Libertarian group sues to block cancellation of student debt

A California libertarian group on Tuesday filed a legal challenge to President Joe Biden’s plan for student debt forgiveness, calling it an illegal override that would increase state tax burdens for some Americans who would get their debt forgiven.

The lawsuit, believed to be the first targeting Biden’s plan, was filed by the Pacific Legal Foundation, a Sacramento law firm. It was filed in federal court in Indiana, one of several states that plan to tax any student debt canceled by Biden’s plan.

“Congress has not authorized the executive branch to unilaterally cancel student debt,” said Caleb Kruckenberg, an attorney at the Pacific Legal Foundation. He said it was illegal for the executive branch to create the policy “by press release and without legal authority.”

The plaintiff in the lawsuit is Frank Garrison, described as a public interest attorney who lives in Indiana and is employed by the Libertarian group.

Garrison is on track to have his student debt erased through a separate federal program for public servants. Although most borrowers will have to enroll in Biden’s plan, Garrison and many other participants in this program will automatically get the relief because the Department of Education has their income information.

Biden’s plan would automatically forgive $20,000 of Garrison’s debt, which in turn would trigger an “immediate tax liability” from the state of Indiana, according to the suit. Under the debt cancellation program it is currently enrolled in, canceled debt cannot be taxed.

“Mr. Garrison and millions of others similarly located in the six affected states will receive no additional benefit from the cancellation — just a one-time additional penalty,” the lawsuit argues.

Any student debt forgiven under Biden’s plan would also be subject to state taxes in Arkansas, California, Minnesota, Mississippi, North Carolina and Wisconsin, unless lawmakers in those states change their current laws.

Biden’s plan promises to forgive $10,000 in federal student debt for borrowers with incomes below $125,000 a year or households earning less than $250,000. Those who received federal Pell grants to attend college would get an additional $10,000 wiped out.

An application to receive the benefit is expected in early October.

Conservative groups have been threatening to challenge debt cancellation since Biden first floated the idea, saying it’s legally questionable and unfairly cancels student debt to the detriment of Americans who didn’t attend college. university. One of the main challenges has been finding someone who faces personal harm as a result of Biden’s plan, giving them the right to sue.

The Biden administration did not immediately comment on the lawsuit, but argued that the plan has a solid legal basis.

In its legal justification for debt cancellation, the Biden administration invoked the HEROES Act of 2003, which was intended to provide relief to the military. The law gives the administration “absolute authority” to reduce or eliminate student debt in the event of a national emergency, the Justice Department said in an August legal opinion.

Education Secretary Miguel Cardona said he had the legal power to cancel debt for people who faced hardship during the pandemic. Cardona says Biden’s plan will ensure borrowers won’t be worse off after the pandemic than before.

The lawsuit disputes that rationale, saying Garrison and others will see their debt mount as a result of Biden’s plan. He also argues that the plan does not meet the requirements of the 2003 law, arguing that the problem of high student debt is not a “direct result” of the pandemic.

“Nothing about loan forgiveness is legal or proper,” the lawsuit alleges. “In a tailspin around Congress, the administration is threatening to enact deep, transformational policy that will have untold economic impacts.”

The lawsuit asks the court to void Biden’s plan and temporarily halt him while legal issues are resolved.

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