The Biden administration is leaning toward a narrower student loan relief plan that would target specific groups of borrowers — such as those with high-interest rates — rather than a sweeping plan like the one the Supreme Court rejected in June.
The Education Department on Monday released a draft of new federal rules that pave the way for a second attempt at student loan relief. The proposal targets groups that are considered particularly vulnerable, targeting those who owe so much or have so little income that they might otherwise never repay their loans.
Although full details are likely months away, the department says it wants to cancel some or all student debt for borrowers whose balances exceed what they originally owed; those with loans that were repaid 25 or more years ago; those who used loans to participate in vocational training programs that resulted in “disproportionate” debt or insufficient earnings; those who are eligible for other loan forgiveness programs but have not applied.
A fifth group is also discussed – “those who are facing financial hardships that are not currently being adequately addressed by the current student loan system.”
“President Biden and I are committed to helping borrowers who have been defaulted by our nation’s dysfunctional and unaffordable student loan system,” Education Secretary Miguel Cardona said in a statement. “We are fighting to ensure that student debt does not stand in the way of opportunity and prevent borrowers from realizing the benefits of their college education.”
President Joe Biden’s original plan was broader. It would cancel up to $20,000 in federal student loans for those with annual incomes below $125,000 or couples below $250,000. But after the court’s conservative majority rejected it, he urged the Department of Education to try again using a different legal basis.
The new proposal aims to tackle issues that are seen as some of the biggest culprits behind skyrocketing debt.
It would help counter interest that snowballs beyond borrowers’ original balances. It would provide relief to borrowers who attended for-profit college programs with poor results. It would also help older borrowers who took out loans decades ago and are struggling to repay.
The department says it will continue to refine the proposal as it moves through the federal rulemaking process. The public will be able to provide written feedback next year.
The preliminary proposal would give the department the authority to completely write off federal student loans for borrowers in some categories.
For those who began repaying loans more than 25 years ago, the proposal says “the Secretary may waive the outstanding balance of the loan” — the equivalent of a full cancellation. It’s the same for borrowers who are eligible for other cancellation programs but haven’t applied.
Loans used to attend low-cost college programs would also be written off. Borrowers would fall into this category if they participated in a program that does not meet the new standards outlined in a separate federal rule known as gainful employment.
For those interested in snowballing, the proposal would reset their loans back to their original balance, effectively canceling the unpaid interest.
Even a more limited relief plan is sure to draw fierce opposition from Republicans, who see the repeal as an unfair burden on taxpayers.
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