Mackinac Center for Public Policy v. U.S. Department of Education, Miguel Cardona, and Richard Cordray ​

Joseph G. Lehman, President of the Mackinac Center for Public Policy

CASE SUMMARY

In response to the Covid-19 pandemic, Congress lawfully suspended monthly payment obligations and interest accrual on federally held student loans for a period limited to six months. After that statutory deferment period expired in September 2020, however, the Department of Education unilaterally extended it without congressional appropriation eight different times. In this case, NCLA challenges the legality of extending the suspension 30 months past the statutory expiration date, which has cost taxpayers over $150 billion from lost interest. Only Congress can categorically suspend repayment obligations for all student-loan borrowers nationwide, and only Congress can cancel the accrual of interest on student loan debt owed to the United States

Congress enacted the Public Service Loan Forgiveness Program (PSLF) in 2007 to help 501(c)(3) nonprofit organizations like the Mackinac Center attract employees with a debt-relief incentive keyed to working ten years for nonprofits. The Department of Education’s suspension of repayment obligations is an unlawful form of debt relief that substantially reduces the incentives PSLF provides and thus undermines Congress’s goals in enacting that program. As NCLA has argued previously, reducing that incentive directly harms nonprofit employers.

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CASE STATUS: Active

CASE START DATE: April 6, 2023

DECIDING COURT: U.S. District Court for the Eastern District of Michigan

ORIGINAL COURT: U.S. District Court for the Eastern District of Michigan

CASE DOCUMENTS

December 4, 2023 | Plaintiff’s Memorandum in Opposition to Defendants’ Motion to Dismiss

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October 6, 2023 | First Amended Complaint for Declaratory, Injunctive, and Other Relief

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May 11, 2023 | Plaintiff’s Motion for Preliminary Injunction
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April 6, 2023 | Complaint for Declaratory, Injunctive, and Other Relief
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PRESS RELEASES

December 5, 2023 | NCLA Asks Court to Uphold Lawsuit Against Dep’t of Education’s Illegal Student Loan Payment Pause

Washington, DC (December 5, 2023) – The U.S. government has asked a federal judge to dismiss an NCLA lawsuit on behalf of the Mackinac Center for Public Policy against the Dept. of Education’s unlawful 35-month suspension of monthly student loan payment obligations. The New Civil Liberties Alliance has filed a response urging the U.S. District Court for the Eastern District of Michigan to continue the case, Mackinac Center for Public Policy v. U.S. Department of Education, and take action against the Department’s abuse of power.

Congress lawfully suspended monthly payment obligations and interest accrual on federal student loans by statute for six months in 2020 in response to the Covid-19 pandemic. The Mackinac Center has no objection to Congress’s exercise of its exclusive power of the purse to pause payments and cancel approximately $30 billion in interest that would otherwise have accrued. However, when that statutory suspension expired in September 2020, the Department unilaterally extended it without any lawful basis for nearly 35 additional months at a cost of at least $175 billion to taxpayers. That’s a problem. Each month of administrative extension of this payment-and-interest suspension has unlawfully cancelled debt in violation of the Constitution’s Appropriations Clause.

The payment-and-interest suspension eviscerated the financial incentives that Public Service Loan Forgiveness Program (PSLF) provides for borrowers to work at public service employers like the Mackinac Center, irreparably harming these organizations and circumventing Congress’s goals in creating the program. Congress enacted the PSLF in 2007 to help nonprofit groups attract employees by forgiving a borrower’s debt after that borrower makes 120 monthly payments while working for nonprofit organizations or other public service employers. The 35-month suspension has unconditionally cancelled at least $175 billion in debt that could otherwise be forgiven under PSLF, thus reducing the incentive for affected borrowers to seek debt cancellation through the program. The government is also counting 35 months of non-payments during the suspension as “monthly payments” needed to earn loan forgiveness through PSLF and other programs, drastically shortening the statutorily mandated time that borrowers are incentivized to work for public service employers like the Mackinac Center.

NCLA asks the Court to declare these suspension and debt cancellation measures unlawful and put a stop to them before the Department of Education can overstep its authority even more. NCLA proudly represents the Mackinac Center and Cato Institute in a different lawsuit against the Department for canceling $39 billion of student loan debt owed under the Income-Driven Repayment program by crediting non-payments during periods of forbearance as monthly payments via a “One-Time Account Adjustment.” These lawsuits appear to be the main efforts—and perhaps the only ones since the Supreme Court’s decision in Biden v. Nebraska last June—to force the Department of Education to obey that decision and apply its holding to its other student debt actions.

NCLA released the following statements:

“The Department’s own regulation concedes that PSLF’s purpose is to ‘encourage individuals to enter and continue in full-time public service employment,’ so its denial of economic injury here is self-contradictory. By granting hundreds of billions of dollars of debt forgiveness regardless of where borrowers work—without Congressional authorization—the Department undermines the competitive incentive Congress provided via PSLF debt forgiveness specifically to public service employers like the Mackinac Center.”
— Sheng Li, Litigation Counsel, NCLA

“The Administration’s response to the Supreme Court’s Biden v. Nebraska decision, which ruled that massive debt cancellation is a ‘major question’ that requires Congress’ involvement, has been to ignore that decision and continue canceling massive amounts of student loan debt without Congressional authorization. This lawlessness is brazen and shocking, and the lower federal courts must put an end to it immediately. That starts by recognizing the Mackinac Center’s economic injury here and denying the government’s motion to dismiss this lawsuit.”
— Mark Chenoweth, President, NCLA

For more information visit the case page here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

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May 11, 2023 | Mackinac Center Asks Federal Court to Immediately Halt ED’s Unlawful Student Loan Payment Pause
Washington, DC (May 11, 2023) – The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, has filed a Motion for Preliminary Injunction in Mackinac Center for Public Policy v. U.S. Department of Education, Miguel Cardona, and Richard Cordray. The Motion urges the U.S. District Court for the Eastern District of Michigan to stop the Department of Education’s unlawful, ongoing pause on the obligation of student-loan debtors to make monthly payments on their outstanding debt and the accrual of monthly interest on that debt. The student-loan pause wipes out $5 billion of U.S. Treasury assets every month, and it has done so for the past 32 months at a cumulative cost to taxpayers of $160 billion and counting. This unauthorized, backdoor form of debt reduction disproportionately benefits high-income earners with larger loans, such as doctors and lawyers.

Congress suspended monthly payment obligations and interest accrual on federal student loans by law for six months in response to the Covid-19 pandemic. When that pause expired in September 2020, the Department unilaterally extended it without any lawful basis. Congress’s decision to suspend student-loan payments and interest accrual used its exclusive power of the purse. But Congress only authorized six months of debt relief—approximately $30 billion—and did not authorize a penny more in expenditure. So, every additional month’s extension of the pause has unlawfully cancelled debt, in violation of the Constitution’s Appropriations Clause.

There is no reason to believe the current extension is the final one, as the Department of Education has already twice renewed purportedly “final” extensions. Unless enjoined, the government will continue to inflict irreparable harm not only on the Mackinac Center, but also on many other nonprofit organizations. Lowering student-loan debt through the payment-and-interest moratorium undermines congressionally-enacted debt forgiveness programs that incentivize borrowers to take certain jobs, including the Public Service Loan Forgiveness (PSLF) program, which Congress enacted in 2007 to provide strong incentives for borrowers to seek and maintain employment with qualifying public-service employers, including § 501(c)(3) nonprofit organizations.

The Major Questions Doctrine prohibits agencies from addressing issues of such “vast economic and political significance” without explicit congressional authorization. NCLA argues that suspending student-loan payments and outright canceling interest for all borrowers is a question of vast economic and political significance for Congress to decide. Recasting the HEROES Act of 2003, the purported legal justification for the extensions, from a statute permitting limited modifications for targeted groups—primarily those serving in the military during wartime—to one that can suspend payments and cancel interest for all 45 million borrowers is a change so significant as to essentially rewrite the statute. The only way to protect Plaintiff here from the competitive injury it is suffering is to enjoin the Department of Education’s unlawful action and restart payments on student loans.

NCLA released the following statement:

“The CARES Act’s six-month student-loan debt payment pause reflected Congress’s considered judgment for when payments and interest must resume. The Department of Education had and has no authority to override that judgment. This unlawful ongoing student-loan payment pause fits a familiar pattern that already played out in the context of the federal eviction moratorium. First, Congress enacts a temporary economic-relief program, then an administrative agency extends that program indefinitely, and finally courts step in to halt the unlawful scheme.”
— Sheng Li, Litigation Counsel, NCLA  

For more information visit the case page here. 

ABOUT NCLA 

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

Download the full document

April 6, 2023 | NCLA and Mackinac Center Challenge Unlawful Extensions of Federal Student Loan Deferments

Washington, DC (April 6, 2023) – Today, the New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed a lawsuit to stop the U.S. Department of Education’s unlawful pause on student loan payments. The lawsuit, Mackinac Center for Public Policy v. U.S. Department of Education, Miguel Cardona, and Richard Cordray, was filed on behalf of the Center in the U.S. District Court for the Eastern District of Michigan.

In response to the Covid-19 pandemic, Congress lawfully suspended monthly payment obligations and interest accrual on federally held student loans for a period limited to six months. When that statutory deferment period expired in September 2020, however, the department unilaterally extended it without congressional appropriation. The complaint challenges the legality of extending the suspension 30 months past the statutory expiration date, which has cost taxpayers over $150 billion from lost interest.

Congress enacted the Public Service Loan Forgiveness Program (PSLF) in 2007 to help 501(c)(3) nonprofit organizations like the Mackinac Center attract employees with a debt-relief incentive keyed to working ten years for nonprofits. The Department of Education’s suspending of repayment obligations is an unlawful form of debt relief that substantially reduces the incentives PSLF provides and thus undermines Congress’s goals in enacting that program. As NCLA has argued previously, reducing that incentive directly harms nonprofit employers.

So far, the Department of Education has issued eight separate extensions—most recently in November 2022—with ever-shifting legal excuses. The department first relied on economic hardship provisions of the Higher Education Act of 1965; then pivoted to the HEROES Act of 2003; then ceased citing legal authorities and stopped publishing new extensions in the Federal Register. It most recently falsely claimed that it had been relying on the HEROES Act all along. None of these purported justifications holds water.

Only Congress can categorically suspend repayment obligations for all student-loan borrowers nationwide, and only Congress can cancel the accrual of interest on student loan debt owed to the United States. The department initially issued a short extension to give Congress more time to extend the suspension legislatively, but electorally accountable lawmakers in Congress declined to extend the suspension of payment obligations and interest accrual any further, even as they repeatedly legislated other forms of Covid-19 relief. The department’s subsequent decisions to extend the deferments by administrative fiat thus ignored the law.

NCLA and the Mackinac Center released the following statements:

“We know that only Congress may suspend student-loan repayment obligations and cancel interest accrued because it took an Act of Congress to provide such debt relief at the outset of the pandemic. Congress also enacted a clear six-month deadline for that debt-relief program. The Administrative State lacks the power to extend a debt-relief program beyond its statutory deadline, especially when doing so costs taxpayers over $150 billion.”
— Sheng Li, Litigation Counsel, NCLA

“Perpetual deferment of federal student loans is bad policy because it shifts the burden from those who took out student loans to those who did not. More importantly, it is illegal, as it strips congressional powers and unilaterally hands them to executive bureaucrats. We have a proud history of making sure that the executive branch acts within their constitutional authority, even during a national emergency.”
— Patrick J. Wright, Vice President for Legal Affairs, Mackinac Center

“Our client has standing to sue the Department for the same reason the state plaintiffs do in Biden v. Nebraska, which is pending at the U.S. Supreme Court. Just as the PSLF program benefits the states suing over the unlawful half-trillion in student loan debt cancellation, so too the Mackinac Center benefits as an employer from PSLF. When the Department of Education administratively undercuts Congress’s enacted program—either with permanent debt forgiveness or by extending deferments—PSLF employers have standing to sue to stop it.”
— Mark Chenoweth, President and General Counsel, NCLA

For more information visit the case page here.

ABOUT NCLA

NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA’s public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans’ fundamental rights.

ABOUT MACKINAC CENTER

The Mackinac Center for Public Policy is a nonpartisan research and educational institute dedicated to improving the quality of life for all Michigan residents by promoting sound solutions to state and local economic policy questions. As a free-market think tank, the Mackinac Center is guided by its belief in free markets, individual liberty, limited government and the rule of law. Founded in 1987, it is headquartered in Midland, Michigan. For more information, visit www.mackinac.org.

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OPINION

April 15, 2023 | The Student-Loan Suspension Is Also Illegal
The Biden administration’s attempt to forgive $400 billion in outstanding student loan debt through administrative fiat has come under richly deserved fire, with its fate now in the hands of the Supreme Court. But an equally unlawful companion giveaway has thus far avoided much controversy.

That giveaway, which began under the Trump administration and has continued ever since, is the administrative suspension of monthly payment obligations and accrual of interest on all outstanding student loans since the outset of the COVID-19 pandemic. Solicitor General Elizabeth Prelogar repeatedly pointed to this giveaway — which has cost taxpayers $150 billion — during recent Supreme Court arguments to defend the larger debt forgiveness program. According to Preloger, the Department of Education’s consistent use of the HEROES Act to suspend student-loan repayment and interest accrual since March 2020 is evidence that the same act authorizes mass debt cancellation.