A lawsuit filed by a libertarian group, believed to be the first targeting Biden’s student debt plan, calls it an illegal overreach that would increase state tax burdens for some Americans who get their debt forgiven.
Students walk past Sather Gate on the University of California at Berkeley campus on May 10, 2018, in Berkeley, Calif. President Joe Biden's student loan forgiveness plan, announced in Aug. 2022, could lift crushing debt burdens from millions of borrowers. However, the tax man may demand a cut of the relief in some states, as some states tax forgiven debt as income.
“Congress did not authorize the executive branch to unilaterally cancel student debt,” said Caleb Kruckenberg, an attorney at Pacific Legal Foundation. He said it’s illegal for the executive branch to create the policy “by press release, and without statutory authority.” Biden’s plan would automatically cancel $20,000 of Garrison’s debt, which in turn would trigger an “immediate tax liability” from the state of Indiana, according to the suit. Under the debt forgiveness program he’s enrolled in now, canceled debt cannot be taxed.
Biden’s plan promises to cancel $10,000 in federal student debt for borrowers with incomes of less than $125,000 per year or households making less than $250,000. Those who received federal Pell Grants to attend college would get an additional $10,000 erased.Conservative groups have been threatening to challenge debt cancellation since Biden first aired the idea, saying it’s legally questionable and unfairly cancels student debt at the expense of Americans who didn’t attend college.
Education Secretary Miguel Cardona has said he has the legal authority to cancel debt for people who faced hardship during the pandemic. Cardona says Biden’s plan will ensure borrowers aren’t worse off after the pandemic than they were before.
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