Hoosier attorneys’ challenge to loan forgiveness program put on hold at 7th Circuit

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The lawsuit filed by a pair of Hoosier attorneys against the Biden administration’s student loan forgiveness program has been put in neutral by the 7th Circuit Court of Appeals pending the outcome of the U.S. Supreme Court’s review of the issue.

Thursday, the Chicago-based appellate court issued an order in Garrison and Johnson v. U.S. Department of Education, et al., 22-2886, granting the unopposed motion filed by the U.S. Department of Education to hold the appeal in abeyance. The 7th Circuit suspended the proceeding until the Supreme Court resolves Biden v. Nebraska, 22-506, another challenge to the student debt cancellation program filed by six states.

Frank Garrison, an Indiana attorney who works for the Pacific Legal Foundation, fought the program in federal court on the grounds he would face a tax liability.

At the time he filed his complaint, the program would have automatically canceled $20,000 of Garrison’s student loan debt. However, because Indiana would classify the forgiven amount as income, Garrison asserted he would have faced a tax liability of just over $1,000.

Noel Johnson, another Indiana lawyer, joined Garrison’s lawsuit claiming he would face a tax penalty of more than $500.

The U.S. District Court for the Southern District of Indiana dismissed the case. Judge Richard Young ruled the plaintiffs did not have standing because the injury they allege is caused by the state of Indiana and not the Education Department.

Garrison and Johnson then appealed to the 7th Circuit.

In their brief to to the 7th Circuit, the plaintiffs assert they have standing to sue even though the Education Department subsequently amended the program to provide a mechanism for student borrowers to opt out.

They argue their injury was traceable to the federal government because the federal cancellation policy gave rise to the state tax liability.

“While the state tax laws were already on the books when ED announced its cancellation policy, they will still result in predictable harms to (Garrison and Johnson),” the plaintiffs asserted in their brief. “And far from being merely one of several factors that contribute to the tax liability, ED’s policy is the sole intervening action that results in the harms to Appellants.”

Moreover, even with an opt-out option, Garrison and Johnson claim they still have standing. They charge the Education Department has tweaked the program since the lawsuit was filed to avoid review by the courts, but the ability to not participate program requires the borrowers contact the loan service providers themselves and convey that they do not want to receive the debt relief.

Garrison and Johnson assert although the Education Department has attempted to moot their claims, they can still challenge the “adequacy of the hastily created opt-out mechanism.”

The other borrowers, the plaintiffs said, still face harm and the voluntary opt-out is not a remedy. Rather, the program should be altered to allow borrowers to opt-in to loan cancellation.

“Otherwise, the only option for class members that would allow them to be treated the same as ED has treated (Garrison and Johnson) would be for each member of the class to sue individually, so ED could then exempt them from the program,” the plaintiffs argue in their brief.

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