Lawsuit Seeks to End Biden’s Student Loan Forgiveness Plan

The Biden administration’s effort to forgive some student loan debt is facing its first legal hurdle.

Pacific Legal Foundation, a conservative/libertarian group, recently sued the Department of Education over the debt relief plan, calling it an illegal abuse of authority.

Frank Garrison, an attorney who works at the foundation, says he is actually in line to receive $20,000 in student loan forgiveness under the Biden plan. However, he argues this will actually leave him worse off since the forgiveness will trigger Indiana’s state income taxes. 

Garrison argues that a different avenue for forgiveness that he was pursuing—the Public Service Loan Forgiveness (PSLF) program—does not treat forgiven debt as taxable income. 

According to the lawsuit, “Nothing about loan cancellation is lawful or appropriate. In an end-run around Congress, the administration threatens to enact a profound and transformational policy that will have untold economic impacts. The administration’s lawless action should be stopped immediately.”

The lawsuit, which was filed on September 27 in the U.S. District Court for the South District of Indiana, argues that Biden lacks the legal authority to commit such an action and seeks to halt the program through preliminary injunction and temporary restraining order. 

The White House Responds

In response, White House press secretary Karine Jean-Pierre said that the student loan forgiveness effort reflects a campaign promise from the president. 

“When you look at the student loan relief program, it is going to help tens of millions of people. It is going to help 90% of folks who are on that program, or making under $75,000 a year. We want to be really clear here: opponents of the Biden-Harris administration student loan plan are trying to stop it because they know it will provide much needed relief for working families.” 

Jean-Pierre emphasized that anyone who does not want the debt relief has the option to opt out. She referred reporters to the Department of Education website for more details about the debt relief program. 

“The bottom line is this: no one who does not want debt relief will have to get that relief, so folks have an option to opt-out,” she said. 

What is Biden’s Student Loan Debt Relief Plan?

The lawsuit arrives after an announcement from the White House that millions of Americans with student loan debt can have between $10,000 and $20,000 in student loans forgiven. 

According to Reuters, 43 million people held $1.6 trillion in federal student loan debt collectively as of June 30, 2022. 

Biden announced the plan on August 24, 2022. The plan allows for Pell Grant recipients to receive up to $20,000 in relief, and non-Pell Grant recipients to receive up to $10,000 in relief. This program applies to individuals making less than $125,000 per year and households making less than $250,000. The relief debt is capped at the amount of debt the borrower has. 

The administration is planning on launching an application in October 2022 that borrowers can use to seek forgiveness. 

Under the PSLF program, borrowers who are employed by nonprofits, the military, or federal, state, Tribal, or local government may be able to have their entire student debt balance forgiven.

The forgiveness plan is intended to ease the transition to repaying student loans that were paused during the height of the COVID-19 pandemic. Student loan payments are set to resume in January 2023.

Will This Lawsuit Succeed?

The lawsuit is still in its very early stages, but some are already casting doubt over whether or not it will succeed. 

In the Slate article “Why the New Legal Attack on Biden’s Student Loan Relief Is Already Doomed”, author Mark Joseph Stern identifies several potential problems with the lawsuit.

The main issue is legal standing: is Garrison qualified to file this suit?

Apart from discrepancies about his actual state of residence, his ability to opt out may cancel his ability to file the suit. If he has the option to refuse debt relief, then he will not be harmed by the Indiana taxes imposed by the debt relief program.

The other issue is the fact that the debt relief plan is still fairly nebulous. Stern writes:

“[The program] exists primarily as a series of press releases, fact sheets, and FAQs put out by the White House and the Department of Education. PLF’s suit rests on assumptions drawn from these advertising materials, but countless details could change before the final plan is unveiled.”

In other words, since the plan has not yet been finalized, there is nothing for the courts to scrutinize. The Biden administration and the DEA could structure the plan in such a way to avoid lawsuits like Garrison’s.

Stern argues that the lawsuit was perhaps too premature to have a shot at succeeding in court.

How Can My Student Debt Be Forgiven?

While many Americans saddled with student loan debt likely appreciate the forgiveness options provided by the Biden administration, many will still have thousands of dollars remaining after it kicks into place.

A bankruptcy attorney can help those overwhelmed by debt find a suitable solution. While student loan debt is difficult to discharge in bankruptcy, other forms of debt can be discharged, lightening the financial burden overall. These debts can also be consolidated. By speaking with an expert, debtors can learn more about all of their available options and put a plan in place to finally find relief.  

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