Legal Challenges Mount for Biden’s Student Loan Debt Forgiveness Plan -

“Six Republican-led states and a libertarian policy organization sued the Biden administration over its plan to cancel up to $20,000 in student loan debt.”

Why this is important: Two lawsuits pending in Missouri and Indiana challenge the Biden administration’s ability to cancel student loan debt. They argue that the plan to cancel debt violates federal law, the constitutional principle of separation of powers, and the Administrative Procedures Act, as well as improperly expands the scope of the HEROES Act (which gives the Education Secretary certain powers during national emergencies). At the heart of the challenge, is the position that wiping out student loan debt really just transfers that debt from people who voluntarily assumed it to people who did not. The lawsuits further take advantage of House Speaker Nancy Pelosi’s statement, “People think the president of the United States has the power for debt forgiveness. He does not.” In addition to these arguments, another argument takes center stage in the Indiana lawsuit. The plaintiff in that lawsuit has been enrolled in the Public Service Loan Forgiveness plan, which cancels student loan debt when a borrower works in a public service career and makes 10 years of loan payments. The plaintiff in that lawsuit will be required to pay taxes on the amount of the debt forgiven if it is canceled through the new cancellation plan as opposed to the Public Service Loan Forgiveness plan. This article raises an issue that should be discussed more, that is, whether debt cancellation under the new proposed plan will result in a tax bill to the student loan borrower. If the new cancellation plan is aimed at student loan borrowers making below a certain income threshold, then those borrowers presumably do not have an excess amount of money lying around to pay an increased tax burden. The article lists a few states that tax debt forgiveness, but they aren’t the only ones. At bottom, the prospect of a tax bill for debt forgiveness needs to be a larger part of the discussion of the new plan.