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Friday, February 23, 2024 | Back issues
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Lawsuit takes aim at Biden student loan forgiveness plan

The Biden administration’s student debt plan would offer up to $10,000 in loan forgiveness for holders of federal student loans and up to $20,000 for Pell Grant recipients.

INDIANAPOLIS (CN) — A federal lawsuit filed Tuesday seeks to block the Biden administration’s student loan debt forgiveness plan, marking the first significant legal challenge to the policy.

Claiming President Joe Biden's plan is an overreach of executive power, the Pacific Legal Foundation filed its lawsuit against the Department of Education and U.S. Secretary of Education Miguel Cardona in Indianapolis federal court.

The crux of the lawsuit’s argument is that the loan forgiveness was not approved by Congress and is thus illegal.

“Nothing about loan cancellation is lawful or appropriate. 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 lawsuit states.

The details of the plan were announced in August, including that debt forgiveness would only be available to qualifying recipients that earned less than $125,000 individually or $250,000 per household.

Most eligible borrowers with federal student loans could get up to $10,000 forgiven under Biden's plan. Low-income students who paid for college grants with help from a type of federal financial aid called a Pell Grant can qualify for $20,000 in forgiveness.

While the plan faced backlash as soon as it was announced, legal challenges were delayed because it was unclear who had standing to sue and stop the plan.

The plaintiff in this case is Indiana resident and Pacific Legal Foundation lawyer Frank Garrison, who claims he has standing because the Biden plan would cause him financial harm in the form of a tax liability, as Indiana has announced Biden's student loan forgiveness will be taxed as income.

Garrison claims he will be faced with a tax liability of more than $1,000 that he would not have faced under his original loan forgiveness plan.

That's because Garrison is enrolled in an income-driven repayment plan for his student loans, according to the lawsuit, and his position at a nonprofit means he will qualify for loan forgiveness under the Public Service Loan Forgiveness program.

Under that plan, Garrison claims that his loans would be forgiven in just over four years with continued payments, and that this forgiveness would not impose a tax liability like the Biden plan does.

This claimed financial harm coupled with the alleged overreach in government power by the Biden administration is why Garrison claims the forgiveness plan is illegal and should be blocked by an injunction before it takes effect in the first week of October.

“Congress did not authorize the executive branch to unilaterally cancel student debt,” said Caleb Kruckenberg, an attorney at Pacific Legal Foundation representing Garrison. “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.”

During Tuesday’s White House press briefing, Press Secretary Karine Jean-Pierre responded to a question about the lawsuit.

“We want to be really clear here, 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,” Jean-Pierre said.

She added that individual borrowers can choose to opt-out of the debt forgiveness plan.

The nonpartisan Congressional Budget Office released its findings about the Biden plan on Monday, concluding it would reduce federal revenues by $400 billion over the next 30 years.

This reduction in revenue would occur because the federal government is the holder of the loans that would be at least partially forgiven and would not collect the revenue associated with the payments and interest on the loans.

The CBO’s findings did not consider other provisions in the Biden administration’s plan, such as a payment cap on remaining loans of 5% of the borrower’s monthly income.

These figures were released by the CBO in response to a request from Republican lawmakers, and more detailed projections should come next year.

“CBO’s estimates are highly uncertain," the CBO's letter to lawmakers states. "The most uncertain components are the projections of how much borrowers would repay if the executive action canceling debt had not been undertaken and how much they will repay under that executive action."

It added, "Those projections depend in part on future economic conditions and on how the terms of loans might be modified in the future. CBO will incorporate updated information about those factors in its baseline projections early next year.”

Further details of the student loan forgiveness plan are expected to be released next month.

Categories / Consumers, Education, Financial, Government, National

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