A legal challenge to President Joe Biden’s plan for student debt cancellation was filed by a libertarian group in California, calling it an illegal overreach that would increase state tax burdens for some Americans who get their debt forgiven.
A Sacramento legal advocacy group, the Pacific Legal Foundation, filed this lawsuit, which is believed to be the first targeting Biden’s plan. It was filed in a federal court in one of several states that plan to tax any student debt canceled by Biden’s plan, which is Indiana.
An attorney at the Pacific Legal Foundation, Caleb Kruckenberg said that “Congress did not authorize the executive branch to unilaterally cancel student debt.” It is illegal for the executive branch to create the policy “by press release, and without statutory authority,” he said.
Frank Garrison is the suit’s plaintiff, who is described as a public interest attorney who lives in Indiana and is employed by the libertarian group.
Through a separate federal program for public servants, Garrison is on track to get his student debt erased. Most borrowers will however need to apply for Biden’s plan, but because the Education Department has Garrison’s income information on file, he and many others in that program will automatically get the relief.
According to the suit, Biden’s plan would automatically cancel up to $20,000 of Garrison’s debt, which in turn would trigger an “immediate tax liability” from the state of Indiana. Canceled debt cannot be taxed under the debt forgiveness program he’s enrolled in now, reported AP News.
The suit argues: “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.”
Unless lawmakers in these states change their current laws, any student debt forgiven under Biden’s plan would also be subject to state taxes in Arkansas, California, Minnesota, Mississippi, North Carolina, and Wisconsin.
Anyone will be able to opt out of the cancellation, said White House press secretary Karine Jean-Pierre when asked about the suit. Previously, the White House said roughly 8 million Americans would automatically get the debt relief without applying, but Jean-Pierre did not explain how that would work.
At a press briefing, Jean-Pierre said: “The bottom line is this — no one who does not want debt relief will have to get that debt relief.”
Saying opponents “are trying anything they can to stop this program that will provide needed relief to working families,” a separate statement from the White House called the lawsuit “baseless.”
The Pacific Legal Foundation says it has argued before the U.S. Supreme Court 16 times, prevailing in 14 cases.
Biden’s plan promises to cancel $10,000 in federal student debt for borrowers with incomes of less than $125,000 per year or households making less than $250,000. Those who received federal Pell Grants to attend college would get an additional $10,000 erased.
Early October is when an application to receive the benefit is expected.