The Biden administration has unveiled a series of new student loan forgiveness initiatives that, in total, would erase some of the debt of more than 30 million borrowers.
President Joe Biden, Vice President Kamala Harris and other administration officials fanned out across the country on Monday to promote the administration’s new debt relief plan.
This is the Biden administration’s second major attempt to secure broad student loan forgiveness. This latest set of proposals is much narrower in scope than Biden’s first forgiveness plan, which called for up to $20,000 in forgiveness for borrowers making less than $125,000 before it was struck down by the U.S. Supreme Court in June .
The proposals focus on debt forgiveness for borrowers with specific situations such as runaway interest, financial hardship or loan balances remaining after repaying student loans for more than two decades.
“What does this really mean for people?” Education Minister Miguel Cardona said this in a press conference on Sunday. “It means breathing room, it means freedom from feeling like student loan bills are competing with basic needs, like groceries or healthcare.”
In developing the new plan — which is still undergoing a formal negotiated rulemaking process that began in October — White House officials said they had “carefully studied the Supreme Court decision” and believe the administration has strong standing legal to clear debt using the Higher Education Act.
That said, the White House appears to be ready for a legal battle. Officials have repeatedly pointed to Republican-led lawsuits that have overturned or blocked Biden’s previous efforts to reduce student debt. But ultimately, officials told reporters that this plan was different enough that they felt confident moving forward.
Barring any legal challenges, the administration expects to begin forgiving the debt early this fall, likely before the presidential election in November. The vast majority of relief will be automatic, one official said.
What’s in Biden’s new student loan forgiveness proposal?
Biden’s second attempt at broad student loan forgiveness includes a series of debt relief measures aimed at canceling borrowers’ debt in certain circumstances and fixing what Secretary Cardona has repeatedly called “a broken system.”
Here’s a closer look at what’s included.
Up to $20,000 in forgiveness for ‘runaway interest’
According to White House estimates, more than 25 million borrowers owe more than they originally borrowed because of accrued interest. Biden’s plan would write off up to $20,000 in interest earned by a borrower, regardless of income. For borrowers earning $120,000 (for individuals) or $240,000 (for married couples), any amount of interest can be forgiven if they enroll in an income-driven repayment plan, such as SAVE.
“There is an end to the nightmare of working hard, paying off loans and continuing to watch loan balances get bigger and bigger month after month,” Cardona said.
Automatic forgiveness through existing programs
The White House says “paperwork requirements, bad advice, or other obstacles” have prevented millions of borrowers from obtaining the forgiveness they are already entitled to through existing programs such as Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and others.
Under the new proposal, borrowers who qualify for forgiveness through an existing program like those above can get their debt canceled without enrolling in the program. The Department of Education will identify this group of about 2 million borrowers using data it already has available.
Debt relief for long-time borrowers
Borrowers who have been repaid for 20 years or more could see their remaining balances wiped out under Biden’s new plan.
The administration says borrowers with college debt that originated 20 years ago — July 1, 2005 or earlier — will have the remaining balance forgiven. For graduate debt, the threshold is 25 years (July 1, 2000 or earlier).
Borrowers do not need to be enrolled in an income-driven repayment plan to receive relief. Only direct loans or consolidated direct loans are eligible.
Loan forgiveness for “low value” educational programs.
The Biden administration says it wants to provide debt relief to borrowers who have been “defrauded by their schools.”
For example, some educational programs have closed their doors suddenly, leaving students with debt and no credentials to show for it. Other schools may charge exorbitant prices but do not guarantee graduates better earnings than someone with a high school diploma earns.
According to an analysis by the HEA Group, a higher education research firm, more than 1,000 schools in the United States leave most of the students who attended worse compared to the typical high school graduate.
Biden’s proposal aims to assist those in similar situations by canceling the debt they have accumulated from “low value” programs. Preliminary plans suggest that the Biden administration will carefully scrutinize schools whose participants have poor job and income prospects, as well as schools that are ineligible (or have lost eligibility) to participate in federal student aid programs. But exactly what constitutes a low-value program will be defined when the official rule is published in the coming months.
Debt relief for borrowers with financial difficulties
Biden’s new student loan forgiveness plan also includes a provision to provide debt relief to borrowers who are experiencing financial hardship and cannot fully repay their loans “now or in the future.”
While the details on who could benefit from this type of relief are still being worked out, it could include help for borrowers who are at high risk of defaulting on their loans or who are struggling with other expenses such as child care or medical debt.
Administration officials said this part of the plan will likely require borrowers to apply because the Education Department already doesn’t have specific information about what hardships might prevent a borrower from being able to pay their loans in full.
Why the focus on student loan forgiveness?
The White House says it is pursuing student loan forgiveness to fix what it sees as a broken repayment system — and to provide relief to borrowers who have had to manage soaring college costs in recent decades.
As sticker prices have skyrocketed especially over the past 20 years, college graduate wages have not seen comparable growth, according to an analysis by the White House Council of Economic Advisors.
While debt relief won’t solve the underlying problem — the high cost of college — the administration says it will help fix problems with the reimbursement system. And you need to help borrowers who are burdened by student debt buy a home, start a business or family, improve their credit scores and more.
Critics of the Biden administration’s plan say canceling student loans can increase inflation, essentially shifting student debt onto the shoulders of taxpayers who didn’t go to college or take out student loans. Some opponents also say that by forgiving student debt, the Biden administration is inadvertently incentivizing colleges to continue charging high prices because the debt their students accumulate could be forgiven.
What’s next?
Borrowers eager for broad student loan forgiveness will have to wait and see how the proposals develop.
First, proposals must undergo a public comment period as part of the official rulemaking process. The feedback could lead to changes in the final rules, which are expected to be published in the coming months. So, officials said, the goal is to begin providing aid in early fall. The first round of forgiveness is likely to go to borrowers who have accrued interest that has pushed their balances above their original loan amounts, officials said, because the Education Department already has the necessary information on these borrowers to grant pardon.
Other forgiveness measures, particularly plans that may require borrowers to apply (such as for financial hardship), are expected to come later.
Opponents of Biden’s plan are expected to challenge this next attempt at a broad pardon in court, which could delay the pardon timeline by several months — or stop it altogether.
In addition to these efforts, the Biden administration has used existing programs to forgive more than $140 billion in debt to approximately 4 million borrowers.
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