CBA Record January-February 2023

YOUNG L AWYERS S EC T I ON : BU I LD I NG BR I DGE S

Student Loan Forgiveness: Will It Be Taxable in Illinois? By Ted Kontopoulos and Jake Berger

D uring the 2020 election, now President Joe Biden prominently campaigned on a promise to for give some federal student loan debt. Pop ular opinion quickly split three ways on whether to forgive federal student loans and to what extent. Progressive propo nents called for complete forgiveness of all federal student debt for all borrowers at any income level. Moderate proponents called for partial forgiveness in amounts ranging between $10,000 and $50,000 for some borrowers at certain income levels. Outright opponents argued that forgiving any student debt today (a) risked exacerbating price inflation and (b) was unfair to borrowers who had already repaid their federal loans.

non-Pell Grant borrower earns less than $125,000, or married couple Pell Grant borrowers who file their taxes jointly earn less than $250,000, then up to $10,000 of their federal student loan is forgiven, and the debt is discharged. If the borrow ers are Pell Grant recipients who meet the income requirements, then up to $20,000 of their federal student loan is forgiven, and the associated debt is discharged. Pri vate, non-federal student loans are not eli gible for relief and forgiveness under the plan. See Federal Student Aid Programs (Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Pro gram), 87 Fed. Reg. 61,512, 61,514 (Oct. 12, 2022) (to be codified at 34 C.F.R. pts. 674, 682,685). Court Challenges Almost immediately after the plan was announced, conservative advocacy groups and several Republican attorneys general challenged the plan’s legality in federal court. These suits were filed in various

jurisdictions and generally sought to block the plan’s implementation. At least two of those suits have resulted in preliminary injunctions, which prevent the plan from proceeding and being implemented until the legal challenges are resolved. In U.S. Department of Education, et al. v. Brown, et al., two borrowers were ineligible for full debt forgiveness. With the backing of the conservative advocacy group Job Creators Network, these bor rowers alleged that President Biden lacked authority under the Higher Education Relief Opportunities for Students Act (HEROES Act) to unilaterally discharge student loan debt without Congressional approval. In response, the Biden Admin istration argued that the Secretary of Education had nearly unfettered author ity under the HEROES Act’s emergency powers to discharge federal student loan debt. The Administration also contended that the plaintiffs lacked standing. On November 10, 2022, the Court rejected the Administration’s arguments, agreed with the plaintiffs, and granted a

President Biden’s Student Loan Forgiveness Plan

In August 2022, after one-and-a-half years studying the issue and just before the 2022 midterm elections, President Biden announced a student loan forgive ness plan. Under the plan, if an individual

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