Who will Qualify for Student Loan Forgiveness?

By |

A Comprehensive Guide on Who will Qualify for Student Loan Forgiveness: An Attorney Explains Under New Biden Plan

Who will Qualify for Student Loan Forgiveness?

The latest update on the proposal for student loan forgiveness is gaining momentum. After the Supreme Court negated the initial wide-scale debt relief plan last summer, President Biden has introduced an alternative strategy. The Education Department is actively laying the foundation for this revamped program.

Initially, Biden’s debt relief approach was based on the powers granted by the HEROES Act of 2003. This act allowed the Education Department to adjust federal student loan programs during national crises, such as pandemics. However, the Supreme Court believed the scope of this authority was limited and decided that it did not specifically address large-scale student debt relief during national emergencies.

In light of this, the Biden administration is exploring another avenue for student loan relief through the Higher Education Act (HEA). The HEA possesses a clause that permits the Education Department to “negotiate, forgive, or absolve” federal student loan responsibilities. This power has been utilized in the past, both for collective debt relief and individual settlements, especially concerning defaulted federal student loans.

To organize a student loan forgiveness program under the HEA framework, the administration is diving into the extensive process of crafting regulations. This month, as the Education Department set the wheels in motion by inaugurating a rule-making committee, they unveiled an early blueprint. This blueprint sheds light on various borrower categories that might be eligible for debt relief. Although it’s just a starting point, this document provides significant hints about which borrowers stand to gain from this new initiative.

Student Loan Forgiveness For Borrowers With High Balances from Accumulated Interest

In the preliminary document, the Education Department mentions, “Numerous students have witnessed their loan balances surge owing to the accumulation of unpaid interest. As a result, many now owe more than their initial loan amount. What strategies can assist such borrowers in forging a more successful repayment journey?”

This indicates the department’s intention to support borrowers who’ve seen substantial increases in their debt over an extended duration. Such growth could result from extended deferment or forbearance intervals, especially when loan providers utilized the controversial “forbearance steering” tactics, placing borrowers in an interest-generating, non-payment stance instead of more advantageous alternatives like income-based repayment.

Moreover, borrowers might have seen their debts grow because of negative amortization linked with income-driven repayment plans. Historically, while these plans enabled manageable monthly payments, they did not cap interest growth. Consequently, borrowers could witness exponential balance hikes because of accumulating interest and its periodic capitalization, resulting in a snowball effect. This means that, despite making considerable repayments over many years, their outstanding balance could still increase remarkably.

Borrowers Not Enrolling in Current Student Loan Forgiveness Programs

The Education Department’s recent draft draws attention to borrowers “eligible for relief through schemes like income-driven repayment, yet haven’t availed these options.”

The current administration, under President Biden, has made strides to expand the scope of automatic student loan alleviation. For instance, there’s now a collaborative data exchange between the Social Security Administration and the Office of Federal Student Aid, facilitating automatic debt relief for borrowers with total and permanent disabilities. Furthermore, the administration has provided collective debt relief for students misled by their institutions under the Borrower Defense to Repayment, even if they didn’t submit an official application.

Yet, despite these advancements, certain borrowers might not benefit, possibly because their situations don’t align perfectly with auto-relief criteria. Other obstacles, such as financial hardships or health challenges, could hinder their capacity to independently pursue loan forgiveness. Recognizing this, the department is contemplating introducing a dedicated route for debt erasure for these individuals in Biden’s forthcoming initiative.

Student Loan Forgiveness For Those Misled by Their Educational Institutions

Numerous Student Loan Forgiveness exist for borrowers adversely affected by issues related to their educational institutions. For instance, the Closed School Discharge initiative enables students to annul their federal loans if their institution shut down during their course, preventing them from finishing their degree. Additionally, the Borrower Defense to Repayment mechanism offers Student Loan Forgiveness misled by their schools through inaccurate representations or unfulfilled educational promises.

However, there are other ways students might be disadvantaged by their institutions. Some schools might not adequately prepare students for successful careers, leaving them burdened with unsustainable debt and no feasible repayment plan.

In its preliminary document, the Education Department probes, “How should we address debts accrued by students attending programs later deemed to lack the financial value essential for loan affordability for the majority?” This indicates that officials from the Biden administration are exploring new avenues for Student Loan Forgiveness for those students let down by their institutions – possibly due to the school’s failure in securing lucrative employment opportunities – but who don’t qualify for existing relief programs.

Student Loan Forgiveness For Borrowers with Long-standing Loans

Both the Democratic and Republican leaderships have initiated measures to present additional avenues for student loan forgiveness and economical repayment plans over the decades. However, these endeavors became more regularized from 2007 and 2008 onwards, with Congress and President Bush endorsing the inception of Income-Based Repayment and Public Service Loan Forgiveness. Several more programs emerged subsequently. Notably, some of these initiatives have an eligibility cutoff based on the loan’s commencement date.

In its preliminary document, the Education Department queries, “How should older loans, some of which began repayments way before the introduction of recent benefits, be approached?” This suggests the department is considering options for borrowers with longstanding student debts, which originated much before many of the current debt relief measures were implemented.

Student Loan Forgiveness For Borrowers Facing Considerable Challenges

The Education Department’s draft posits, “While there are provisions in place for borrowers facing challenges to alleviate or postpone their loan repayments, or even seek debt cancellation, some might still confront difficulties that the present student loan framework fails to cater to. What might be the persistent challenges faced by borrowers, and how can the Department tackle these specific hardships?”

The department seems inclined to find solutions for borrowers who remain burdened, even in the light of existing student loan forgiveness and repayment schemes. For example, a student eligible for seemingly pocket-friendly income-centric repayment options, such as the recently introduced SAVE program, might still find repayments strenuous due to significant medical bills, responsibilities as a caregiver, or other sizable financial commitments. This exploration might also hint at relief possibilities for Parent PLUS loan holders, who, being potentially older and encountering various challenges, are often ineligible for the most advantageous federal student loan schemes.

Ongoing Regulatory Efforts for Biden’s Student Loan Forgiveness Strategy

The Biden administration has recently completed its initial phase of collaborative regulation discussions, touching upon these borrower groups at an introductory level. The Education Department has scheduled another pair of public hearings for November and December. Following these, the department will unveil proposed rules.

While the updated student loan forgiveness strategy will require time for its completion, with potential availability only by 2025, there’s a chance the Biden administration might expedite its introduction.

For details, click HERE