Student loan borrowers take debt-forgiveness challenge to high court

WASHINGTON (CN) — A second attempt to block President Joe Biden’s student debt forgiveness plan landed Tuesday on the Supreme Court’s emergency docket. 

Coming this time from two Indiana borrowers who say Biden’s plan will result in state tax liability, the application was submitted to Justice Amy Coney Barrett, following the same trajectory as an unsuccessful appeal from a conservative Wisconsin law firm.

While the parameters of Biden's plan do not include all borrowers, the latest challenge comes from two men whose debt qualifies for cancellation later this month. Because of policies that tax loan cancellation in at least six states, however, they claim that the program will leave borrowers worse off. 

Frank Garrison and Noel Johnson say that Biden’s program does more harm than good because they qualify under Congress’ Public Service Loan Forgiveness program and because they reside in a state that taxes loan cancellation. 

“Because their debts are expected to be forgiven under a statutory program anyway, ED’s debt cancellation will not benefit them,” Michael Poon, an attorney with the Pacific Legal Foundation representing the borrowers, wrote in the application. “Yet, debt canceled under ED’s program will trigger state-tax liability, unlike debt canceled under the statutory programs. As a result, Mr. Garrison, Mr. Johnson, and potentially millions of others similarly situated in the six relevant states will receive no additional benefit from the cancellation — just a one-time additional penalty.” 

Biden announced in August he would fulfill the longtime Democratic goal of canceling student loan debt. To justify canceling up to $20,000 for certain borrowers, the president Biden invoked a post-9/11 law called the Higher Education Relief Opportunities for Students Act. The 2003 law allows the education secretary to bypass rules related to student financial aid programs in times of war or national emergency. Biden says the Covid-19 pandemic left many borrowers struggling financially, and forgiving their loan debt will prevent them from falling into a worse financial position. 

Garrison and Johnson filed their suit when the Department of Education announced it would automatically cancel debt for millions of Americans. While Biden has now required borrowers to apply for relief, the borrowers fault the Education Department for a “slapdash policy” that changes from hour to hour trying to negate individual claims. 

“In response to this and other suits, ED simply updated its website FAQs to try to negate individual claims by creating an opt-out program whose contours remain informal,” Poon wrote. “Indeed, ED also excluded the class representatives from the program in a transparent effort to moot their claims. Meanwhile, however, ED has pressed forward with its stated intent to cancel hundreds of billions of dollars in student loan debt before any court meaningfully reviews the action. Up to 8 million borrowers still face ‘automatic’ cancellation as early as November 15, 2022, many of them in states taxing the cancellation as income.” 

The borrowers claim Biden’s rationale for granting student debt relief was weak at best and will be irreversible once it happens. They urge the court to pause Biden’s program until it can be reviewed. 

“No borrower will be disadvantaged by a pause in the program because loan repayments and interest accruals have been paused since March 2020,” Poon wrote. “Even if the loan cancellation program was lawful, there is no rush to get it done less than two months after it was announced. This Court must intervene to ensure appropriate judicial review.” 

While many groups have tried to challenge Biden’s debt forgiveness plan, they have all struggled to establish standing for their suits. This case is no different. A district court dismissed the borrowers’ suit for lack of standing. The Seventh Circuit rejected an appeal for emergency relief in the case, leaving the high court as the borrowers’ last option. They have asked the court to halt Biden’s actions to implement relief while their appeal proceeds to the merits in the Seventh Circuit. 

Barrett dismissed a similar suit from Wisconsin taxpayers last month without any additional briefing from the Biden administration or input from the other justices. 

Follow @KelseyReichmann

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