Republican plans to block student loan relief would keep millions of Americans in debt

Republican attorneys general and right-wing legal groups are considering legal challenges to block President Joe Biden’s transformative student loan debt cancellation plan that would provide immense relief for millions of borrowers.

If GOP challenges are successful, more than 20 million Americans whose remaining balances are set to be wiped out would be forced back into debt.

And unless state lawmakers in several Republican-dominated state legislatures work quickly to change how student loan relief is taxed, despite a federal exemption, borrowers in those states could also face significant tax bills for their canceled debts.

Roughly 43 million federal student loan borrowers are eligible for relief under the president’s plan, announced last month, including 20 million people who are eligible to have their debts canceled completely, according to the White House.

Borrowers who took out federal student loans to pay for their college education and who make less than $125,000 a year – or $250,000, if filing jointly – are eligible for up to $10,000 in debt cancellation.

Pell grant recipients under the same income threshold will be eligible to have up to $20,000 in their federal student loan debts canceled.

Immediately following the administration’s announcement of the plan, influential conservative special interest group the Job Creators Network said it is “weighing its legal options” to block the president’s “illegal student loan bailout.”

But it is unlikely that any potential plaintiff would be able to pursue a challenge that would not be immediately dismissed for a lack of standing in the manner. A widely cited article from the Virginia Law Review argues that “no one” – including “taxpayers, former borrowers, Congress, state governments, and loan servicers” – would have any precedent or legal foot to stand on to challenge the administration.

That has not stopped GOP attorneys general from trying.

Texas Attorney General Ken Paxton, who is embroiled in several Biden administration lawsuits, told Newsmax that he believes the plan is unconstitutional, and that “we have to find a way in the state of Texas to find standing, or we need individuals to sue that have damages as a result of this” – suggesting that GOP officials are looking for plaintiffs who are willing to file a lawsuit to get a legal challenge moving.

Missouri Attorney General Eric Schmitt also told Fox News that “we’re actively looking into legal options” to stop what he called the administration’s “abuse of power and assault on working class Americans.”

Arizona Attorney General Mark Brnovich told CNN that he is “working with some colleagues trying to develop the best legal theory of moving to sue the Biden administration over the student loan forgiveness policy.”

“I think any real lawyer knows that there is not a legal basis for doing what they’re doing,” added Mr Brnovich, who called the proposal “fundamentally unfair.”

John Malcolm, director of the Meese Center at the right-wing Heritage Foundation, told The Washington Post that Republican challengers are trying to find a potential client with “standing and the gumption” to sue.

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The Biden administration has relied on guidance from the US Department of Justice outlining broad debt relief from the executive branch as “appropriate” under a 2003 law granting the president authority to eliminate student loan debts in connection with national emergencies.

The White House has repeatedly pointed to its legal footing – the result of months of internal debate and legal review – while criticising GOP critics of the plan for receiving tens of thousands of dollars in federal aid themselves.

Recipients of those government-supported, congressionally approved loans also are exempt from paying taxes on them.

But in Arkansas, Minnesota, Mississippi, North Carolina and Wisconsin, canceled student loan balances could be considered taxable income, according to Washington DC think tank The Tax Foundation.

Under the American Rescue Plan, student loan debt relief between 2021 and 2025 does not count toward federal taxable income. But states that treat forgiven debt as income could force borrowers to owe taxes on as much as $20,000 that will be canceled from their balances unless state law is quickly changed.

Mississippi’s Department of Revenue told Bloomberg that student loan debt relief beneficiaries in that state will be on the hook for paying state income tax.

North Carolina’s Department of Revenue announced that because the GOP-led state legislature did not adopt an element of the Internal Revenue Code that would include student loan forgiveness as non-taxable income, “student-loan relief is taxable.”

Wisconsin’s Democratic Governor Tony Evers announced he plans to propose a fix in the state’s budget next year to address the issue, but that would need to be approved by the Republican-controlled state legislature. Governor Evers also is up for re-election in November.

Student loan relief also could be considered taxable income in Mississippi, a state where GOP lawmakers passed a bill in 2020 to make loans from the Covid-19-pandemic relief Paycheck Protection Program tax exempt.

It’s unclear whether state Republicans have the appetite to do the same for student loan debt relief. The state’s Republican Governor Tate Reeves has amplified familiar GOP rhetoric against student loan cancellation, suggesting that the Biden administration “hate[s] working people” and claimed Mississippians will be “forced to pay off the debts of Harvard doctorate degree gender studies majors living in California.”

GOP critics of the plan have characterised student debt relief as broadly “unfair” and a “bailout” while depicting borrowers as overwhelmingly young, lazy or receiving “free” relief on the behalf of American taxpayers.

Texas Senator Ted Cruz has invoked a caricature of “slacker baristas” who “wasted seven years in college studying completely useless things” and “can’t get a job.”

“I don’t hear any of these Republicans squawking when we give massive tax breaks to billionaires,” Vermont Senator Bernie Sanders told ABC’s This Week on 28 August, pointing to Donald Trump’s 2017 plan that slashed the corporate tax rate from from 35 per cent to 21 per cent.

“I know it is shocking … to some Republicans that the government actually, on occasion, do something to benefit working families and low-income people,” he said. “Suddenly when we do something for working people, it is a terrible idea.”

Polling also shows that Americans are largely split on the idea; more than three-quarters of Americans support the administration doing something to tackle the exploding costs of higher education, nearly half support the plan to eliminate up to $20,000 in student loan debts, according to the results of a recent Morning Consult/Politico survey.

The results of a poll from progressive think tank Data for Progress taken before the president’s announcement last month found that 60 per cent of 1,425 respondents agreed that the federal government should eliminate all or some student loan debt for every borrower.

But broad characterisations from GOP critics also fail to grasp the scope of the crisis, which has exploded to nearly $2 trillion, held among more than 40 million Americans, including millions still tackling interest without chipping away at their principal balances years after graduating, or who were forced to leave their colleges or universities without obtaining a degree at all.

The amount of debt taken out to support student loans for higher education costs has surged within the last decade, while tuition costs have surged, private university enrollment grew, wages stagnated and GOP-led governments stripped investments in higher education and aid, putting the burden of college costs largely on students and their families.

Borrowers also have been trapped by predatory lending schemes with for-profit institutions and sky-high interest rates that have made it impossible for many borrowers to make any progress toward paying off their debt, with interest adding to balances that exceed the original loan.

One analysis from the US Department of Education found that nearly 90 per cent of student loan relief would support people earning less than $75,000 per year. The median income of households with student loan balances is $76,400, while 7 per cent of borrowers are below the poverty line.

The debt burden also falls disproportionately on Black borrowers and women. Black students and people aged 50 and older are among the fastest-growing categories of borrowers, according to the Federal Reserve.

The national loan balance average among Black college graduates is $25,000 more than white college graduates, according to the Education Data Initiative.

In Mississippi, the state had the highest default rate in the US for student loan borrowers, at 15.2 per cent. The national average is 9.7 per cent.

Roughly 38 per cent of the state’s residents are Black, the highest per capita population of Black residents in any state, according to the US Census. Mississippi also leads the US with the highest poverty rate.

Nearly nine million borrowers, or roughly 20 per cent of borrowers, are over the age of 50. Roughly one-quarter of borrowers are between the ages of 35 and 49, while 33 per cent are between 25 and 34.

Roughly 1.6 million borrowers over 50 have more debt now than they did in 2017, thanks to rising interest rates that have outpaced the principal loans on which they have made payments

More than half of the 45 million Americans with federal student loan debts have $20,000 or less to pay back. Seven per cent of people with federal debt owe more than $100,000.