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Lawsuit aims to stop Biden’s student loan forgiveness plan

President Biden at the White House on Aug. 24. (Demetrius Freeman/The Washington Post)
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A lawsuit seeking to block President Biden’s plan to cancel some student debt claims the policy is not only illegal but could inflict harm on borrowers in some states who would be forced to pay taxes on the forgiven amount.

The lawsuit, filed in U.S. District Court for the Southern District of Indiana on Tuesday, is the first significant legal action seeking to invalidate Biden’s policy before it takes effect.

The Pacific Legal Foundation, the conservative public interest law firm in California that is backing the lawsuit, asserts that the executive branch lacks the authority to create a new forgiveness policy and is usurping Congress’s power to make law. The suit was filed on behalf of Frank Garrison, an attorney who works for the foundation and lives in Indiana.

CBO: White House plan to cancel student loan debt costs $400 billion

Republican state attorneys general and lawmakers have been exploring the possibility of a lawsuit against Biden’s forgiveness plan, which critics have also assailed as fiscally irresponsible. The Job Creators Network pledged to sue the administration once the Education Department guidance has been released.

In its lawsuit, the foundation may have the one thing legal experts said was needed to make a legitimate case: a client with the standing to sue.

Garrison said he has been working toward having his federal student loans canceled through a program that erases the debt of public servants after 10 years of payments and service. Participants in that Public Service Loan Forgiveness program do not have to pay federal or state taxes.

However, Biden’s plan could result in borrowers in several states, including Indiana, being required to pay local tax bills, although they would not be subject to federal taxes.

The president’s forgiveness plan would cancel up to $10,000 in federal student loan debt for borrowers who earn less than $125,000 per year, or less than $250,000 for married couples. Those who received Pell Grants, federal aid for lower-income students, could see up to $20,000 in forgiveness.

Higher education reporter Danielle Douglas-Gabriel explains how you can apply for federal student loan forgiveness. (Video: Casey Silvestri/The Washington Post)

Since Biden’s plan would take effect before Garrison’s debt is forgiven through the public service program, Garrison said he expects to pay more than $1,000 in state income taxes for the $20,000 of forgiven debt that he would be eligible for.

“Frank is not only somebody who is harmed by this, but he’s also somebody who believes the cancellation plan is deeply wrong,” said Steve Simpson, a senior attorney at Pacific Legal Foundation representing Garrison. “One really big difference between the program Frank is participating in and the Biden program is that one was passed by Congress.”

When asked about the lawsuit Tuesday, White House press secretary Karine Jean-Pierre told reporters that “anyone who does not want to get debt relief can opt out.”

The vast majority of eligible borrowers will have to apply for debt cancellation when the Education Department releases the form next month. About 8 million people, whose income information is already with the department, may receive automatic relief. But they don’t have to accept it.

Adam Minsky, a Boston lawyer who specializes in student debt issues, said Garrison’s claim of harm is “speculative at best” since he is under no obligation to take part in the cancellation program. What’s more, Indiana lawmakers could act to exempt the canceled debt from taxation before Garrison ever sees a bill, Minsky said.

Who qualifies for Biden’s student loan forgiveness plan?

Laurence Tribe, a Harvard University law professor close with the Biden administration, said the foundation’s theory of standing may be “a stretch but not beyond the realm of possibility.” While Garrison could prove that he would be better off if Biden’s plan were never created, Tribe said no one is forcing him to apply. He said the merits of the case are weak because the legal grounds for the plan are solid.

The Justice Department released a 25-page memo last month saying the president’s action is allowable under a 2003 law that gives the executive branch broad authority to overhaul student loan programs. That law, known as the Higher Education Relief Opportunities for Students Act, was passed after the Sept. 11, 2001, terrorist attacks and gave the president the right to cancel student debt in connection with national emergencies. The White House says the ongoing coronavirus pandemic is a national emergency that more than meets the requirement.

“The HEROES Act is a pretty solid foundation for what Biden has done,” Tribe said.

Still, litigation could halt Biden’s policy just as it was set to go into effect.

Republicans are readying lawsuits to block Biden’s student debt plan

Advocates for debt cancellation have been anticipating a legal fight, said Persis Yu, policy director and managing counsel at the Student Borrower Protection Center. She thinks the framework the administration is using to enact the policy is strong enough to ward off legal challenges but said no one can be sure how the courts will handle these cases.

“The courts have been very unpredictable. And all things are political right now,” Yu said, who has advocated for debt relief. “We feel confident the law is on our side, but we don’t have a crystal ball.”

Advocates of Biden’s plan say it would be transformative for the middle class. A recent analysis by the Census Bureau said Black and Hispanic women could benefit the most from the one-time cancellation policy, as both groups hold a disproportionate share of education debt relative to their peers.

“When you look at this student loans relief program, it is going to help tens of millions of people,” Jean-Pierre told reporters Tuesday. “Opponents of the Biden-Harris administration student loan plan are trying to stop it because they know it will provide much-needed relief for working families.”