Opting out of Biden’s student loan forgiveness plan: borrowers can now keep their debt

An estimated 8 million federal student loan borrowers are set to receive forgiveness automatically under President Joe Biden’s one-time cancelation plan. But the US Department of Education quietly updated their website this week to say that borrowers can opt out if they so wish.

That’s in response to a lawsuit filed Tuesday by the libertarian Pacific Legal Foundation to block Biden’s relief effort. Frank Garrison, a potential recipient of automatic student loan forgiveness and lawyer at the firm, is named in the suit, which calls Biden’s plan an illegal overreach that would increase his state tax burden.

According to the suit, Garrison would get $ 20,000 in debt forgiven. But his tax bill will increase by $ 1,000 if he receives the automatic forgiveness, because he lives in Indiana, one of several states that plans to tax the debt forgiveness. (The federal government will not tax the relief.)

Otherwise, Garrison argues he will eventually be eligible for Public Service Loan Forgiveness — a separate program that forgives debt of qualifying public service workers after 10 years of on-time payments — which comes with no tax burden at all, no matter what state recipients live in. He is currently on an income-driven repayment plan and certifies his income with the Department of Education each year.

In response, the Department of Education and the White House now say that the borrowers who would receive the forgiveness automatically will be able to opt out (and anyone else who doesn’t want to receive forgiveness need not apply).

“If you would like to opt out of debt relief for any reason, including because you are concerned about a state tax liability, you will be given an opportunity to opt out,” the Federal Student Aid FAQ on the relief effort was updated to read .

There is no other information currently given on how borrowers will be able to do this. The Department of Education rerouted Fortune‘s question about the suit to a White House press secretary, who did not respond.

The Department also filed a notice Wednesday with the Southern District Court of Indiana to say Garrison specifically has been removed from automatic forgiveness.

“Upon receiving this lawsuit and reviewing Plaintiff’s filings, the Department has already taken steps to effectuate Plaintiff’s clearly stated desire to opt out of the program and not receive $ 20,000 in automatic
cancellation of his federal student loan debt, and so notified Plaintiff’s counsel today, ”the notice reads.

StudentAid.gov

Biden’s plan would forgive up to $ 10,000 for some federal borrowers and up to $ 20,000 for others. Most people will need to apply for forgiveness when an online application becomes available at the beginning of October.

Conservative groups have been searching for a way to challenge debt cancellation prior to Biden’s official announcement in August. They contend it is unfair to those who have already repaid their debt, as well as to those who have not attended college.

“Canceling student debt … will only lead to more calls for government intervention in education at taxpayers’ expense,” Steve Simpson, senior attorney at Pacific Legal Foundation, said in a statement. “Loan cancellation will make Americans more divided, as those who paid their loans — or never went to college — will have good reason to think that we no longer have a government of, by, and for the people.”

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