Lawsuit Seeks to Block Biden’s Student Debt Cancellation Plan

The first legal challenge to President Biden’s plan to wipe out billions of dollars of federal student loans arrived on Tuesday, when a lawyer working for a conservative legal group filed a lawsuit seeking to block debt cancellation.

“In an end-run around Congress, the administration threatens to enact a profound and transformational policy that will have untold economic impacts,” Frank Garrison, a lawyer at Pacific Legal Foundation, said in a complaint filed in federal court in U.S. District Court for the Southern District of Indiana. “The administration’s lawless action should be stopped immediately.”

The biggest obstacle for those seeking to fight Mr. Biden’s plan in court has been finding a plaintiff who has the legal standing to claim that they would be harmed by the policy. Mr. Garrison’s claim centers on the Biden administration’s plan to automatically cancel the debts of some borrowers, arguing that it would personally harm him by forcing him to pay taxes on those forgiven debts.

Mr. Garrison, who lives in Indiana, has been pursuing loan forgiveness through a relief program for public service workers, he said in his court filing. Under that program, he would eventually qualify to have his loan debt wiped out without owing any federal or state taxes.

Canceled debts are often taxed as income. A temporary tax law would prevent any federal taxes from being levied on student debts eliminated by Mr. Biden’s executive action, but some states may choose to tax them. Mr. Garrison, who lives in Indiana, said in his lawsuit that he expected a $1,000 state tax bill on his canceled debt. His state is one of seven in which officials have indicated that forgiven student debt may be taxed, according to the Tax Foundation, an independent nonprofit tax policy organization.

He asked the court for an injunction blocking the Education Department from carrying out Mr. Biden’s debt cancellation plan.

White House officials said in August that up to eight million borrowers “may be eligible to receive relief automatically” because the Education Department already had the necessary income information to establish that they qualified. Tens of millions of other borrowers will need to apply for debt cancellation using a form that the department said it intended to release this month.

Mr. Garrison’s lawsuit describes his belief that his debt will be automatically canceled. A representative for Mr. Biden said that assumption is incorrect.

“No one will be forced to get debt relief,” a White House spokesman, Abdullah Hasan, said. “Anyone who does not want debt relief can choose to opt out. Why would this group bring this baseless claim? Because opponents of the debt relief plan are trying anything they can to stop this program that will provide needed relief to working families.”

If borrowers can opt out, Mr. Garrison’s claim “will be a harder case for us,” said Steve Simpson, a senior attorney at Pacific Legal, which is representing Mr. Garrison. “It would be harder to argue that he’s harmed any more.”

Mr. Biden’s relief plan will cancel $10,000 in debt for those earning less than $125,000 per year and $20,000 for those who had received Pell grants for low-income families. The nonpartisan Congressional Budget Office said Monday that it estimated the plan’s price tag at $400 billion. White House officials said they thought the actual cost could be lower because fewer borrowers than expected might apply for the relief.

The Education Department did not immediately respond to a request for comment on Mr. Garrison’s lawsuit. The department has not yet said when, or how, it intended to implement any automatic debt relief.

Luke Herrine, an assistant law professor at the University of Alabama who specializes in student debt, said he thought Mr. Garrison’s case would fail if borrowers like him were given the choice to opt out.

“After doing a nationwide search, the conservative legal movement could only find a suitable plaintiff on its own staff,” Mr. Herrine said on Twitter. “Others are either happy to have this relief or ineligible for standing.”

Lawyers at Pacific Legal criticized Mr. Biden’s plan as an abuse of his executive power.

“It’s flagrantly illegal for the executive branch to create a $500 billion program by press release, and without statutory authority or even the basic notice and comment procedure for new regulations,” said Caleb Kruckenberg, a lawyer at the group who is representing Mr. Garrison.

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