Constitutional Law

Lawyer who says student-loan forgiveness leaves him worse off sues to block program

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Updated: An Indiana lawyer who will have part of his student debt forgiven through the Public Service Loan Forgiveness program has filed a lawsuit challenging student-debt cancellation by the Biden administration.

The plaintiff is Frank Garrison, a lawyer with the Pacific Legal Foundation, who said President Joe Biden’s student-debt plan will force him to pay taxes on forgiven loans that he would not have to pay in the PSLF program. He is represented by the foundation, according to a Sept. 27 press release.

The Biden program, announced in August, will cancel up to $20,000 in student debt for Pell Grant recipients and up to $10,000 for others with federal loans. Borrowers are eligible for loan forgiveness if their loans are held by the U.S. Department of Education and their income in either 2020 or 2021 was less than $125,000 per year as an individual or less than $250,000 per year per household.

Some borrowers will have to apply for debt relief, but others will have their debt canceled automatically.

Garrison said he will owe more than $1,000 in state income taxes when his student debt is automatically canceled.

But the DOE clarified on its website Wednesday that anyone who qualifies for automatic loan forgiveness would be given an opportunity to opt out of the program. That led U.S. District Judge Richard L. Young of the Southern District of Indiana on Thursday to deny Garrison’s motion for a temporary restraining order and preliminary injunction to block the program, report Axios and the Hill.

Because Garrison could opt out of the program, Young said, he would not be irreparably harmed as required for preliminary relief. Young said he would give Garrison a chance to file an amended complaint. The revised complaint should consider whether Garrison has standing because he lacks any injury and whether the suit is ripe for adjudication, given the evolving nature of the program.

According to Garrison’s Sept. 27 lawsuit, the government is claiming authority to implement its program under the the Higher Education Relief Opportunities for Students Act, or the HEROES Act, a 2003 law passed to aid veterans and their families in response to the Iraq War.

The law gives the secretary of education the authority to waive student-aid program requirements when “necessary in connection with a war or other military operation or national emergency.” The national-emergency provision requires the borrower to live or work in a “disaster area.” The secretary of education has concluded that the entire nation is a disaster area because of the COVID-19 pandemic.

“In the rush” to implement the program, the suit says, “the administration has created new problems for borrowers in at least six states that tax loan cancellation as income. People like plaintiff Frank Garrison will actually be worse off because of the cancellation.”

The PSLF program that Garrison is using offers loan forgiveness for those who make monthly loan payments for 10 years while working full time in qualifying public service jobs. He is also enrolled in an income-driven repayment program that caps his monthly payments based on income.

The suit says the Biden administration adopted student-loan forgiveness without going through a notice-and-comment process, and the “lawless action” by the administration “should be stopped immediately.” The cost of the debt cancellation could be as high as $519 billion, the suit says, citing independent estimates.

The suit alleges that the administration’s decision violates the Administrative Procedure Act, and the Heroes Act unconstitutionally gives legislative power to the president in violation of Article I of the Constitution.

A second lawsuit challenging the student-loan relief program was filed Thursday by six states: Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina.

CNN and the Associated Press have coverage; a press release is here.

“In addition to being economically unwise and downright unfair, the Biden administration’s mass debt cancellation is yet another example in a long line of unlawful regulatory actions,” the state lawsuit says.

Publications covering Garrison’s lawsuit, filed in U.S. District Court for the Southern District of Indiana, include the Washington Post, Law360 and Reuters.

Updated Sept. 29 at 12:33 p.m. to include additional news about the states’ lawsuit. Updated Sept. 30 at 8:37 a.m. to include additional information from the Department of Education and from U.S. District Judge Richard L. Young.

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