After a months-long negotiated rulemaking process, President Joe Biden and his administration have unveiled a new proposed regulation to provide debt relief to student loan borrowers facing financial hardship.
The proposal would give the Secretary of Education the power to waive some or all federal student loan debts for borrowers facing hardship that "is likely to impair the borrower's ability to fully repay the Federal government or the costs of enforcing the full amount of the debt are not justified by the expected benefits of continued collection of the entire debt," the draft reads.
It goes on to list 17 non-exclusive factors that could substantiate hardship. The Education Secretary may consider any of the following factors:
- Household income
- Assets
- Type of loans and debt balance
- Current repayment status and history
- Total student debt balance and payments relative to income
- Total debt balances and required payments relative to income
- Receipt of Pell Grant and other information from the Free Application for Federal Student Aid
- Type and level of institution attended
- Student outcomes associated with programs attended
- Postsecondary education and relative federal financial assistance received
- Age
- Disability
- Age of borrowers loan based on first disbursement
- Receipt of means-tested public benefits
- High essential costs such as health care, caretaking and household
- Extent to which hardship may persist
- Any other indicators of hardship identified by the Secretary
The draft outlines two pathways borrowers may obtain debt relief through, with one or more of these factors playing a role. Borrowers who the Department of Education determines are at least 80% likely to default on their loans may have their debt automatically discharged.
The other pathway will likely be primarily application-based and will see the department considering individual cases for debt relief using these factors or other evidence of hardship.
The proposal will soon be entered into the Federal Register where it will undergo a 30-day public comment period. After that, the department will finalize and implement the new regulation. That is currently expected to happen in 2025.
Money Report
This debt relief action stems from the Supreme Court's ruling against President Biden's plan to enact broad student loan forgiveness in June 2023. But this proposed regulation is separate from the administration's other proposed rule that aims to cancel or reduce debt balances for 25 million borrowers. That plan is currently on hold after several states sued to block its implementation.
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