Loan Cancellation: Biden Administration Suggests Relief for Hardship Borrowers

Paresh Jadhav

9 months ago

On Thursday, the Education Department unveiled a proposal that could expand loan forgiveness efforts significantly. Under proposed regulations, the secretary of education would be authorized to cancel debt owed by borrowers who can demonstrate financial hardship such as high housing, healthcare or caretaking expenses.

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Those with Pell Grants

The Education Department‘s latest proposal seeks to cancel loans for borrowers likely to default or experiencing hardship from their debt, and may face legal challenge from conservatives. This move is much narrower than Biden’s original plan which sought to waive student debt repayments under laws authorizing presidents to do so during times of war, national emergency or natural disasters.

This new approach will enable the Secretary of Education to consider factors like whether a debtor has received a Pell grant – which helps low-income students pay for college – or received public benefits like food stamps or assistance with healthcare and caretaking costs when making his decision to cancel a debtor’s loan, according to a senior department official. This new category could impact millions of Americans; its application will be discussed during a rulemaking session on Feb 22-23.

Those with Public Benefits

Biden Administration loan forgiveness initiatives target four categories of borrowers for relief: those who now owe more than they originally borrowed; those who took out loans to attend career-training programs which led to unreasonably high debt loads or inadequate earnings; those eligible for income-driven repayment plans but did not apply; and those at risk of defaulting due to hardship.

Proposed regulations to be discussed at a negotiated rulemaking session this month could face opposition in court; however, opponents are unlikely to file suit before the Education Department releases its final rule, expected in several months time. Under its new policy, mass debt forgiveness won’t cover as many borrowers than previous efforts under Obama that were struck down by the Supreme Court.

The Education Department recently made an announcement of loan relief of $4.9 billion for 73,600 borrowers through a limited extension of PSLF. This figure joins an already approved $136.6 billion total by Biden-Harris administration due to various fixes to income-driven repayment and PSLF programs.

Those with Unsecured Loans

Biden promised during his campaign to cancel student debt for many borrowers who borrowed to attend college; however, last summer the Supreme Court ruled that his initial loan forgiveness plan exceeded his authority and prevented it from being fulfilled.

His plan draws upon the Heroes Act, which gives education secretary the authority to “waive or modify” federal student loans in cases of war, military service and national emergencies. Under its new rules, this authority would also cover borrowers facing financial hardship.

According to estimates, President Barack Obama’s debt relief proposal could benefit over 43 million borrowers with incomes under $125,000, but conservatives have pledged their opposition and the rulemaking process may take months for finalization – almost certainly prompting legal challenges upon finalization.

Those with Low-Value College Programs

The Education Department has already made great strides toward canceling loans for borrowers through programs geared toward public servants, defrauded borrowers and disabled borrowers. Furthermore, its limited PSLF waiver and regulatory improvements made since 2021 has also allowed it to cancel debt for these groups of borrowers.

The new proposal, set for adoption this summer, could broaden the pool of borrowers eligible for loan forgiveness. It allows the secretary of education to assess whether an individual received a Pell Grant, public benefits and has high costs associated with healthcare, caretaking or housing to determine whether they’re in hardship.

This move marks the Biden administration’s second attempt at student debt relief since a Supreme Court ruling invalidated their first plan in 2016. Now, justices are reviewing any challenges against it in a case set for oral arguments next month – something the administration’s future depends on.