Appellate Court Rejects Challenge To Critical Program For Student Borrowers

May 24, 2024

With help from the Center and our partner the Student Borrower Protection Center, last week student loan borrowers scored a major victory preserving the Department of Education’s Income-Driven Repayment (IDR) and Public Service Loan Forgiveness programs. The Sixth Circuit Court of Appeals threw out a challenge to these programs, which benefit borrowers who have endured years, even decades, of mismanagement of their student loans. 

The Center and SBPC filed an amicus brief in Mackinac Center for Public Policy v. Cardona on behalf of five local legal services organizations. The brief explained why the plaintiffs in this case – two ideologically driven advocacy organizations – simply did not have the right to challenge the programs. Because neither organization could plausibly point to any way in which it had been or would be injured by the programs, our brief (and the government’s brief) argued, they simply did not have standing to bring the case. The Sixth Circuit agreed.

Some background: The Biden Administration’s one-time IDR Account Adjustment has helped put tens of millions of borrowers––many working in government and nn-profit jobs eligible for PSLF––back on track. The IDR Account Adjustment was intended to fix years of misconduct by private student loan servicers in which they steered borrowers out of IDR plans and into forbearances, where their debt burdens (and the servicers’ profits) continued to grow. Hundreds of thousands of borrowers continued to work in PSLF-eligible jobs without getting credit toward the PSLF discharge. The IDR Account Adjustment corrects this wrong and retroactively provides credit towards IDR and PSLF cancellation for borrowers who were subject to this misconduct.

Not willing to stand by while borrowers received relief from debt that was preventing them from buying a home or starting a family, two conservative nonprofit organizations, the Cato Institute and the Mackinac Center for Public Policy, filed suit in federal court in Michigan to stop the Department of Education from implementing the IDR Account Adjustment. The organizations' challenge was premised on a rather peculiar notion of legal harm: they alleged that, as employers themselves, they compete with private sector companies for employees, and that the ability to qualify for PSLF helps them attract talent. So, they claimed, by “curtailing” the 10 years of service required for borrowers, the IDR Account Adjustment essentially makes it easier for PSLF-seeking employees to have their remaining student loans forgiven and then jump ship to a higher paying job in the private sector. That, apparently, would eliminate Cato’s and Mackinac’s competitive edge in the job market and cause them harm. The organizations were not, however, able to point to a borrower-employee who had actually taken or contemplated this route. 

The district court did not buy this argument and dismissed the case for want of Article III standing. The plaintiffs appealed to the Sixth Circuit. On behalf of the Kentucky Equal Justice Center, Legal Aid Society Of Cleveland, Michigan Poverty Law Program, Ohio State Legal Services Association, and Tennessee Justice Center, the Center and SBPC filed the sole amicus brief in the case in support of the Department of Education. The brief explained why Cato and Mackinac misunderstood the theory of standing they tried to assert, the goals of the adjustment and the PSLF program, and why people seek public service jobs in the first place.

The Sixth Circuit was also not buying what the plaintiffs had to sell. In a unanimous published decision authored by Judge Mathis and joined by Judges Siler and Cole––and described by one pundit as “spicy”––the panel readily rejected Cato’s and Mackinac’s theory of standing. The panel cast cold water on the notion that the IDR Adjustment causes employers competitive harm, holding that the plaintiffs had failed to show they were affected at all by the Department’s action. Nor, as we pointed out in our amicus brief, did the plaintiffs allege that they competed with any particular employers for talent. As our brief argued and the court held, a generalized, speculative notion of competition across the vast U.S. labor market is not enough to establish standing. The court opined that the plaintiffs’ argument that any harm to their incentives as PSLF-eligible employers was “unconvincing and illogical,” and their factual characterizations of the adjustment were “just plain wrong.” The court also rejected plaintiffs’ alternative theory that they suffered a procedural injury because they could not weigh in on the IDR Account Adjustment rule absent any opportunity for notice-and-comment participation. 

The Sixth Circuit’s unequivocal rejection of Cato’s and Mackinac’s challenge means the survival of another Biden Administration program to help student borrowers, who continue to struggle under the weight of more than a trillion dollars in federal student debt. The panel well articulated the economic injustice that befalls far too many Americans today: “Many people consider a college education the ticket to the American dream. Some take out student loans to get the ticket. Paying back those loans can turn into a nightmare.” The IDR Account Adjustment helps to restore that dream for student borrowers; so far, it has enabled over 1 million borrowers to achieve total forgiveness, including almost 40,000 announced this week

We’re pleased to have helped defend this crucial program.