Biden Admin Proposes Student Loan Cancellation for Borrowers With ‘Hardship’

The Biden administration is proposing a new path for as many borrowers as possible to have their debt discharged.
Biden Admin Proposes Student Loan Cancellation for Borrowers With ‘Hardship’
President Joe Biden announces student loan relief with Education Secretary Miguel Cardona (R) at the White House on Aug. 24, 2022. (Olivier Douliery/AFP via Getty Images)
Bill Pan

Months after the U.S. Supreme Court blocked a blanket federal student loan debt cancellation plan, the Biden administration is proposing a new way for as many borrowers as possible to qualify to have their remaining balance discharged.

Under a plan unveiled on Feb. 15, the U.S. Department of Education said it would consider “hardship” in borrowers’ lives that could hinder the progress of repaying their loans when the agency determines who is eligible for debt relief.

The proposal outlines a wide range of factors that could be used to identify “hardship.”

For example, having a relatively high loan balance and required payments compared to one’s household income would become key factors in the Education Department’s consideration. Whether a borrower has “high-cost burdens for essential expenses” such as paying for child care or health care would be considered as well.

Some other categories of borrowers who could receive debt discharges in this new plan are those who have outstanding balances greater than what they originally borrowed; those who have loans that first entered repayment 20 or 25 years ago; those who took out loans to attend a career training program that didn’t pay off; and those who have been eligible for debt relief through different plans but have never received it.

Although the Education Department said it could not provide an estimate of how many people might be eligible under the expanded definition of hardship, it did expect the proposal to bring automatic relief for borrowers who are “highly likely” to be in default in two years, potentially wiping out debt owed by hundreds of thousands of those borrowers.

Previous Attempt Failed

Thursday’s proposal comes as President Joe Biden’s second attempt at large-scale federal student loan debt cancellation after the nation’s highest court torpedoed his initial $400 billion plan last summer. After the court’s conservative majority ruled that he overstepped his authority, President Biden tasked the Education Department with crafting a new plan on a more solid legal basis, which in turn requires a more lengthy and complicated process called “negotiated rulemaking.”

The proposed text, which will be discussed as part of a negotiated rulemaking session on Feb. 22 and Feb. 23, is meant to provide debt relief for as many borrowers as possible under the Education Department’s existing rule-making authorities, according to Under Secretary of Education James Kvaal.

“The ideas we are outlining today will allow us to help struggling borrowers who are experiencing hardships in their lives, and they are part of President Biden’s overall plan to give breathing room to as many student loan borrowers as possible,” Mr. Kvaal said.

According to the Education Department, it has so far canceled over $136.6 billion in federal student loan debt owed by than 3.7 million borrowers. That includes $45.7 billion for 930,500 borrowers who are on an income-driven repayment (IDR) plan, and $56.7 billion for 793,400 borrowers who work in the public sector.

The Biden administration also boasts about the 7 million-person enrollment of its latest and “most generous ever” IDR plan, dubbed SAVE. Like the previous IDR programs it seeks to replace, SAVE adjusts the monthly payment amount based on the borrower’s income and family size. Of all current enrollees on SAVE, 3.9 million are paying $0 each month.

Under a traditional IDR plan, the borrowers may be eligible to have any remaining balance canceled after a certain amount of time in repayment, typically after 20 years for those with undergraduate student loans and 25 years for those with graduate school loans. But SAVE can make the eventual debt cancellation happen even faster for undergraduate borrowers who started with relatively low balances.

“For every $1,000 borrowed above $12,000, a borrower can receive debt discharge after an additional year of payments,” the Education Department said. For example, those who had an original principal balance of $13,000 can now have their remaining balance wiped out if they’ve been in repayment for 11 years.

“This means a borrower who originally borrowed less than $21,000 will be eligible for forgiveness faster than the 20-year timeline for undergraduate borrowers on SAVE.”