New lawsuit could halt Biden’s ‘illegal,’ costly student debt forgiveness edict in its tracks

A California public interest law firm has sued the Biden administration over President Joe Biden’s recently signed executive order canceling $10,000 to $20,000 of student loan debt.

Filed on Tuesday by the Pacific Legal Foundation, a libertarian public interest law firm, the suit lists one of its employees, public interest attorney Frank Garrison of Indiana, as the plaintiff.

The suit states that the problem with the president’s executive order is one, that it’s been implemented in an illegal fashion, and two, that it penalizes student loan borrowers like Garrison because of the state tax implications.

“Despite the staggering scope of this regulatory action, it was taken with breathtaking informality and opacity. The Department did not undertake the notice-and-comment process required for rulemaking, much less solicit any public input,” the suit reads.

“It did not even issue a formal order or directive setting out its cancellation program. Instead, it issued a press release on August 12th along with two legal memoranda providing its justifications, and, later, a hastily created a FAQ section on its website.”

In other words, the administration skirted the normal bureaucratic steps to implement the president’s unilateral executive order.

“In the rush, the administration has created new problems for borrowers in at least six states that tax loan cancellation as income. People like Plaintiff Frank Garrison will actually be worse off because of the cancellation. Indeed, Mr. Garrison will face immediate tax liability from the state of Indiana because of the automatic cancellation of a portion of his debt,” the suit continues.

In other words, borrowers like Garrison are being forced to pay state taxes on their forgiven student loan debt.

This latter issue is especially problematic for Garrison because he’s a public servant, meaning his debts are already being addressed.

“He’s already part of the congressionally approved Public Service Loan Forgiveness program, and would have had his debt forgiven after 10 years of payments – without any additional tax burden. He’s already six years into payments, and those payments are capped based on his income,” according to USA Today.

But because he’s a Pell Grant recipient, he’s eligible for $20,000 in loan forgiveness through the president’s executive order. Except that this loan forgiveness doesn’t offer tax protection, meaning Garrison will be stuck with a tax bill of over $1,000 thanks to Biden.

“These taxes would not be owed for debt forgiveness under the Congressionally authorized program rewarding public service. Mr. Garrison and millions of others similarly situated in the six relevant states will receive no additional benefit from the cancellation—just a one-time additional penalty,” the suit reads.

Critics say there’s a problem with the Pacific Legal Foundation’s argument, namely that student loan forgiveness through the president’s executive order is optional.

Thus, Garrison could theoretically avoid paying taxes on his student loan debt by not applying for relief through the president’s EO, they argue.

Plus, critics allege, it’s not fair for him to block student debt relief for millions of other Americans just because he himself would be forced to pay some taxes.

Pacific Legal Foundation has pushed back on this line of criticism by arguing that “the cancellations will be automatic for 8 million borrowers in preexisting repayment programs.”

This is true.

“Those who will get automatic loan cancellation are those for whom the U.S. Department of Education already has income data on file and can therefore verify eligibility without waiting for an application,” according to CNBC.

And so it appears Garrison is being forced to participate in the president’s automatic student debt relief scheme despite it doing nothing more for him than giving him a hefty tax bill. And therein lies the key problem.

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Vivek Saxena

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