A the conservative right organization issued the first legal challenge to President Biden’s plan to forgive student loan debtcalling the policy “manifestly illegal” because it was not authorized by Congress.
Biden’s plan would eliminate the student loan debt of 20 million borrowers and reduce the debt of another 23 million, but the lawsuit claims it would financially harm borrowers in seven states whose debt cancellation would be taxed.
“Congress did not authorize the executive branch to unilaterally cancel student debt,” Caleb Krukenberg, an attorney at the Pacific Legal Foundation, who filed the case, said in a statement. “It is blatantly illegal for the executive branch to create a $500 billion program through a press release and without statutory authority or even the basic notice-and-comment process for new regulations.”
Under Biden’s plan, borrowers making less than $125,000 a year would get up to $10,000 in federal student loan forgiveness. Borrowers who attended college with Pell Grants, designed to help low-income students, are eligible for up to $20,000 in forgiveness if they meet the same income requirements.
The claim cites a Analysis of the Penn Wharton Budget Model, which estimates that Biden’s plan would cost up to $519 billion over 10 years. A Congressional Budget Office report released Monday, predicts that the plan may cost about $400 billion
the case Garrison v. U.S. Dept. of Educwas filed in the U.S. District Court for the Southern District of Indiana on Tuesday.
The plaintiff in the suit is Frank Garrison, an attorney with the Pacific Legal Foundation in Indiana who received a Pell grant to attend college and is eligible for $20,000 in debt forgiveness under Biden’s plan because he makes less of $125,000 a year, according to the complaint.
The case depends on taxes that will be applied to student debt forgiveness in some states, arguing that the debt cancellation will cause Garrison to “assume a financial obligation that he would not otherwise incur.”
Garrison paid off his student loans through the Public Service Loan Forgiveness (PSLF) program, which offers debt forgiveness to borrowers pursuing careers in public service. And he expected to receive a full pardon through the PSLF program in about four years, according to the lawsuit.
But under Biden’s new plan, about eight million borrowers who qualify for debt forgiveness and whose financial information is already on file with the Education Department, including Garrison, will have automatic forgiveness added to their accounts starting in October.
He argued that this was a problem because he would have to pay income taxes on this forgiven debt. Seven states, including Indiana, plan to tax student debt forgiveness as income, according to analysis from the Tax Foundation, an independent nonprofit focused on tax policy.
Garrison’s lawsuit claims that while his debt forgiveness is tax-free if he continues under the PSLF program, he will owe more than $1,000 in income taxes when he automatically receives $20,000 in forgiveness under the Biden plan.
“Frank will be stuck with a tax bill that leaves him financially worse off than continuing with his PSLF repayment program,” Pacific Legal Foundation said in a press release about the case. “He didn’t ask for an annulment, he doesn’t want it and there’s no way he’s going to give it up.”
Will this delay student loan forgiveness?
The Pacific Legal Foundation filed for a temporary restraining order to stop the loan forgiveness plan from taking effect. But a judge has yet to rule on that order.
While the lawsuit claims Biden had no authority for student debt cancellation, the Biden administration has argued that the president has the authority to cancel student debt under the Higher Education Opportunities for Students (HEROES) Act of 2003.
The law gives the U.S. Secretary of Education the authority to change student financial aid programs during times of war, military operation or a “national emergency” — in this case, the COVID-19 pandemic.
“Furthermore, we conclude that the reduction or cancellation of principal balances on student loans, including for a broad class of borrowers determined by the Minister to have suffered financial harm due to COVID-19, may be a permissible response to the COVID-19 pandemic,” Assistant Solicitor General Christopher Schroeder writes in a note on using the HEROES Act last month.
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