At least three challenges have been filed so far
On Sept. 27 Frank Garrison, an attorney who works for a conservative legal group, brought the first legal challenge to Biden’s plan, arguing that the pardon would cause him personal injury in the form of a state tax bill.
Forgiven student debt can be considered taxable income. Although borrowers won’t be required to pay federal taxes on their canceled student debt, some states — including Indiana, where Garrison lives — may charge taxes on the relief, thanks to a Covid-19 pandemic-era relief provision in the 2021 U.S. bailout.
Currently, Garrison is pursuing a government program that leads to tax-free debt forgiveness, known as Public Service Loan Forgiveness, but he says Biden’s plan could now leave him with a $1,000 state tax bill.
Two days later, on September 29, six Republican-led states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — filed a lawsuit to block Biden’s action. GOP state officials argue that the president does not have the power to issue nationwide debt relief without Congress. They also argue that the policy would hurt private companies that service some federal student loans by reducing their business.
That same day, Arizona Attorney General Mark Brnovich brought his own legal challenge to stop the Biden administration’s plan. Brnovich claims the policy would reduce the impact of the public service loan forgiveness program, which he says allows his office to recruit legal talent.
The PSLF program allows those who work for the government to have their debts released after a decade. If borrowers’ loans are simply released now, Brnovich argues, they will have less incentive to work for the state office. Lawyers in private practice tend to be paid more.
‘There is little merit in their challenge’
The biggest hurdle for those hoping to mount a legal challenge to Biden’s plan has been finding a plaintiff who can prove they have been harmed by the policy. “Such harm is necessary to establish what the courts call ‘standing,'” said Laurence Tribe, a law professor at Harvard.
Tribe is not convinced that the current litigation has done so successfully.
“They keep looking for different ways to make a stand, and that’s all well and good, but at the end of the day it’s the benefits that matter, and there’s little merit in their challenge,” Tribe said.
Higher education and legal expert Mark Kantrowitz said it was possible that a judge might overlook an imperfect case of standing, however, because of the larger issues at stake here, including the extent 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.
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Whether these challenges are ultimately successful or not, they are likely to slow down the forgiveness timeline.
With a federal judge deciding whether to grant GOP-led states’ request to block Biden’s plan, the administration has already said it won’t cancel any student debt before 17 Oct.
The policy could be “tied up in the courts for months,” Kantrowitz said.
Court battles can extend the payment pause
If the battle over student loan forgiveness drags on, the Biden administration could decide to extend the pause on monthly payments again, Kantrowitz said.
Currently, the bills, which have been on hold since March 2020, are scheduled to resume in January. But it might be too messy to turn them back on while it’s still uncertain what people owe, because forgiveness remains up in the air.
For now, borrowers should stay abreast of developments. You can register on the Education Department’s website for news about the process, including when the pardon application will be live.
Ideally, you’ll be ready to request relief as soon as the form launches, experts say. If you get your loans forgiven before a lawsuit might get in the way, you might get to keep it, Kantrowitz said, “even if the courts rule against the Biden administration.”
The White House did not immediately respond to a request for comment.