The Biden administration is seeking a narrower student loan relief plan aimed at specific groups of borrowers — those with rising interest rates, for example — rather than a sweeping plan like the one the Supreme Court rejected in June.
The Education Department released a draft of new federal rules Monday that paves the way for a second attempt at student loan relief. The proposal targets groups considered particularly vulnerable, focusing on those who owe so much or earn so little income that they might otherwise never repay their loans.
Although the exact details likely won’t be available for months, the department says it will forgive some or all student debt for borrowers whose balances exceed the original amount owed; those who have loans that were repaid 25 or more years ago; those who used loans to participate in job training programs, resulting in “unreasonable” debt loads or insufficient income; those who are eligible for other loan forgiveness programs but have not applied.
A fifth group is also being discussed – “those experiencing financial difficulties who are currently not adequately addressed by the current student loan system.”
The average American has more than $92,000 in debt, including credit cards, student loans, mortgages and more.
“President Biden and I are committed to helping borrowers who are failing in our nation’s broken and unaffordable student loan system,” Education Secretary Miguel Cardona said in a statement. “We are fighting to ensure that student debt does not harm opportunities or prevent borrowers from reaping the benefits of their higher education.”
President Joe Biden’s original plan was more comprehensive. For those with annual incomes of less than $125,000 or couples making less than $250,000, up to $20,000 in federal student loans would have been canceled. But after the court’s conservative majority rejected that, he asked the Education Department to try again with a different legal basis.
The new proposal aims to address problems seen as one of the main causes of skyrocketing debt.
This would help counteract interest rates beyond borrowers’ original balances. It would provide relief to borrowers who attended for-profit college programs with poor outcomes. It would also help older borrowers who took out loans decades ago and are struggling to make their payments.
The department says it will continue to refine the proposal as it goes through a federal rulemaking process. The public will have the opportunity to provide written feedback next year.
The draft proposal would give the department the authority to completely eliminate federal student loans for borrowers in some categories.
For those who began repaying loans more than 25 years ago, the proposal states that “the Secretary may waive the outstanding balance of a loan” — which amounts to a full cancellation. The same applies to borrowers who are eligible for other cancellation programs but have not applied.
Loans used to attend substandard college programs would also be eliminated. Borrowers would fall into this category if they participated in a program that did not meet the new standards of a separate federal regulation called gainful employment.
For those with sharply rising interest rates, the proposal would reset their loans to the original balance, effectively eliminating the unpaid interest.
Even a more limited relief plan is sure to face stiff opposition from Republicans who see the elimination as an unfair burden on taxpayers.
The latest attempt is based on the Higher Education Act of 1965, a sweeping law that gives the Secretary of Education the power to “compromise, forgive, or release” certain debts. But the law is unclear about how the secretary can exercise those powers, creating a legal gray area that has been the subject of debate since Biden took office.
The proposal aims to resolve the dispute by creating new federal rules listing cases that require repeal. Before the rules can take effect, they must be weighed by a committee of government outsiders in a process known as negotiated rulemaking. The new draft will be discussed at next week’s committee meeting.
The committee is made up of negotiators who represent different viewpoints on student loans. It includes students and officials from various colleges, as well as loan servicers, government officials and lawyers, including the NAACP.
The meetings began earlier this month and are expected to continue into December.
At the end of the process, negotiators vote on a proposed settlement. If they reach a consensus, the department will proceed with it. If not, the agency proposes its own plan, which can be finalized after a public comment period.
Biden called for a plan to help “as many borrowers as possible,” but his administration appears to be moving away from the kind of mass cancellation he promised in August 2022.
The cost of this plan was estimated at $400 billion. It is unclear how much the second proposal will cost.
In a separate action Monday, the Education Department sought to correct errors by a student loan servicer that failed to send billing statements on time.
The department is withholding $7.2 million in payments to loan servicer MOHELA after discovering that it recently failed to send timely statements to 2.5 million borrowers. In some cases, borrowers received their bills within seven days of the due date. As a result, 800,000 borrowers defaulted on their payments, the ministry said.
The department directed MOHELA to place all affected borrowers on a forbearance period – a temporary suspension of payments – until the issue is resolved.
Federal student loan payments resumed in October for the first time since the pandemic began. Some in the industry have warned of potential problems as understaffed loan servicers simultaneously push millions of borrowers back into repayment.
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