President Biden’s plan to forgive up to $20,000 in federal student loan debt per borrower was hit with its first major lawsuit Tuesday — just a day after the nonpartisan Congressional Budget Office estimated the bailout would cost taxpayers $400 billion.
The libertarian Pacific Legal Foundation filed the suit in an Indiana federal court on behalf of one of its attorneys, Frank Garrison, who argues that the loan forgiveness would force him to pay a hefty state tax bill.
The lawsuit asks for an injunction halting the executive action, which could affect up to 43 million people beginning next month.
“Nothing about loan cancellation is lawful or appropriate,” the lawsuit says. “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.”
Garrison “will face immediate tax liability from the state of Indiana because of the automatic cancellation of a portion of his debt,” the 17-page filing adds. “These taxes would not be owed for debt forgiveness under the Congressionally authorized program rewarding public service.”
Biden announced the massive loan forgiveness plan on Aug. 24, outraging critics who argued it was illegal and could worsen inflation, which already is at its highest rate since 1981 amid elevated federal spending.
Actual litigation over the bailout has been slow to materialize due to trouble finding someone with legal standing to sue — meaning an argument that shows they are directly harmed by the action and therefore have a right to challenge it.
Under Biden’s plan, borrowers are eligible for forgiveness of up to $10,000 in federally owned student debt if they have an annual income under $125,000. Pell Grant recipients are eligible for another $10,000 in forgiveness. About 8 million people are expected to receive the benefits automatically, while the rest will need to apply.
Asked about the lawsuit Tuesday afternoon, White House press secretary Karine Jean-Pierre said that Garrison could simply “opt-out” of the write-off plan.
“No one who does not want that relief will have to get that debt relief. So folks have an option to opt-out,” Jean-Pierre claimed.
But Garrison is eligible for $20,000 in debt cancellation and is “in the class of automatic cancellation during the first week of October 2022,” according to his lawsuit.
The filing adds that “the administration has created new problems for borrowers in at least six states that tax loan cancellation as income” and that certain people “will actually be worse off because of the cancellation.”
As of Tuesday, the Pacific Legal Foundation was aware of just one other lawsuit in connection with the plan, filed in Idaho with a standing claim that Biden’s action will increase inflation.
Steve Simpson, a senior attorney at Pacific Legal Foundation, said in a statement that “canceling student debt is unjust to those who have paid their loans or never took any. It will only lead to more calls for government intervention in education at taxpayers’ expense.”
Biden invoked emergency powers to authorize the loan forgiveness following a pressure campaign from the Democratic Party’s left-wing — saying the COVID-19 pandemic meant he had a right to waive the debt.
However, the president appeared to undercut his own justification for the handout earlier this month when he said in a “60 Minutes” interview that “the pandemic is over” — before any loans actually were forgiven.
In a memo justifying the loan forgiveness plan, the Education Department’s legal department cited a 2003 law that allows the president to “alleviate hardship” for student loan recipients during a national emergency.
The new lawsuit argues that the 2003 law was passed “in response to the Iraq war as a means of providing assistance to veterans and their family” and “specifies, as relevant here, that this waiver or modification must be ‘necessary to ensure that’ one of certain statutory objectives are achieved, including to ensure that ‘recipients of student financial assistance… are not placed in a worse position financially in relation to that financial assistance because of their status as affected individuals.'”
The CBO’s Monday estimate that Biden’s loan forgiveness would cost $400 billion provoked another round of Republican criticism.
“This isn’t constitutional. A President can’t just give away $400 billion,” tweeted Rep. Thomas Massie (R-Ky.) in response.
“Joe Biden isn’t ‘canceling’ student loan debt. He’s just forcing us to pay for it,” wrote Abigail Marone, a spokeswoman for Sen. Josh Hawley (R-Mo.).
The CBO estimated that Biden’s additional August decision to defer payments and interest accrual on student loans through December would cost taxpayers another $20 billion.
The Committee for a Responsible Federal Budget said the CBO actually underestimated costs because it didn’t account for another part of Biden’s plan that caps repayment on undergraduate loans at 5% of a person’s earnings, down from the current 10%. The group projected in August that the so-called “income-driven repayment” (IDR) policy would cost taxpayers another $120 billion.
The University of Pennsylvania’s Penn Wharton Budget Model estimated last month that Biden’s debt cancellation alone will cost $519 billion, while the postponement of payments would cost another $16 billion and the lower repayment rule would cost $70 billion.
“[D]epending on future IDR program details to be released and potential behavioral… changes, total plan costs could exceed $1 trillion,” the Penn Wharton estimate said.