A potential game-changer for millions of students: the Biden administration is rumored to plan a new student loan forgiveness program, set to launch as early as October. According to Education Department officials, the initiative could benefit at least 25 million borrowers, with many receiving immediate relief without needing to apply.
However, not everyone is convinced – some predict the new program will face legal challenges, given the controversy surrounding another major Biden-backed student loan program already facing litigation.
Will this latest effort dent the nation’s student debt crisis, or will it hit a roadblock before it even gets off the ground?
Who Would Be Eligible for Biden’s New Plan to Forgive Student Loans?
Four types of borrowers would get help from Biden’s new plan to forgive student loans:
- Those whose interest rates have gone through the roof since they started paying them back. If you qualify, you could get your college loans forgiven for at least $20,000.
- People who have borrowed money and would be able to get their loans cleared under other programs, like income-driven repayment or Public Service Loan Forgiveness, but have not signed up for those programs.
- People who have borrowed money before but were in “low-financial-value programs,” which can be seen if a school has bad data on student outcomes or can’t get government financial aid.
- first started paying back their loans in college at least 20 years ago, and first started paying back their loans in graduate school at least 25 years ago.
Officials from the Education Department say that up to 25 million people could be eligible for loan forgiveness just because their interest rates were too high. More buyers might be able to get loans in the other three groups.
President @JoeBiden and I had a much more ambitious plan for forgiving student loan debt, but Republicans and the Supreme Court blocked it.
— Kamala Harris (@KamalaHarris) May 22, 2024
So Joe Biden said we will find another way.
We have now forgiven nearly $160 billion of student loan debt for over 4 million Americans.
The final rule should come out on an unknown date in October, according to a timeline for publishing regulations that was first included in the Biden administration’s Unified Agenda for the Spring of 2024. New rules from the Education Department usually start on July 1 of the following year, but the administration could use early implementation power to start helping people sooner. The government has already done this with the Saving on a Valuable Education (SAVE) plan, which has been in place for a year and is a new way for many students to lower their payments based on their income.
Many borrowers will have their student loans forgiven automatically
As much as possible, Biden’s new plan would let student loans be erased automatically. This means that a lot of people would not have to fill out an application to get help.
The Education Department says that people who would normally be eligible for help under current programs would have their student loans canceled “automatically.” And the department might have enough information to let loans be forgiven automatically in the other groups as well. The department’s National Student Loan Data System already has information about when a user started making payments on their student loans, so it should be easy for them to find out.
Automatic student loan forgiveness could help borrowers get relief much more quickly since millions of different applications would not have to be looked at one by one.
Student loan forgiveness for people in hard times might not happen this year
In a separate move, the Biden administration also wants to offer a fifth way for people who are having trouble paying their student loans to get them erased. An outline from the Education Department says that the plan would “cancel student debt for borrowers experiencing hardship in their lives that prevent them from paying back their loans now or in the future.”
Some of this help would happen automatically if the department thinks a borrower is likely to not pay back their loans. Other buyers, on the other hand, would have to fill out an application.
The department’s advice says that people who are expected to not make their payments on their student loans would automatically be qualified for help under the Biden Administration’s plan. “Borrowers who are having trouble with other costs could also get help through an application process.”
But it doesn’t look like hardship-based student loan forgiveness will be available by October. The Education Department released draft rules for the first four types of student loan forgiveness earlier this spring. The final rules are expected to come out in October. But the department hasn’t put out final draft rules for forgiving student loans in cases of difficulty yet, so this way of getting help will come at a later date.
The outcome of Biden’s program to forgive student loans could depend on the outcome of the election and legal challenges
As soon as the final rules for Biden’s new program to forgive student loans come out in October, it’s likely to be challenged in court.
In Biden’s first attempt to help a lot of people with their student loans, the program was stopped before any loans were forgiven because of legal problems. In the end, the cases reached the Supreme Court. The initiative was shot down by a 6–3 vote from the Court’s conservative majority last summer.
The Biden government hopes that the new plan to forgive student loans will be more legally sound. Biden’s first program was made possible by the HEROES Act, a law from 2003 that lets the Secretary of Education change or waive laws about paying back student loans in times of national emergency. The right majority on the Supreme Court said that this law did not allow for the forgiveness of many student loans. Now, the government is depending on a part of the Higher Education Act that makes it clear that the Secretary can “compromise” or “waive” federal student loan obligations.
Challengers, on the other hand, will probably say that this part of the law should be read carefully and that Congress never actually gave the go-ahead for a lot of student loans to be forgiven. Republican-led states used the same arguments to try to stop Biden’s first plan to forgive student loans, and they are still using the same arguments to try to stop Biden’s SAVE plan. In a separate case, the Supreme Court made a big decision last month that overturned decades of precedent. This will make it harder for rules made by government agencies to stand up in court.
Also, the election will have a big impact on what happens with the loan forgiveness scheme in the long run. If Donald Trump, the former president, runs for president again in January, this latest effort to forgive student loans would almost certainly be stopped by his government.
FAQs
How much will be forgiven?
The exact amount of forgiveness has not been officially announced, but it’s expected to be significant, potentially up to $10,000 or more per borrower.
Do I need to apply for forgiveness?
No, borrowers may not need to fill out an application to receive forgiveness. The program will use existing IDR plan data to identify eligible borrowers.
Will this program forgive all my student loans?
No, the program is likely to focus on forgiving a portion of outstanding balances, rather than eliminating all debt.
Will this program affect my credit score?
Forgiveness will not negatively impact your credit score. Having your debt forgiven could potentially improve your credit score by reducing your debt-to-income ratio.
Will I need to make any payments after forgiveness?
Borrowers who receive forgiveness will no longer be required to make monthly payments on their forgiven loans.
Will interest continue to accrue on my loans after forgiveness?
The program may freeze interest rates on certain loans and waive any accrued interest on eligible borrowers’ accounts.
Can I apply for multiple types of forgiveness programs?
It’s unclear whether borrowers can apply for multiple forgiveness programs. However, the Department of Education has indicated that borrowers will only be eligible for one type of forgiveness program.
Will this program affect my tax liability?
The Tax Cuts and Jobs Act of 2017 eliminates the tax deduction for student loan interest payments. However, forgiven amounts may still be subject to taxation as income. It’s recommended that borrowers consult with a tax professional or financial advisor for guidance.
When can I expect to receive forgiveness?
The program is expected to launch in October 2023, pending final approval and implementation. Borrowers who receive forgiveness may see their debt reduced or eliminated shortly after the program is launched.
Can I get a loan discharge or bankruptcy if I’m eligible for forgiveness?Â
Borrowers who receive forgiveness may still be eligible for a loan discharge or bankruptcy if they meet certain conditions. It’s recommended that borrowers consult with a financial advisor or legal professional for guidance.
