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The plaintiff in the case is Frank Garrison, a public interest attorney (who is now employed by PLF). Garrison lives in Indiana, one of at least six states that tax this kind of debt cancellation as income. He’s already part of the congressionally approved Public Service Loan Forgiveness program, and would have had his debt forgiven after 10 years of payments – without any additional tax burden. He’s already six years into payments, and those payments are capped based on his income.

Since he’s a Pell Grant recipient, Garrison is eligible for $20,000 in loan forgiveness. Taking that amount off his principal, however, changes nothing for him except for giving him an immediate tax bill of more than $1,000, Kruckenberg said.

So the “forgiveness” will actually cost Garrison money and the action will be automatic – as soon as October – because of his participation in the public service program.