Cato Institute sues over Biden’s student-loan forgiveness, arguing it undermines nonprofits’ hiring efforts by unconditionally wiping out loans

Cato Institute sues over Biden’s student-loan forgiveness, arguing it undermines nonprofits’ hiring efforts by unconditionally wiping out loans

Another lawsuit has been filed against Biden’s illegal $500 billion student loan forgiveness program, this time by a non-profit organization, the Cato Institute. This challenge is well-drafted, and might actually work, if a judge rules quickly. Two prior lawsuits have reportedly failed for technical reasons, because the challengers who brought those cases were not deemed not to have suffered a concrete injury from Biden’s action, keeping them from having “legal standing” to sue under Article III of the Constitution. Alas, no one may manage to obtain an injunction against the Biden administration before it succeeds in illegally canceling millions of loans.

This lawsuit not only explains why Biden’s action is illegal, but — more importantly — actually makes a reasonable argument that the challenger, the Cato Institute, suffered a concrete injury from Biden’s action — namely, that the Cato Institute has lost a valuable bargaining chip to hire and retain employees due to Biden’s mass cancellation of student loan debt. Many people who work for non-profits like the Cato Institute have long been able to get their remaining student loan balance forgiven after 10 years of making loan payments while working for nonprofits, under the Public Service Loan Forgiveness Program. But that benefit is much less important if everyone can get $10,000 or $20,000 in student loans forgiven regardless of where they work, as Biden unilaterally decided to do this summer. By getting rid of many students’ loans regardless of where they work, even if they never work for a non-profit, Biden has taken away a carrot that non-profits like the Cato Institute can use to hire employees and keep them, despite paying them less than they would receive at a for-profit law firm or lobbying firm.

Here is the Cato Institute’s press release:

The Cato Institute filed suit in federal court in Kansas today, challenging the legality of the Biden Administration’s program of mass cancellation of student loan debt.

“Forcing taxpayers to pick up the tab for other people’s college loans is bad policy,” said Cato President and CEO Peter Goettler, “but in the case of President Biden’s order, it is also illegal, because neither President Biden nor the Department of Education has the power to cancel student loans without congressional authorization.”

Cato is represented by the New Civil Liberties Alliance, an organization dedicated to protecting civil liberties from unlawful administrative power.

A key issue in this case, as in other challenges to President Biden’s debt-cancellation scheme, is the question of standing to sue. Cato’s standing is based on the congressionally enacted Public Service Loan Forgiveness program, which was designed to help 501(c)(3) organizations like Cato, the ACLU, the American Red Cross, and others attract employees by providing debt relief to those who choose to work for non-profits.

By providing across-the-board loan-forgiveness, the Biden scheme completely—and unlawfully—undermines Congress’s goal in enacting the Public Service Loan Forgiveness program.

“The Constitution does not give the federal government the power to fund, guarantee, or cancel student loans. But if it’s going to wield illegitimate power, it should at least do so without additional, maybe even more fundamental, violence to the rule of law,” said Goettler. “Allowing the executive branch to undermine the explicit policy choices of the legislative branch, as President Biden’s debt-cancellation scheme plainly does, is completely beyond the pale.”

Several current and former Cato employees have participated in the Public Service Loan Forgiveness program.

The HEROES Act, which the Administration claims provides the authority for the mass program, was passed in 2003 in an effort to help deployed members of the military by forgiving some of their student loan debt.

“The Administration’s claim that its plan is legal under the HEROES Act is totally implausible and represents yet another illegitimate attempt by executive-branch officials to usurp Congress’s sole constitutional prerogative to make policy,” said Clark Neily, Senior Vice President for Legal Studies at Cato.

Sheng Li, Russ Ryan, and Mark Chenoweth will be the NCLA attorneys on the case.

“Ideally, federal student loans would be phased out altogether,” said Neal McCluskey, director of Cato’s Center for Educational Freedom. “They fuel rampant college price inflation, are a major burden on taxpayers, and do not have constitutional warrant to exist. Cancelling them by executive fiat compounds all of these huge problems.”

As Business Insider reports:

On Tuesday, the Cato Institute — a libertarian think tank …. — filed a federal lawsuit in Kansas against Biden’s up to $20,000 in debt relief announced at the end of August. Represented by the New Civil Liberties Alliance, Cato argued that this broad relief undermines hiring benefits brought on by the Public Service Loan Forgiveness (PSLF) program, which is intended to cancel student debt for government and nonprofit workers after ten years of qualifying payments.

As a nonprofit organization, Cato’s case claims that canceling student debt broadly for federal borrowers would remove the appeal of PSLF and stunt recruiting efforts.

Cato’s press release also said that Biden’s relief is an overreach of the HEROES Act, which gives the Education Secretary the ability to waive or modify student-loan balances in connection with a national emergency, like COVID-19. It’s an argument other conservative groups and Republican lawmakers have used when pushing back on broad student-loan forgiveness.

This is at least the sixth major lawsuit a conservative group has filed attempting to halt the debt cancellation process. It’s also similar to a still-pending lawsuit filed by Arizona’s attorney general, who claimed the relief would harm the state by limiting recruiting benefits from PSLF. While a judge has struck down at least two of the other cases, borrowers are still awaiting a decision from a federal judge who heard oral arguments last week from six Republican-led states who claimed debt relief would hurt their states’ tax revenues, among other things.

Six states are also challenging Biden’s $500 billion student loan forgiveness plan in federal court. Iowa, Kansas, Missouri, Nebraska, South Carolina, and Arkansas sued together in a lawsuit filed today in Missouri. It makes some of the same arguments as a lawsuit challenging Biden’s plan that was filed earlier this week by Pacific Legal Foundation on behalf of Frank Garrison, an attorney with student loans:

Six Republican-led states are suing the Biden administration in an effort to halt its plan to forgive student loan debt for tens of millions of Americans, accusing it of overstepping its executive powers.

It’s at least the second legal challenge this week to the sweeping proposal laid out by President Joe Biden in late August, when he said his administration would cancel up to $20,000 in education debt for huge numbers of borrowers. The announcement, after months of internal deliberations and pressure from liberal activists, became immediate political fodder ahead of the November midterms while fueling arguments from conservatives about legality.

In the lawsuit, being filed Thursday in a federal court in Missouri, the Republican states argue that Biden’s cancellation plan is “not remotely tailored to address the effects of the pandemic on federal student loan borrowers,” as required by the 2003 federal law that the administration is using as legal justification. They point out that Biden, in an interview with CBS’ “60 Minutes” this month, declared the Covid-19 pandemic over, yet is still using the ongoing health emergency to justify the wide-scale debt relief.

The six states argue Biden’s debt forgiveness program will damage their state tax collections, and Missouri says its loan servicer will lose revenue for payments and debt collection it would normally otherwise be entitled to under federal law.

The states have legal standing to challenge Biden’s program, as it is currently structured. (I say “as currently structured,” because Biden’s plan was tweaked yesterday by the government in a way designed to deprive the Pacific Legal Foundation of standing to challenge the program, in its separate lawsuit in Indiana against the Biden student loan forgiveness program).

A constitutional lawyer at the Cato Institute notes that loan servicers also likely have standing to sue over the Biden plan, given its negative impact on their revenue. He also explains in detail why it was illegal to do what Biden did, and why it is challengeable in court by loan servicers under the HEROES Act and the Administrative Procedure Act.

As Ed Morrissey notes at Hot Air,

Interestingly, and sadly, neither of these actions can address the real constitutional elephant in the room. Biden as president has no constitutional authority to appropriate funds out of thin air for any initiative. In this case, Biden’s not even making the pretense of shifting funds from already-extant appropriations, as Donald Trump did with his border-wall funding, in large part because such funds don’t exist on the scale Biden would need. The CBO scores this Academia bailout at $400 billion, which would be between 20-25% of the discretionary spending Congress appropriates in its annual budgets these days. Biden would have to shut down entire Cabinet departments to fund his Academia giveaway in that fashion.

Unfortunately, only Congress would have standing for such a challenge on that basis. And embarrassingly, the current leadership of Congress has no interest in defending its constitutional privilege and authority. Instead of defending this basic check on executive power — through the power of the purse — Nancy Pelosi and Chuck Schumer have gutlessly chosen to cheerlead Biden’s imperial presidency in order to get the outcome they want.

In addition to this $500 billion student loan bailout, Biden also is changing income-driven repayment plans in ways that will spur colleges to raise tuition and stick taxpayers with the tab. Biden’s changes “will make college much more expensive” for taxpayers and many students, reports Reason Magazine.

Between the student loan bailout and Biden’s changes to income-driven repayment plans, the overall cost of Biden’s plan could be over a trillion dollars, according to analysts at the University of Pennsylvania’s Wharton School, taking into account changes made by Biden to income-driven repayment plans.

Other observers have said that Biden’s plan is illegal. As the College Fix notes, “An analysis from the Texas Public Policy Foundation concluded that an executive order bailout is likely illegal. Alan Dershowitz, professor emeritus at Harvard Law school, has also said that a student bailout through executive action would be illegal.”

Biden’s plan is also likely to increase college tuition and inflation.

Jason Furman, chairman of President Obama’s Council of Economic Advisers, calls Biden’s plan “reckless.” Furman says, “Pouring roughly a half-trillion dollars of gasoline on the inflationary fire that is already burning is reckless.” Biden’s plan will increase economic inequality and the national debt.

Even the liberal Washington Post calls Biden’s student-loan bailout “a regressive, expensive mistake.”

LU Staff

LU Staff

Promoting and defending liberty, as defined by the nation’s founders, requires both facts and philosophical thought, transcending all elements of our culture, from partisan politics to social issues, the workings of government, and entertainment and off-duty interests. Liberty Unyielding is committed to bringing together voices that will fuel the flame of liberty, with a dialogue that is lively and informative.


For your convenience, you may leave commments below using Disqus. If Disqus is not appearing for you, please disable AdBlock to leave a comment.