Big Student Loan Forgiveness Details Just Released For New Biden Plan

The Biden administration released major new details this week about a new student loan forgiveness plan.

The program is designed to provide student debt relief to borrowers in the wake of last summer’s Supreme Court ruling that struck down Biden’s first student loan forgiveness initiative. The new plan is being developed under a different legal principle and will target borrowers based on specific conditions.

The Ministry of Education made it public draft regulations containing eligibility criteria and proposed student loan forgiveness amounts ahead of the third round of negotiated rulemaking hearings scheduled for next week. Those hearings will be one of the final steps before the rules governing the program are finalized next year.

Here is the latest.

Biden’s new student loan forgiveness plan through a different legal authority

The Biden administration’s latest student loan forgiveness plan will take effect through a federal law called the Higher Education Act. The statutory text of the HEA includes a so-called “compromise and settlement” principle, which advocates have long argued is a broad legal basis for the administration to cancel student debt on a massive scale. Critics, however, argue that this is too broad a reading of that provision, which historically has been used in ad hoc federal student loan default settlements or to resolve disputes against the Department of Education.

But administration officials hope a new loan forgiveness plan through the HEA will have a better chance of withstanding a legal challenge than Biden’s first student debt relief initiative. That plan, which would have canceled $10,000 or $20,000 in federal student loans for more than 30 million borrowers, was enacted under the HEROES Act of 2003, a different statute that generally authorizes the Department of Education to waive federal student loan rules in response to a national emergency. The Supreme Court’s conservative majority narrowly interpreted the language in the HEROES Act and argued that Congress would have to expressly authorize mass student loan forgiveness in the legislative text before the administration could proceed unilaterally.

The new HEA plan, as proposed by the Biden administration, would be more narrowly tailored. Student loan forgiveness will focus on five broad categories of borrowers. Ahead of next week’s rulemaking debates, the Department of Education released draft regulations on eligibility for student loan forgiveness and potential forgiveness amounts.

Up to $10,000 in student loan forgiveness

Under the proposed regulations, borrowers could receive up to $10,000 in student loan forgiveness if their current balance is greater than the amount they originally borrowed. This may be due to years of accrued interest, interest capitalization and negative amortization associated with forbearance or income-based repayment plans, or excessive fees and collection costs associated with loan defaults.

The draft regulation proposes that, “the Secretary [of Education] may waive the lesser of $10,000 or the amount by which a borrower’s loans cumulatively have a total balance that exceeds- (1) The original loan balance for loans disbursed before January 1, 2005. (2) The loan balance on the last day of the grace period for loans disbursed on or after January 1, 2005. or (3) The total original principal balance of all loans repaid by a Federal Consolidation Loan or Direct Consolidation Loan.”

Up to $20,000 in student loan forgiveness

The draft regulations suggest that the amount of student loan forgiveness for borrowers whose current balances exceed their original balances could be even higher under certain circumstances.

If a borrower is enrolled in SAVE, a new income-based repayment program recently launched by the Biden administration, they could be eligible for up to $20,000 in student loan forgiveness. “The Secretary may waive the lesser of $20,000 or the amount by which a borrower’s loans cumulatively have a total balance that exceeds: (2) The balance of the loans on the last day of the grace period for loans disbursed on or after on January 1, 2005. or (3) The aggregate principal balance of all loans that have been repaid by a Federal Consolidation Loan or Direct Consolidation Loan, if… The borrower is enrolled in the Valued Education Savings Plan.” The borrowers they must also earn less than $125,000 a year if single, or $250,000 if married and filing jointly with their spouse, to qualify.

Borrowers could also be eligible for up to $20,000 in student loan forgiveness if their current balance exceeds their original balance and they have an especially low income. “A borrower is eligible for the waiver described in paragraph (a) of this section if— (1) The borrower is enrolled in an IDR program… and (2) The borrower’s adjusted gross income or other documentation of income acceptable to the The Secretary demonstrates that the borrower’s annual income is equal to or less than 225 percent of the applicable Federal Poverty Guideline.”

Student loan forgiveness for full balance

The draft regulations identify a number of specific circumstances that can qualify for full student loan forgiveness and repayment of the entire federal student loan balance. These include:

• A borrower with only undergraduate federal student loans whose loans were first entered into repayment 20 years ago.
• A borrower with other federal student loans whose loans were first entered into repayment 25 years ago.
• Those who qualify for student loan forgiveness under other available programs, but have not yet applied.
• Former students of colleges and other institutions involved in some form of cognizable misconduct. The regulations indicate that this includes schools that have lost eligibility for federal financial aid, have not met an “accountability standard based on student outcomes established under the HEA or its implementing regulations,” or “failed to provide adequate financial value to students. including instances where the institution or program has engaged in material misrepresentations, material omissions, misconduct affecting student eligibility, or other similar activities.”

Here’s what’s next for Biden’s new student loan forgiveness plan

The draft regulations will be discussed in the upcoming round of rulemaking negotiations, where a panel of stakeholders will meet to discuss the rules governing the new student loan forgiveness program. The committee had two previous meetings in October and November.

The committee will also continue to discuss the extent to which personal and financial hardship could be a basis for student loan forgiveness under the new plan. “The Department continues to consider relief options for borrowers experiencing financial hardship that are not addressed by the current loan system and will spend time on this issue in the upcoming bargaining session,” the Department of Education said in a statement. statement on Tuesday.

The stakeholder committee will try to reach consensus on the draft regulations at next week’s hearings, which will be held on December 11 and 12. “Consensus means that there is no disagreement about a given idea,” the department said. “Following this meeting, the Department will work on draft rules that will be released for public comment next year. The Department will use any regulatory text that achieves consensus in its draft rules.” Regulations may change during the rulemaking session. For any text that fails to reach consensus, the department will have more room to craft regulations based on committee discussion.

The new student loan forgiveness plan may not be active and available until 2025. However, it is possible that the Biden administration could use the HEA authority to implement the program earlier, possibly sometime in 2024.

Further reading on student loan forgiveness

This Biden student loan forgiveness opportunity ends in just weeks

Didn’t receive a student loan forgiveness email? 7 possible reasons

New student loan forgiveness application helps borrowers with medical issues

These updates to student loan forgiveness will affect 9 million borrowers or more