Last week, the Biden administration announced a reinterpretation of a federal student loan cancellation program that will result in a $ 1 billion student loan forgiveness.
Student debt relief will be provided as part of the Borrower Until Repayment Program – a student loan cancellation program that was put in place with new procedures and regulations by the Obama administration in 2016 The Borrower Defense Program was designed to cancel federal student debt for students who have been misled, swindled, or otherwise wronged by their colleges and universities (often for-profit institutions).
Under former Secretary of Education Betsy DeVos, the US Department of Education established stricter rules governing the program and also adopted a policy of partial student loan waivers for approved borrower defense applications in the goal of limiting relief. So even though the Department could see that student loan borrowers were being misled by their school, it could still grant little or no student loan waivers.
Education Secretary Miguel Cardona, who was recently confirmed to replace DeVos, rescinded DeVos’ partial relief policy. As a result, thousands of student loan borrowers whose borrower protection applications have already been approved will now be able to benefit from full student loan cancellation in the coming weeks. The collective total amount of student loan cancellation is expected to be around $ 1 billion.
Student loan borrower advocacy organizations and progressive lawmakers have praised the Biden administration. But many groups have also argued that the administration needs to go further to tackle soaring student debt. The White House said it was continuing to explore additional avenues to provide student loan borrowers with additional relief. Here is what could come next.
Additional student loan waivers through borrower advocacy program
While activists and advocates for student loan borrowers have applauded Secretary Cardona for extending the borrower defense relief, student loan debt will only be canceled for about 72,000 borrowers. More than 200,000 student loan borrowers have applied for student loan forgiveness under the borrower advocacy program, and the fate of the remaining 130,000 applications remains uncertain.
Hopes of student loan borrowers that federal courts would step in and overturn DeVos’ tough new rules on borrower defense were dashed last week when a federal court heard a borrower defense regulatory challenge mainly upheld the claims. new rules. So, at least for the immediate future, stricter borrower defense regulations – which increase the burden of proof required of student loan borrowers to get their claims approved – require borrowers to show that they have suffered a loss. financial harm and reduce the definition of school-related misrepresentation. – remain in force.
To reverse these stricter regulations, the Biden administration could potentially back them down and establish more borrower-friendly rules in their place. However, establishing new regulations is a long process. Former Secretary DeVos did not finalize the current regulations until 2020, almost at the end of President Trump’s tenure, although the process began in 2017. The Biden administration has yet to make a commitment. firm on the attempt to rewrite the regulations again.
Alternatively, Congress could pass new legislation reversing the regulations currently in place and replacing them with new rules that are more favorable to borrowers. It would be a much faster route to reform the borrower defense program. Such legislation was passed by Congress with a bipartisan majority in 2020, but President Trump has vetoed it. It is not known if lawmakers will try again this session.
Meanwhile, pending class actions and other litigation regarding the borrower defense program continue to unfold in federal courts. So far, the Biden administration has not significantly changed course regarding the Education Department’s disposition in these lawsuits.
Reform income-based repayment and forgiveness of civil service loans
Additional student loan relief need not necessarily be limited to the borrower advocacy agenda. During the election campaign, Biden repeatedly touted his intention to reform and improve income-based repayment and the Public Service Loan Forgiveness Program (PSLF).
Biden has proposed establishing a new income-based repayment plan that would allow student loan borrowers to pay only 5% of their discretionary income for their student loans. If passed, this plan could reduce the monthly payments of millions of student loan borrowers by 50% or more, while allowing borrowers to get any student loan balances canceled after 20 years. Currently, this student loan forgiveness could be taxable to the borrower, although Biden recently signed stimulus legislation that temporarily exempts the student loan forgiveness from tax.
Biden also advocated for improved public service loan forgiveness by expanding eligibility for non-direct federal loans and non-income-related repayment plans, while providing for a phased and phased forgiveness of student loans over the course of of the ten-year period of employment in the public service. , rather than the all-or-nothing student loan forgiveness currently in place at the end of the program.
So far, the Biden administration has not started any process to implement these reforms through the regulatory process, which means that the most likely route to change these programs would be through congressional legislation. Democratic lawmakers introduced several bills last session aimed at addressing issues with those programs, but the bills have nowhere ended up in the Republican-controlled Senate. With Democrats now in control of both chambers, reforms to civil service loan forgiveness and income-based repayment are more likely to pass.
The general forgiveness of student loans
Meanwhile, student loan borrower activists, rights groups and progressive congressional lawmakers have been pushing President Biden for months to write off student debt through executive action. Biden supports a large forgiveness of student loans, but he has repeatedly indicated that he prefers Congress to enact student debt cancellation through legislation, rather than acting unilaterally through an executive order.
While many student loan legal experts have argued that Biden had the power to enact widespread student loan forgiveness through executive action, Department of Education attorneys under the former Secretary DeVos came to the opposite conclusion, and Biden expressed deep uncertainty about this path.
The president has repeatedly stated that he will support $ 10,000 in student loan forgiveness for borrowers, while student loan borrower advocacy groups have pushed him to write off $ 50,000 or more. Biden says he objects to the $ 50,000 figure.
Whether the blanket student loan cancellation is initiated by President Biden through executive action or by Congress through legislation, the White House and Democratic leaders in Congress have all suggested there would be likely limits on student loan cancellation based on various potential factors, such as loan type or balance, borrower’s income, or the level of education the borrower has achieved.
Many activists continue to push for a full and universal cancellation of student loans and are organizing a week of action this week designed to keep the pressure campaign going.
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