Biden administration wants to expand student loan forgiveness for those facing ‘hardship’

Washington: Americans who are struggling to repay federal student loans due to financial hardship could have some of their debt canceled under President Joe Biden’s latest proposal for sweeping loan forgiveness.

Several categories of borrowers would be eligible for relief under Biden’s second attempt at widespread cancellation after the Supreme Court rejected his first plan last year. For example, people who have old loans or large amounts of interest are being targeted for relief. On Thursday, the Education Department expanded its offer to include those facing financial hardship.

The plan was expanded amid pressure from advocates and Democrats, who said the proposal doesn’t do enough for struggling borrowers who don’t fit into other cancellation categories.

Whether any relief will materialize is a big question as Conservatives vow to challenge any efforts to cancel mass student loans. The proposal is now going through the rulemaking process, which is expected to take several months to finalize and is almost certain to face a legal challenge.

Biden initially tried to repeal up to $20,000 for an estimated 43 million people earning less than $125,000. After the Supreme Court ruled the ruling violated his authority, Biden asked the Education Department to draw up a new plan under a different legal basis.

The new proposal is narrow, focusing on several categories of borrowers who may have some or all of their loans canceled.

Here’s what we know so far about who might be eligible for cancellation under the Biden plan:

Borrowers facing financial crisis can get relief under the new proposal presented by the administration. The proposed rules include automatic relief up to the entire outstanding federal loan balance for borrowers who are highly likely to default within two years.

Additional borrowers will be eligible for relief under the broad definition of financial hardship, up to the outstanding amount of their loan. 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 the borrower has high-cost, unavoidable expenses such as paying for child care or health care.

The administration said it could not provide an estimate of how many people might be eligible under the hardship proposal.

A senior administration official briefed reporters on the terms, who declined to be identified, said the draft text was intended to be as detailed as possible within the limits of the law and the court’s decision.

In addition to the list of factors, which also includes age, disability and repayment history, the proposed rules state that “any other hardship factor identified by the Secretary” may also be considered. Borrowers may be eligible for relief automatically or through application.

The department’s language about financial hardship is similar to the first draft of the policy, and may be changed. The proposals are due to be discussed next week when a panel of federal rule-makers meets to debate the details.

Borrowers who have seen their loans grow larger due to rising interest will be eligible for relief of up to $10,000 or $20,000, depending on their income.

The overarching goal of this category is to get 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 reduce their accrued interest by $10,000. This only applies to money that has accumulated more than the original loan amount, so a borrower whose current balance is $7,000 more than the original loan amount will have $7,000 forgiven.

For borrowers who earn less than $125,000 or $250,000 as a couple, the interest earned may be reduced to $20,000.

If borrowers have been repaying their loans for at least 20 or 25 years, depending on the loan type, their entire balance may be wiped off.

Those who made repayments 20 years ago – on or before July 1, 2005 – will be eligible for full cancellation if they receive the loan as a graduate student. People with other types of federal student loans will be eligible if they filed repayments 25 years ago – on or before July 1, 2000.

Determining when someone enters repayment depends on the type of loan they have. For Federal Stafford Loans, Direct Subsidized Loans, or Direct Unsubsidized Loans, repayment begins after the initial grace period ends. For Federal PLUS Loans or Direct PLUS Loans, repayment begins on the day the loan is fully disbursed.

The proposal is aimed at helping older borrowers who have been struggling with student loans for decades and may never be able to repay it.

A range of student loan forgiveness programs have existed for years, but some borrowers who are eligible don’t know about them or don’t apply. Under the proposal, those borrowers’ debt could be automatically erased.

This will allow the Department of Education 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 the loans of people who are eligible for other targeted relief programs, including Public Service Loan Forgiveness, the Borrower Protection Program for Repayment and the Closed School Leave Program.

Supporters see it as a way to bring relief to those who need it most, but may struggle with complicated application processes or never learn they are eligible for help.

If borrowers attend a for-profit college program, leaving graduates unable to repay their federal student loans, their loans may be canceled.

The Education Department plans to assess the value of college programs under a separate initiative, known as the gainful employment rule, and reduce the outstanding debt of borrowers who graduate from programs that don’t provide value. Can be erased.

If borrowers participate in the program, they will be eligible for cancellation if the average federal student loan payment among graduates is much higher than their average salary.

In general, programs are considered failing if graduates are paying more than 8% of their average annual income on federal student loan payments. Borrowers will also be eligible for cancellation if graduates of their program earn a lower average salary than college-aged workers with only a high school diploma.

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