Cato Inst. v. Cardona

689 F.Supp.3d 456

CATO INSTITUTE and Mackinac Center for Public Policy, Plaintiffs, v. Miguel CARDONA, et al., Defendants.

Case No. 1:23-cv-11906

United States District Court, E.D. Michigan, Northern Division

Signed August 14, 2023

Patrick J, Wright, Stephen Antonie Delie, Mackinac Canter for Public Policy, Midland, MI, Sheng Tao Li, District of Columbia, Washington, DC, for Plaintiffs.

ORDER DISMISSING WITHOUT PREJUDICE PLAINTIFFS' COMPLAINT AND DENYING AS MOOT PLAINTIFF'S EX PARTE MOTION FOR A TEMPORARY RESTRAINING ORDER

THOMAS L. LUDINGTON, United States District Judge

In April 2022, the Department of Education announced a "One Time Account Adjustment," for federal-student-loan borrowers that would provide qualifying borrowers with credit toward student loan forgiveness for periods of prior forbearance. Plaintiffs Cato Institute and Mackinac Center for Public Policy, both non-profit participants in the federal Public Service Loan Forgiveness Program, sued the Department and its officials alleging that the Adjustment violated both the Appropriations Clause of the Constitution and the Administrative Procedure Act. Three days after filing their Complaint, Plaintiffs filed an ex parte motion for a temporary restraining order, seeking to prevent the Department from crediting qualifying borrowers' accounts under the Adjustment. But Plaintiffs have not shown a redressable injury caused by Defendants, so their Complaint will be dismissed without prejudice for lacking Article III standing and their Motion will be denied as moot.

I.

As of March 2023, the Federal Reserve estimates that the national student loan debt surpasses $1,774,000,000,000. Melanie Hanson, Student Loan Debt Statistics, EDUC. DATA INITIATIVE (last updated July 17, 2023), https://educationdata.org/student-loan-debt-statistics [https://perma.cc/W93Z-CUC6]. Throughout the nation, 45.3 million people have student loan debt and 92% of those people borrow from the federal government. Id. The average federal student loan debt is $37,338 per borrower. Id.

Title IV of the Higher Education Act of 1965 governs federal student loans. 20 U.S.C. § 1070 et seq.; see also Biden v. Nebraska, — U.S. —, 143 S. Ct. 2355, 2362, 216 L.Ed.2d 1063 (2023).¹ Under federal student loan programs, the federal government loans federal capital directly to borrowers. Alexandra Hegji, Kyle D. Shohfi & Rita R. Zota, Cong. Rsch. Serv., R47196 Federal Student Loan Debt Cancellation: Policy Considerations (2022) at 2. Once a loan is issued, a borrower's commitment to repay the loan is an asset of the United States. See id. But student loans can be forgiven under two Congressionally authorized loan forgiveness programs: the Income-Driven Repayment (IDR) model and the Public Service Loan Forgiveness (PSLF) Program. See 20 U.S.C. §§ 1098e(b) (authorizing IDR forgiveness), 1087e(m) (authorizing PSLF forgiveness).

Under all IDR plans, a borrower's debt will be eventually forgiven, so long as the borrower makes qualifying payments each month, "at an amount . . . intended to be affordable based on [the student's] income and family size." Income-Driven Repayment Plans, FED. STUDENT AID, https://studentaid.gov/manage-loans/repayment/plans/income-driven#monthly-payments (last visited Aug. 8, 2023) [https://perma.cc/9V66-BPSC]. A borrower can choose between four IDR plans, each with specific monthly repayment amounts and forgiveness timelines of either 20 or 25 years. See 34 C.F.R. § 685.209(a)-(c); 34 C.F.R § 685.221.

The PSLF Program was enacted in 2007 "to encourage individuals to enter and continue in full-time public service employment." 34 C.F.R. § 685.219(a). The PSLF accomplishes this purpose by forgiving a borrower's student loan balance if the borrower makes 120 monthly qualifying payments while "employed in a public service job."² 20 U.S.C. § 1087e(m)(1). Qualifying payments include any payments made under an IDR plan or a standard repayment plan. See 20 U.S.C. § 1087e(m)(1)(A).

As a general matter, loan servicers and lenders can grant borrowers "forbearance" to prevent the borrower's default or to permit the borrower to resume their repayment obligation after default. 34 C.F.R. § 682.211(a)(1). "Forbearance" is defined as "permitting the temporary cessation of payments, allowing an extension of time for making payments, or temporarily accepting smaller payments than previously scheduled." Id. As the Department of Education (the Department) warns, forbearance only allows a student to "temporarily stop making payments." Student Loan Forbearance, FED. STUDENT AID, https://studentaid.gov/manage-loans/lower-payments/get-temporary-relief/forbearance#request-a-forbearance (last visited Aug. 8, 2023) [https://perma.cc/S7JG-L569]. A borrower granted forbearance still accrues interest during the forbearance period. Id. Importantly, because forbearance temporarily suspends monthly loan payments, periods of forbearance have historically not been credited against a borrower's forgiveness timeline under an IDR plan or the PSLF Program. See 34 C.F.R. § 685.219(c)(1)(iii) and 20 USC § 1087e(m)(1)(A) (describing qualifying payments for PSLF); 34 C.F.R. § 682.215(f) (describing the requirements for forgiveness under an IDR plan). In other words, while a borrower is granted forbearance, they are relieved from the obligation to make monthly payments, but their loans still accrue interest and they cannot progress towards loan forgiveness.

In April 2022, the Department announced "actions to fix longstanding failures" of student loan programs. One such corrective action was a "One-Time Account Adjustment to Count Certain Long-Term Forbearances toward IDR and PSLF Forgiveness" (the Adjustment). U.S. Dep't of Educ. Press Release, Department of Education Announces Actions to Fix Longstanding Failures in Student Loan Programs, Apr. 19, 2022, https://www.ed.gov/news/press-releases/department-education-announces-actions-fix-longstanding-failures-student-loan-programs [https://perma.cc/Z49D-686Q] [hereinafter April Press Release]. The Department based the Adjustment on a "review of past forbearance use" which showed that, "consistent with concerns raised by the Consumer Financial Protection Bureau and state attorneys general," loan servicers "placed borrowers into forbearance in violation of Department rules, even when their monthly payment plan under an IDR plan could have been as low as zero dollars." Id. Indeed, the Department noted that "long-term use of forbearance was remarkably widespread." Id. More than 13% of borrowers between July 2009 and March 2020 "used forbearance for at least 36 months cumulatively." Id. "To mitigate the harms of inappropriate steering into long-term forbearance," the Adjustment "count[s] forbearances of more than 12 months consecutive and more than 36 months cumulative towards forgiveness under IDR and PSLF." Id. (emphasis added). The Department coupled this Adjustment with a commitment to restrict loan servicers from enrolling borrowers in forbearance by text or email and to regularly audit forbearance use. Id. The Department estimated that the Adjustment would result in immediate debt cancellation for at least 40,000 borrowers under PSLF and 3.6 million borrowers would receive at least three years of credit towards IDR forgiveness. Id.

On July 14, 2023, the Department, as part of the April 2022 Adjustment, pledged "to Provide 804,000 Borrowers with $39 Billion in Automatic Loan Forgiveness as a Result of Fixes to Income Driven Repayment Plans." 3 U.S. Dep't of Educ., Press Release, Biden-Harris Administration to Provide 804,000 Borrowers with $39 Billion in Automatic Loan Forgiveness as a Result of Fixes to Income Driven Repayment Plans, July 14, 2023, https://www.ed.gov/news/press-releases/biden-harris-administration-provide-804000-borrowers-39-billion-automatic-loan-forgiveness-result-fixes-income-driven-repayment-plans [https://perma.cc/9BGJ-82DQ] [hereinafter July Press Release]. According to the announcement, borrowers would receive notice of automatic forgiveness if they "reached the necessary forgiveness threshold as a result of receiving credit toward IDR forgiveness" for, "any period in which a borrower spent 12 or more consecutive months in forbearance" and "any month in forbearance for borrowers who spent 36 or more cumulative months in forbearance[.]" Id. While the July press release focused on IDR plans, payments under any IDR plan qualify as monthly payments to progress toward loan forgiveness under the PSLF Program. See 20 U.S.C. § 1087e(m)(1)(A). The Department said it would start notifying borrowers immediately if they qualified for the Adjustment. If notified borrowers did not opt out of the Adjustment, their loan discharge would begin 30 days after notification. See July Press Release.

On August 4, 2023, Plaintiffs filed a Complaint against the Department, Miguel Cardona in his official capacity as its Secretary, and Richard Cordray in his official capacity as its Chief Operating Officer of Federal Student Aid. ECF No. 1. Plaintiffs Mackinac Center for Public Policy³ and Cato Institute⁴ are both § 501(c)(3) non-profit PSLF qualified employers that allege they regularly compete to recruit and retain employees as beneficiaries of "incentives Congress provided through the PSLF program." Id. Plaintiffs allege four counts against Defendants. First, they allege the Adjustment violates the Appropriations Clause within Article 1 of the U.S. Constitution because student loan debt is "money" belonging to the Treasury and the Adjustment "cancels" this student loan debt without Congressional authorization (Count I). Id. at PageID.15-16. Second, they allege Defendants exceeded their statutory authority in violation of the Administrative Procedure Act (APA) by crediting borrowers' periods of forbearance toward IDR forgiveness or the PSLF Program (Count II). Id. at PageID.16-18. Third, Plaintiffs allege the adjustment was arbitrary and capricious in violation of the APA ...