States sue Biden over student loan forgiveness

Republican-led jurisdictions join private borrower in court claims citing tax losses and other harms from $300 billion giveaway

September 30, 2022
Student loan debt US
Source: iStock

Six Republican-led US states have filed a lawsuit against the Biden administration over its student loan debt forgiveness plan, calling it an unfair subsidisation of college by other Americans.

The states acted one month after President Joe Biden announced more than $300 billion (£270 billion) in student debt relief for more than 43 million borrowers, ending a prolonged political debate over whether he would meet a 2020 campaign promise to do so.

Legal challenges were expected, given that Mr Biden acted without the explicit approval of Congress, relying instead on his interpretation of a post-9/11 law allowing a US president to reduce or erase student loan debt during a national emergency.

Opponents have disputed that rationale, saying the suggested justification – the Covid-19 pandemic – is no longer considered a national emergency.

The lawsuit, filed in a federal court in Missouri, was led by the attorney general of Arkansas, Leslie Rutledge, and joined by her counterparts from Iowa, Kansas, Missouri, Nebraska and South Carolina.

Mr Biden’s “unlawful political play puts the self-wrought college-loan debt on the backs of millions of hard-working Americans who are struggling to pay their utility bills and home loans”, Ms Rutledge said in announcing the lawsuit.

It was filed one day after a conservative public interest law firm, the Pacific Legal Foundation, brought a similar claim in a federal court in Indiana. That was cheered by congressional Republicans making similar promises of protecting taxpayers.

“Millions of hard-working taxpayers will be forced to shoulder the financial burden of this scheme if it is not stopped,” the top-ranking Republican on the Education Committee in the US House of Representatives, Virginia Foxx, said in endorsing the Pacific Legal Foundation’s action.

Such lawsuits had been delayed since the Biden announcement, experts said, by the need to find plaintiffs who could argue in court that they have suffered harm. The Pacific Legal Foundation chose one of its own attorneys, Frank Garrison, who is still paying off his own student loans.

Mr Garrison is enrolled in a federal programme that forgives student loan debts for workers in public-service jobs after 10 years of payments and that does not incur federal or state tax obligations on the benefits. He bases his claim of harm on the fact that the Biden plan could create tax obligations for borrowers in several states. Opponents have noted, however, that Mr Garrison is not obliged to switch programmes.

The six states, in their case, claim several losses on behalf of their citizens, including the lost tax revenue that will result from lower amounts of outstanding student loan debt, and expected lower revenues in their own student loan servicing operations.

Beyond those legal complications, the Biden administration heads into the November congressional elections with a host of lingering doubts over the political wisdom of its approach, with even some fellow Democrats questioning whether broad debt forgiveness is fair to those most in need. The Biden policy has partial sensitivity to wealth, providing between $10,000 and $20,000 per person in student debt forgiveness, limited to borrowers now earning less than $125,000 a year.

There is also debate over the policy’s actual cost. The Biden administration announced it as $300 billion, but the non-partisan Congressional Budget Office just issued an estimate putting the figure at about $400 billion.

The Biden administration subsequently acknowledged that student loan cost estimates rely on “highly uncertain assumptions” about a number of factors including borrower behaviour.

paul.basken@timeshighereducation.com

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