A libertarian group filed a lawsuit on Tuesday challenging the legality of the Biden administration’s federal student loan forgiveness plan. The group argued that some borrowers would have their state taxes increased if they participated in the debt cancellation.
The federal student loan forgiveness program would cancel $10,000 of debt for borrowers earning less than $125,000 annually and households earning less than $250,000 annually. The policy also applies to Pell Grant borrowers who will receive an additional $10,000 in debt cancellation. The application for the federal student debt cancellation is expected by early October.
The Pacific Legal Foundation, a Sacramento law firm, filed the case against the policy in federal court in Indiana. All student loan forgiveness for borrowers in Indiana, Arkansas, California, Minnesota, Mississippi, North Carolina, and Wisconsin is subject to state taxes under current law.
Caleb Kruckenberg, an attorney at the Pacific Legal Foundation, said it is illegal for the Biden administration to create the policy without statutory authority.
“Congress did not authorize the executive branch to unilaterally cancel student debt,” said Kruckenberg in a statement on Tuesday. “It’s flagrantly illegal for the executive branch to create a $500 billion program by press release, and without statutory authority or even the basic notice and comment procedure for new regulations.”
The lawsuit states that broad student debt relief would place a substantial burden on taxpayers, the majority of whom either did not attend college, attended but avoided debt, or already paid off their student loan debt.
The case argued that the plaintiff, Frank Garrison, who lives in Indiana, would not benefit from the loan forgiveness.
“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 read.
The Biden administration claimed authority to write off student loans by citing the 2003 HEROES Act, intended to aid Iraq War veterans, which authorized the secretary of education to reduce or eliminate debt during a “national emergency.”
The lawsuit argues that the debt cancellation is not justified by the act because “the cancellation is neither ‘necessary,’ nor is it targeted at harms that are ‘a direct result of a… national emergency.’”
The complaint accused the Department of Education of failing to “undertake the notice-and-comment process required for rulemaking, much less solicit any public input.”
“Nothing about loan cancellation is lawful or appropriate,” the case argues. “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.”
The Pacific Legal Foundation’s lawsuit calls for the policy to be overturned and temporarily halted while legal questions are resolved.