Libertarian group sues to block student debt cancellation

A libertarian group in California filed a legal challenge to President Joe Biden’s plan for student debt cancellation on Tuesday, calling it an illegal overreach that would increase state tax burdens for some Americans who 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 did not authorize the executive branch to unilaterally cancel student debt,” said Caleb Kruckenberg, an attorney at Pacific Legal Foundation. He said it’s illegal for the executive branch to create the policy “by press release, and without statutory authority.”

The suit’s plaintiff 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 get his student debt erased through a separate federal program for public servants. Although most borrowers will need to apply for Biden’s plan, Garrison and many others in that program will automatically get the relief because the Education Department has their income information on file.

Biden’s plan would automatically cancel $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 forgiveness program he’s enrolled in now, canceled debt cannot be taxed.

“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 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 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.

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

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

The Biden administration did not immediately comment on the suit but has argued that the plan is on solid legal ground.

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

Education Secretary Miguel Cardona has said he has the legal authority to cancel debt for people who faced hardship during the pandemic. Cardona says Biden’s plan will ensure borrowers aren’t worse off after the pandemic than they were before.

The suit challenges that rationale, saying Garrison and others will see their debt burdens increase as a result of Biden’s plan. It also contends that the plan doesn’t 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 cancellation is lawful or appropriate,” the suit alleges. “In an end-run around Congress, the administration threatens to enact a profound and transformational policy that will have untold economic impacts.”

The suit asks the court to overturn Biden’s plan and to temporarily halt it while legal questions are resolved.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.

5 thoughts on “Libertarian group sues to block student debt cancellation

  1. Let’s see: You get $20,000 worth of debt canceled (i.e., $20,000 you won’t have to spend) and then you bitch about having to pay taxes on that $20,000 gift from taxpayers.

    Only in America…

    1. If you had read the article, you would have seen that he was on track for student debt relief through existing means and not this legally dubious forgiveness announced by the Biden Administration, and thus would not have incurred a tax liability that he instead will now incur automatically. I agree with your sentiments generally, but they don’t pertain to his circumstances.

  2. “the problem of high student debt is not a “direct result” of the pandemic” – This accurate but the real problem is our government making (continuing to make) these loans. 18 y/o teens have little to no education on finances and how loans work. I didn’t have a clue about my students when I signed on the dotted lines. Semester after semester I piled on students loans. That story is the same for thousands of people. I’ve proudly paid mine off. It’s just a small “win” for the little guys struggling to pay off student loans. Until the government turns off the fountain the problem will never go away. It’s eroding the value of most college degrees.

    1. Just a friendly reminder: if you had student loans, you were a student–and if they were sizable enough that this is a small concession, then you were a student at something more than PJ’s Beauty College. This means you either completed or were on the path to a 2-year degree–and probably a 4-year degree. At a minimum.

      Even in a place as fortunate and rich and prosperous as the United States, with a somewhat free market in education and an almost limitless array of possible academic pursuits, a student who takes out loans isn’t really a “little guy”. There are far littler guys who didn’t go to school–either because they lacked the ability or the aptitude or the self-discipline, or any combination of the above. But the taxes on their mostly modest incomes (with far less potential to grow over time) most certainly helped subsidize the students, who were at least a run or two higher on the socioeconomic ladder.

      Would that we actually have a party that stands up for the interests of the truly “little guy”. But we don’t.

  3. I agree with most all of the sentiments offered here. The main problem in modern society is that people are not held accountable for their actions. A lot of people do not want to take responsibility for their actions. I think it is quite ridiculous to claim that an 18- year old can sign a loan application and then later claim they did not understand it. The law nowadays says that an 18-year old is an adult and therefore responsible for repayment. I bet all of the students had no trouble in figuring out how to cash the check and deposit the funds they received. I know several who went on to grad school and used student loans to buy automobiles and live the good life while they were a student and the ones I know did not work, nor did their spouse. Now they are earning a very good salary but do not feel they should have to pay their loan off. This is utter nonsense. We need to quit making excuses for others’ behavior … Remember the story of the little red hen?

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets on
{{ count_down }}