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Judge Delivers Ruling on Joe Biden’s Student Loan Cancellation Plan

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OPINION: This article may contain commentary which reflects the author's opinion.


A federal judge has issued a ruling in response to a lawsuit to block President Joe Biden’s student loan forgiveness plan.

The Pacific Legal Foundation (PLF), the first organization to file a legal challenge to the plan to forgive up to $20,000 in student loan debt, argued that it is an unconstitutional action because Congress, which is the branch of government that authorizes spending, did not approve the measure, The Hill reported.

The organization filed the action on behalf of one of its attorneys, arguing that he will suffer irreparable harm because the debt forgiveness would then leave him liable to pay taxes on the gift as income.

“Nearly 8 million borrowers may be eligible to receive relief automatically because their relevant income data is already available to the Department,” read a White House fact sheet that PLF cited in its lawsuit.

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In a two-page order, U.S. District Judge Richard L. Young of the Southern District of Indiana, a Clinton appointee, denied PLF’s request for an injunction after the Department of Education updated its website to point out that no one would be forced to take the debt relief, which came after the department dismissed the lawsuit as “baseless.”

“If you would like to opt out of debt relief for any reason, including because you are concerned about a state tax liability, you will be given an opportunity to opt out,” the department’s website stated following Wednesday’s updated guidance.

Young ruled that the PLF attorney no longer faces any harm because he is free to opt out of the program.

“Despite the staggering scope of this regulatory action, it was taken with breathtaking informality and opacity. The Department [of Education] did not undertake the notice-and-comment process required for rulemaking, much less solicit any public input,” the suit read.

“It did not even issue a formal order or directive setting out its cancellation program. Instead, it issued a press release on August 12th along with two legal memoranda providing its justifications, and, later, a hastily created a FAQ section on its website,” the suit continued.

At the time Biden issued his executive action, The Associated Press reported: “If it survives legal challenges that are almost certain to come, Biden’s plan could offer a windfall to a swath of the nation in the run-up to this fall’s midterm elections. More than 43 million owe a combined $1.6 trillion in federal student debt, with almost a third owing less than $10,000 according to federal data.”

A tweet from the Pacific Legal Foundation added: “The program is estimated to cost over $500 billion. About 8 million Americans will have their loans forgiven automatically, without opting in—and some, like our plaintiff, will face immediate tax liability. And the administration did it with a press release.”

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“In an end-run around Congress, the administration threatens to enact a profound and transformational policy that will have untold economic impacts,” says the complaint. “The administration’s lawless action should be stopped immediately.”

“In the rush, 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. Indeed, Mr. Garrison will face immediate tax liability from the state of Indiana because of the automatic cancellation of a portion of his debt,” the complaint added, noting that Garrison and other relief recipients will be taxed on their ‘gift.’

If he was forced to take part in the program, Garrison faced a $1,000 tax bill because, as a Pell Grant recipient, he is eligible for $20,000 in relief under Biden’s order.

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“These taxes would not be owed for debt forgiveness under the Congressionally authorized program rewarding public service. Mr. Garrison and millions of others similarly situated in the six relevant states will receive no additional benefit from the cancellation—just a one-time additional penalty,” the suit contended.

In his order, Young also granted Garrison’s request to amend his complaint, indicating that PLF intends to continue pursuing its complaint.

“Since Pacific Legal Foundation filed the case on Tuesday, the government has made two staggeringly large changes to the program via quiet revisions to a Department of Education website, which only serves to underscore the lawless nature of this program,” PLF attorney Caleb Kruckenberg noted in a statement, according to The Hill. “The government clearly had not considered the implications of the program for people like our plaintiff, Frank Garrison.”

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