Personal Finance

GOP challenges to Biden’s student loan forgiveness plan put debt relief in jeopardy

At least three challenges have been filed so far

On Sept. 27,  Frank Garrison, an attorney working for a conservative legal group, brought the first legal challenge to Biden‘s plan, arguing that forgiveness would cause him personal injury in the form of a state tax bill.

Canceled student debt can be considered taxable income. Although borrowers won’t be required to pay federal taxes on their canceled student debt, thanks to a Covid pandemic-era relief provision in the the American Rescue Plan of 2021, some states — including Indiana, where Garrison resides — may charge levies on the relief.

Currently, Garrison is pursuing a government program that leads to tax-free debt cancellation, known as Public Service Loan Forgiveness, but he says Biden’s plan could now cause him to get a $1,000 state tax bill.

President Biden announces student loan debt relief plan

Two days later, on Sept. 29, six Republican-led states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — filed a lawsuit to block Biden’s action. The GOP state officials argue that the president doesn’t have the power to issue nationwide debt relief without Congress. They’re also claiming that the policy would harm private companies that service some federal student loans by reducing their business.

On the same day, Arizona Attorney General Mark Brnovich brought his own legal challenge to stop the Biden administration’s plan. Brnovich asserts that the policy would reduce the impact of the Public Service Loan Forgiveness program, which he says enables his office to recruit legal talent.

The PSLF program allows those who work for the government to get their debt discharged after a decade. If borrowers’ loans are simply discharged now, Brnovich argues, they’ll have less of an incentive to work for the state office. Lawyers in private practice tend to get paid more.

‘There is little merit in their challenge’

“They keep looking for different ways to establish standing, and that’s all well and good, but in the end, it is the merits that matter, and there is little merit in their challenge,” Tribe said.

Higher education and legal expert Mark Kantrowitz said it was possible a judge may overlook an imperfect case of standing, however, because of the larger questions at play here, including the scope of the president’s power.

“The president’s student loan forgiveness plan will likely be overturned if it reaches the U.S. Supreme Court,” Kantrowitz said.

Legal action could delay forgiveness

Valentinrussanov | E+ | Getty Images

Court battles could extend payment pause

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