The New Civil Liberties Alliance challenges plan to forgive borrowers’ debt accrued due to errors in income-driven repayment plan processing and seeks rulemaking process for the proposal.
08/07/2023 3:25 P.M.
3 minute read
The Biden administration’s latest student debt relief plan is facing a legal challenge on the grounds it does not fall under the requirement that Congress is designated to decide what debt can be cancelled, The Hill reports.
In the latest action as part of the Biden administration’s promise to provide student loan debt relief, the Department of Education (DOE) would forgive debt of borrowers with income-driven repayment plans due to administrative failures that miscalculated payments they made, according to a DOE news release.
“The forthcoming discharges are a result of fixes implemented by the Biden-Harris [a]dministration to ensure all borrowers have an accurate count of the number of monthly payments that qualify toward forgiveness under income-driven repayment (IDR) plans. These fixes are part of the [d]epartment’s commitment to address historical failures in the administration of the Federal student loan program in which qualifying payments made under IDR plans that should have moved borrowers closer to forgiveness were not accounted for. Borrowers are eligible for forgiveness if they have accumulated the equivalent of either 20 or 25 years of qualifying months,” the DOE reports.
In July, the DOE started notifying more than 804,000 borrowers about the relief, which totals $39 billion in federal student loans.
In the lawsuit challenging the plan, the New Civil Liberties Alliance (NCLA), on behalf of the Cato Institute and the Mackinac Center for Public Policy, states it violates the U.S. Constitution’s appropriations clause, which allows Congress to be in charge of what debt owed to the Treasury can be canceled, according to The Hill article.
NCLA also argues that the department’s plan must be reviewed in a negotiated rulemaking process and include a public comment period.
“The core of the argument in the case is if the department is allowed to count years where a borrower was in forbearance or deferment, therefore, not making payments on their loans,” according to The Hill.
Changes Ahead
Meanwhile, the payment pause for federal student loans ends Aug. 30. Interest will start to accrue on federal loans on Sept. 1, with payments starting in October, but delinquencies will not be reported until 2024, ACA International previously reported.
The DOE is also pursuing a rulemaking under the Higher Education Act as part of student loan debt relief plans.
It says it is instituting a 12-month plan for borrowers whose payments will resume in the fall. From Oct. 1, 2023, to Sept. 30, 2024, borrowers who miss payments will not be “considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies,” ACA previously reported.
The DOE also passed final rules to “streamline and standardize” the Direct Loan Program, according to a Federal Register notice.
They include:
- Fixed payment repayment plans, which establish monthly payment amounts based on the scheduled repayment period, loan debt, and interest rate.
- IDR plans, which establish monthly payment amounts based in whole or in part on the borrower’s income and family size.
- The alternative repayment plan, which the DOE uses on a case-by-case basis when a borrower has exceptional circumstances or has failed to recertify the information needed to calculate an IDR payment.
Student loan servicers will need to update their computer programs on these plans as well as communications with borrowers. Lenders will be responsible for costs for their contracted student loan servicers to make the updates.
Except for regulations designated as available for early implementation, the final regulations in the notice are effective July 1, 2024.
Requirements relating to eligibility for IDR plans by borrowers with consolidation loans will be effective for direct consolidation loans disbursed on or after July 1, 2025.
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