Americans who are struggling to repay federal student loans because of financial hardship could get some of their debt canceled under President Joe Biden’s latest proposal for widespread loan forgiveness.
Several categories of borrowers would be eligible for relief under Biden’s second try at widespread cancellation after the Supreme Court rejected his first plan last year. Those with older loans or large sums of interest are being targeted for relief, for example. On Thursday, the Education Department expanded its proposal to include those who face financial hardship.
The plan was expanded amid pressure from advocates and Democrats who said the proposal didn’t do enough for struggling borrowers who don’t fit into one of the other cancellation categories.
Whether any of the relief will materialize is a looming question as conservatives vow to challenge any attempt at mass student loan cancellation. The proposal is now going through a rulemaking process that’s expected to take months to finalize, and a legal challenge is almost certain.
Biden initially attempted to cancel up to $20,000 for an estimated 43 million people with incomes under $125,000. After the Supreme Court ruled he overstepped his authority, Biden asked the Education Department to craft a new plan under a different legal basis.
The new proposal is narrower, focusing on several categories of borrowers who could get some or all of their loans canceled.
Here’s what we know so far about who could be eligible for cancellation under the Biden plan:
Hardship
Borrowers facing financial hardship could see relief under the newest proposal put forth by the administration. The proposed regulations include automatic relief, up to the entire outstanding federal loan balance, for borrowers who are considered highly likely to be in default in two years.
Additional borrowers would be eligible for relief under a wide-ranging definition of financial hardship, up to the outstanding balance of their loans. Those factors include but are not limited to a person’s relative loan balance and payments compared to their total income. Other considerations include whether a borrower has high-cost, unavoidable expenses such as paying for childcare or healthcare.
The administration said it could not provide an estimate on how many people might be eligible under the hardship proposal.
The draft text was meant to be as expansive as possible within the limits of the law and the court decision, according to a senior administration official who briefed reporters on conditions they not be identified.
In addition to the list of factors, which also includes age, disability and repayment history, the proposed regulations state that “any other factors of hardship identified by the Secretary” may also be considered. Borrowers may be eligible for relief either automatically or through an application.
The department’s language around financial hardship amounts to a first draft of the policy, and it could be changed. The proposals are scheduled to be discussed next week when the panel of federal rule-makers meets to debate the details.
Interest reset
Borrowers who have seen their loans grow larger because of snowballing interest would be eligible for up to $10,000 or $20,000 in relief, depending on their income.
The broad goal of this category is to reset borrowers’ loans back to their original balance, but there are some limits.
For individuals who earn up to $125,000 or couples who earn up to $250,000, the proposal would knock off up to $10,000 of their accrued interest. It applies only to the amount of money that has piled up beyond the original loan amount, so a borrower whose current balance is $7,000 higher than the original loan would get $7,000 forgiven.
For borrowers who make less than $125,000 or $250,000 as a couple, accrued interest could be reduced by up to $20,000.
Older loans
Borrowers could get their entire remaining balance erased if they have been repaying their loans for at least 20 or 25 years, depending on the type of loan.
Those who entered repayment 20 years ago — on or before July 1, 2005 — would be eligible for full cancellation if they received the loan as an undergraduate student. Those with other types of federal student loans would be eligible if they entered repayment 25 years ago — on or before July 1, 2000.
Determining when someone entered repayment depends on the type of loan they have. For a Federal Stafford Loan, a Direct Subsidized Loan or a Direct Unsubsidized Loan, repayment starts after the initial grace period ends. For a Federal PLUS Loan or a Direct PLUS Loan, repayment starts the day the loan is fully disbursed.
The proposal aims to help older borrowers who have struggled with student loans for decades and might never be able to repay them.
Other forgiveness programs
A range of student loan forgiveness programs has existed for years, but some borrowers who are eligible don’t know about them or don’t apply. Those borrowers could automatically get their loans erased under the proposal.
It would allow the Education Department to cancel the entire loan balance for borrowers who meet the eligibility requirements of one of the existing income-driven repayment plans. It would also cancel loans for those who are eligible for other targeted relief programs, including Public Service Loan Forgiveness, Borrower Defense to Repayment and the closed school discharge program.
Supporters see it as a way to deliver relief to people who need it most but might struggle with complicated application processes or simply never find out that they’re eligible for help.
Low-value programs
Borrowers could get their loans canceled if they went to a for-profit college program that leaves graduates unable to repay their federal student loans.
The Education Department plans to judge the value of college programs under a separate initiative known as the Gainful Employment Rule, and borrowers who graduate from programs that don’t deliver value could get their outstanding loans erased.
Borrowers would be eligible for cancellation if, while they attended the program, the average federal student loan payment among graduates was too high compared to their average salary.
In general, programs are considered failing if graduates are paying more than 8% of their average yearly income on federal student loan payments. Borrowers would also be eligible for cancellation if their program left graduates earning a lower average salary than that of college-age workers with only a high school diploma.
