Biden's student debt relief faces first major legal challenge

  • In Business
  • 2022-09-27 20:19:21Z
  • By Politico

A conservative legal group on Tuesday sued to block the Biden administration from canceling large amounts of outstanding federal student debt for tens of millions of Americans, bringing the first major legal challenge to a policy that's expected to be litigated extensively.

The lawsuit filed by the Pacific Legal Foundation argues the administration's plan to provide most federal student loan borrowers with up to $10,000 or $20,000 of debt relief amounts to an illegal abuse of authority.

The plaintiff is Frank Garrison, an attorney who works at the foundation, who says he is in line to automatically receive $20,000 under the plan. But, he argues, he will be left worse off by Biden's debt relief because it will trigger state income taxes where he lives in Indiana.

Indiana is one of several states that has indicated it plans to impose a state tax on the amount of loan forgiveness. Most other states, and the federal government, will not treat Biden's loan forgiveness as taxable income.

Garrison argues that Biden's debt relief would force him to pay state income tax that he would otherwise avoid. He says he is working towards having his federal student loans forgiven under a separate federal program - the Public Service Loan Forgiveness program - within the next several years. Any debt that Garrison eventually has forgiven under that program, according to the lawsuit, would not be treated as taxable income by Indiana tax authorities.

The lawsuit argues the Biden administration lacks the power to enact the sweeping debt relief program on its own without congressional approval. It also argues the 2003 law giving the U.S. Education Department the power to modify the terms of federal student loans during national emergencies is unconstitutional.

"Nothing about loan cancellation is lawful or appropriate," the lawsuit says. "In an end-run around Congress, the administration threatens to enact a profound and transformational policy that will have untold economic impacts. The administration's lawless action should be stopped immediately."

The Pacific Legal Foundation is also asking a federal judge for a preliminary injunction and temporary restraining order halting the program. It asked the judge to rule on that request before Oct. 1.

The lawsuit was filed against the Education Department and Secretary Miguel Cardona in federal court in the Southern District of Indiana. An Education Department spokesperson deferred to the White House for comment on the lawsuit.

White House press secretary Karine Jean-Pierre responded to the lawsuit on Tuesday by accusing opponents of the administration's student loan plan of "trying to stop it because they know it will provide much needed … relief for working families."

The Biden administration has argued it has broad power to cancel student loans because of the national emergency declaration stemming from the Covid-19 pandemic. The administration released legal memos that argued the Education Department has the authority to cancel large amounts of debt to help borrowers respond to the effects of the pandemic.

Most federal student loan borrowers will have to fill out an application to apply for loan forgiveness in the coming weeks. Borrowers will have to certify that they meet the program's income limits of $125,000 for individuals or $250,000 for couples.

But Garrison, the plaintiff in the lawsuit, is part of a subset of approximately 8 million student loan borrowers whose debts the Education Department is preparing to automatically cancel without requiring an application.

The agency already has recent income information for those borrowers on file because they recently applied for federal student aid or, as Garrison did, provided their incomes to participate in an income-driven repayment plan.

The Education Department had not previously indicated whether borrowers would be able to opt out of the plan. The lawsuit argues an immediate order blocking the debt relief program is needed, in part, because there is no way for millions of borrowers to avoid having the Education Department automatically cancel their debts.

But Jean-Pierre said on Tuesday the administration planned to provide an option for borrowers to exempt themselves from the relief. "No one who does not want debt relief will have to get that debt relief," she said. "So, folks have an option to opt out."

Previous federal student loan programs have also included options for borrowers to opt-out of certain benefits.

The Trump administration resisted initially automatically forgiving student loans for some severely disabled veterans because of it could potentially stick borrowers with state income tax bills. But the Trump Education Department ultimately created a program that automatically cancels the debt while providing some borrowers with the option to forgo the relief.

Conservative groups and Republican state attorneys general have been looking for plaintiffs to bring challenges to the Biden administration's student loan relief plan.

The Biden administration announced its plan in August alongside legal memos it said justified the relief program. But the actual loan forgiveness is not expected to start until next month at the earliest. The Biden administration has said it plans to open an application process in "early October" and process those requests in the subsequent weeks.


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