On Tuesday, a California libertarian group filed a legal challenge to President Joe Biden’s plan to cancel student debt, calling it an illegal overreach that would increase state tax burdens for some Americans who had their debt forgiven.
The Pacific Legal Foundation, a Sacramento law firm, filed the lawsuit, which is believed to be the first to target Biden’s plan. It was filed in federal court in Indiana, one of several states that intend to tax any student debt forgiven under Biden’s proposal.
“Congress did not authorize the executive branch to cancel student debt unilaterally,” said Caleb Kruckenberg, an attorney with the Pacific Legal Foundation. He stated that the executive branch’s creation of the policy “by press release and without statutory authority” is illegal.
The plaintiff in the suit is Frank Garrison, who is described as a public interest attorney who lives in Indiana and works for the libertarian group.
Garrison is on track to have his student debt forgiven through a separate federal program for government employees. Although most borrowers will have to apply for Biden’s plan, Garrison and many others in that program will receive the relief automatically because the Education Department has their income information on file.
According to the suit, Biden’s plan would automatically cancel $20,000 of Garrison’s debt, triggering a “immediate tax liability” from the state of Indiana. Cancelled debt cannot be taxed under the debt forgiveness program he is currently enrolled in.
“Mr. Garrison and millions of others in the six relevant states will receive no additional benefit from the cancellation — only a one-time additional penalty,” the lawsuit claims.
Unless lawmakers in Arkansas, California, Minnesota, Mississippi, North Carolina, and Wisconsin change their current laws, any student debt forgiven under Biden’s plan would be subject to state taxes in those states.
Biden’s plan calls for the cancellation of $10,000 in federal student debt for borrowers earning less than $125,000 per year or households earning less than $250,000. Those who received federal Pell Grants to attend college would have an additional $10,000 removed from their accounts.
An application for the benefit is expected to be submitted by early October.
Since Biden first floated the idea, conservative groups have threatened to sue, claiming that it is legally questionable and unfairly cancels student debt at the expense of Americans who did not attend college. Finding someone who will suffer personal harm as a result of Biden’s plan has been one of the most difficult challenges.
In its legal justification for debt cancellation, the Biden administration cited the HEROES Act of 2003, which was designed to assist military personnel. In an August legal opinion, the Justice Department stated that the law gives the administration “sweeping authority” to reduce or eliminate student debt during a national emergency.
Miguel Cardona, Education Secretary, has stated that he has the legal authority to cancel debt for people who experienced hardship during the pandemic. According to Cardona, Biden’s plan will ensure that borrowers are not worse off after the pandemic than they were before it.
The suit challenges that logic, claiming that Biden’s plan will increase Garrison’s and others’ debt burdens. It also claims that the plan does not meet the requirements of the 2003 law, claiming that high student debt is not a “direct result” of the pandemic.
The suit claims that “nothing about loan cancellation is legal or appropriate.” “In an attempt to avoid Congress, the administration threatens to enact a profound and transformative policy with far-reaching economic consequences.”
The suit asks the court to overturn Biden’s plan and to temporarily halt it while legal questions are resolved.