President Joe Biden’s student loan forgiveness plan faced a significant legal challenge: a lawsuit for alleged abuse of executive power.
The lawsuit was brought by public interest attorney Frank Garrison.
Garrison said the forthcoming student loan amnesty will force him to pay taxes on the canceled amount, which he prefers to avoid.
The lawsuit is supported by the non-profit libertarian law firm Pacific Legal Foundation, which is also Garrison’s employer.
They filed it with the United States District Court for the Southern District of Indiana.
The cause, which the Department of Education mentions as its defendant, disputes the “unacceptable abuse of executive authority to restore the rule of law and to enforce the Constitution’s separation of powers.”
The student loan forgiveness plan
Biden’s plan would allow individual borrowers who earned less than $125,000 in 2020 or 2021 to write off up to $ 10,000 of their federal student loan debt.
The plan also applies to married couples or to the household heads of families who have gained less than $ 250,000 per year in the same years.
Qualifying borrowers who received a Federal Pell subsidy while they were registered at university are also entitled to a maximum of $ 20,000 to identify the debt.
Those who receive a Federal Pell grant have more opportunities to fight for student debt repayment.
In the meantime, thanks to a provision of the American Rescue Plan Act that Congress adopted last year, the borrowers do not have to pay a federal income tax on the forgiving student loan.
However, Indiana and a few other states can tax forgiven debts if the state’s legislative or administrative changes are not implemented.
Depending on the state, the tax liability can run into the hundreds of dollars.
There has been no debt cancellation since the plan was announced in August.
The first wave of debt cancellation is expected to occur as early as October.
The Congressional Budget Office estimates that Biden’s plans could cost the government $400 billion.
However, they cautioned that the estimates are based on assumptions with uncertainty.
How the plan affects Garrison
Frank Garrison claims he is eligible for up to $20,000 in student loan forgiveness under the Biden plan.
Therefore, he is also subject to a tax liability of more than $1,000.
Garrison is currently pursuing federal debt reduction through the Utilities Ban Program.
According to the lawsuit, he expects the government to write off the remaining balance in just over four years.
Since Garrison will receive $20,000 in loan cancellation before making sufficient payments to qualify for the PSLF program, he will create a tax bill that he would not have received otherwise.
The $20,000 reduction does not change your monthly payment or the total amount of loans you have to repay.
Response to the lawsuit
White House spokesman Abdullah Hasan wrote in an emailed statement that the allegation was unfounded.
“No one will be forced to get debt relief,” he wrote. “Anyone who does not want debt relief can choose to opt out.”
On Tuesday, press officer Karine Jean-Pierre was questioned about the lawsuit during a White House briefing and echoed Hasan’s feelings.
“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,” she said.
What happens next?
The Pacific Legal Foundation asks the court to prevent the government from implementing tenderers.
Luke Herrine, professor of law at the University of Alabama, who has once developed a legal strategy to enforce students’ debt, is skeptical about the success of the trial.
He says that the case depends in part on Garrison’s ability to reject the guidelines for forgiveness for student loans.
“I don’t think this case is ripe,” said Herrine. “A court doesn’t rule on things that may or may not happen in the future.”
Meanwhile, the Department of Education has yet to issue an official statement on the policy.
National Consumer Law Center attorney Abby Shafroth said the lawsuit was “fundamentally flawed.”
She expects the government to offer borrowers the option to forgo debt relief when the program is launched.
“So the plaintiff will not actually be harmed by the student debt relief plan and therefore does not have standing to sue,” said Shafroth.
Biden’s student loan forgiveness plan has also sparked other lawsuits.
Republican Arizona Attorney General Mark Brnovich said he was developing the best legal theory to sue the government.
The Job Creators Network, a conservative advocacy group, is exploring its legal options.
The group plans to file a lawsuit once the Department of Education formalizes its student loan forgiveness plan next month.
Meanwhile, an Oregon resident is representing himself after filing a lawsuit against the plan in early September.
He argued that the cost of debt cancellation would cause the Federal Reserve to raise interest rates to curb inflation, thereby raising interest rates on mortgages.