands of public interest workers and public servants in at least six states—Indiana, Wisconsin, North Carolina, Minnesota, Mississippi, and Arkansas—will be stuck in a similar situation as Frank, according to the White House’s fact sheet.

By deciding to work in public interest—now at Pacific Legal Foundation—Frank chose to take a lower salary than he could have earned in private practice, incentivized in part by Congress’ authorized forgiveness program. Now the president is changing the rules in what is, by all appearances, a political move in advance of an election. But whatever the administration’s motives, the loan cancellation program has been rushed, is ill thought out, and will have significant unintended consequences for borrowers, students, colleges, and the economy in general.

Among other effects, injecting $500 billion of government money into higher education debt will likely raise college costs for everyone and saddle ordinary Americans with a debt they never incurred.

Loan cancellation is incredibly controversial—and very unpopular when Americans consider the cost. It will inevitably lead to greater divisions among Americans, as those who paid their loans or did not attend college—typically older and blue-collar Americans—will have good reason to think that we no longer have a government of, by, and for the people, but one that serves those with the loudest voices at any given moment or are most like those in power.

This is why the Framers designed the Constitution as they did. The separation of powers ensures that no department of government can make unilateral decisions, and that laws come from the body that represents the people: Congress. Even when Congress does the wrong thing, the lawmaking process ensures that the people’s voices are heard. Ramming expensive and divisive programs down the throats of Americans through executive fiat is never a good idea.

On behalf of Frank and other borrowers like him, Pacific Legal Foundation filed the nation’s first lawsuit challenging the Education Department’s unacceptable abuse of executive authority to restore the rule of law and to enforce the Constitution’s separation of powers.

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What’s At Stake?

  • Congress did not authorize the executive branch to unilaterally cancel student debt. It’s flagrantly illegal for the executive branch to create a $500 billion program by press release, and without statutory authority or even the basic notice and comment procedure for regulations.
  • Cancelling student debt is unjust to those who have paid their loans or never took any. It will only lead to more calls for government intervention in education at taxpayers’ expense. It will make Americans more divided, as those who paid their loans—or never went to college—will have good reason to think that we no longer have a government of, by, and for the people.

Case Timeline

December 05, 2022
Opening Brief
United States Court of Appeals for the Seventh Circuit
November 01, 2022
Motion for Injunction Pending Appeal
United States Supreme Court
October 24, 2022
October 21, 2022
October 10, 2022
September 27, 2022