The Biden administration was sued over claims that its sweeping new program to forgive some federal student loans will harm borrowers in at least six states, where laws require tax payments on canceled loans because they’re treated as income.
“Mr. Garrison will face immediate tax liability from the state of Indiana because of the automatic cancellation of a portion of his debt,” the federal lawsuit states. “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 group is seeking a court order barring the US Education Department from canceling debt under the program.
White House Assistant Press Secretary Abdullah Hasan said the lawsuit is “baseless” because anyone who does not want debt relief “can choose to opt out.”
“Why would this group bring this baseless claim?” Hasan said in a statement. “Because opponents of the debt relief plan are trying anything they can to stop this program that will provide needed relief to working families.”
The student loan program is one of the costliest initiatives of the president’s term, based on a Congressional Budget Office analysis.
Steve Simpson, a senior attorney at Pacific Legal Foundation, described the debt plan more broadly as one of the “predictable effects” of a president “usurping Congress’ power to make law.”
“Cancelling student debt is unjust to those who have paid their loans or never took any,” Simpson said in a statement. “It will only lead to more calls for government intervention in education at taxpayers’ expense.”
(Updates with new comment from the White House)
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