The student loan cancellation plan, which applies to individuals earning less than $125,000 annually, faced its first lawsuit on September 27 from the Pacific Legal Foundation, which argued that the White House illegally bypassed Congress by invoking a law meant to aid Iraq War veterans and their families. Two days later, multiple Republican state attorneys general filed a complaint advancing the same argument.
“In addition to being economically unwise and downright unfair, the Biden Administration’s Mass Debt Cancellation is yet another example in a long line of unlawful regulatory actions,” the complaint said. “No statute permits President Biden to unilaterally relieve millions of individuals from their obligation to pay loans they voluntarily assumed.”
The complaint highlighted opposition to the student debt relief from House Speaker Nancy Pelosi (D-CA), who argued last year that any action on loan cancellation must come from “an act of Congress.” In the wake of Biden’s announcement of the cancellation policy, however, Pelosi appeared to pivot before declaring that the commander-in-chief’s “bold action is a strong step in Democrats’ fight to expand access to higher education.”
The attorneys general likewise pointed to the Supreme Court’s recent opinion in West Virginia v. EPA, which explained that federal agencies cannot assert “highly consequential power beyond what Congress could reasonably be understood to have granted.” A separate lawsuit from Attorney General Mark Brnovich (R-AZ) invoked the same ruling and argued that the “mass debt forgiveness program is fundamentally unfair, unconstitutional, and unwise.”
“The fact that the Biden Administration has chosen to usurp the role of Congress and the power of the purse is particularly harmful because nearly every prior bailout of an industry by Congress has also extracted sorely needed reforms from the affected industry,” the lawsuit said. “Here, the presence of half a trillion dollars of student debt cancellation is a clear admission that the higher education industry needs structural reforms, but contains no reforms whatsoever such as requiring colleges to reduce costs, or be more transparent about the low job prospects of certain courses of study.”
Beyond canceling $10,000 in student loans per borrower, Biden also decided to extend the pause on federal student loan repayment to January 2023 and will permit borrowers with undergraduate loans to cap payments at 5% of monthly income. Students who paid for college via Pell Grant will receive $20,000 in debt cancellation.
Eliminating $10,000 of student loans per borrower will cost $298 billion in 2022 and a total of $329 billion by 2031 if the policy is renewed each year, according to a nonpartisan analysis from the University of Pennsylvania’s Wharton School, which also found that 42% of the benefit would help Americans already earning more than $82,400 per year. Another estimate from the Congressional Budget Office predicts that the overall cost will be $400 billion, with another $20 billion incurred by the extended pause on repayments.
The lawsuit from the Pacific Legal Foundation contended that the student loan cancellation is largely an “election year ploy” — marking the most severe abuse of power since former President Donald Trump imposed an eviction moratorium before the election of 2020 through the Centers for Disease Control and Prevention. Many vulnerable Democrats in swing states nevertheless distanced themselves from the debt cancellation policy, which many Americans suspect will worsen inflationary pressures.