The Biden Administration is continuing in its efforts to craft a forgiveness program for Americans struggling with their student loans. Following the U.S. Supreme Court decision striking down his prior plan, the President has announced a new strategy which he believes will survive Supreme Court challenge.
But what are the terms, and can it help you?
The Basics of the Plan
The plan aims to provide relief to five categories of borrowers.
- Borrowers with high interest balances. Loan balances would be reset for borrowers who have seen significant amounts of interest accumulate way above the original amount borrowed. This interest would be capped at $20,000 for individuals who earn more than $120,000 a year or couples who earn more than $240,000 a year. Lower income borrowers and those in income driven repayment plans would not have to deal with this cap.
- Borrowers who are eligible for other federal forgiveness programs, but haven't applied. The biggest example of this is the Public Service Loan Forgiveness program for those employed full-time in the public sector or for qualified charities and nonprofits. It would also include people in income driven repayment plans. The goal here is to help people who missed out on forgiveness due to things like complex paperwork, bad advice, or other problems.
- Borrowers who have been in repayment for over 20 years. Those who have been repaying undergraduate loans for 20 years or more or graduate school loans for 25 years or more would also see forgiveness of the balance.
- Those who attended college programs of "low financial value". The President's plan would cancel debt for borrowers who went to certain schools, such as those who lost eligibility for federal education funding because they cheated students. This would also include loans for borrowers who went through college programs that left them with incomes insufficient to pay the loans (think of all those philosophy majors!).
- Borrowers facing financial hardship. This section would allow the Department of Education to cancel loans for borrowers who are considered highly likely to default. There would be an application system for borrowers to use in which they could give details of the hardship.
Most Need Not Apply
The good news is that the forgiveness in the first four categories would be automatic; there will be no need for the borrower to apply. However, if the borrower cannot pay the loans due to financial hardship (the fifth category) they would need to apply individually.
When Will Borrowers Get Relief?
The administration will move as quickly as possible on this, trying to get forgiveness as soon as this fall. The federal Higher Education Act does authorize the Department of Education to fast track certain rules for early implementation in some cases. This is what President Biden hopes to use, because otherwise it would normally take effect at the beginning of July of next year.
Is This Really Going to Happen?
Unlikely. The Biden Administration has spoken with confidence that it has the authority to implement this forgiveness under the federal Higher Education Act, but this type of forgiveness would expand that authority quite a bit, and a challenge by conservatives is certainly expected.
The opposition has said before, and will likely say again, that widespread loan cancellation must come from Congress. This will be particularly bolstered by the fact that the US Supreme Court had previously ruled against the President on this issue.
If a lawsuit is brought, that could prevent any kind of cancellation from happening before the end of the year, and certainly before the November presidential election. The courts could order the Department of Education to halt cancellation until there is a ruling. Even if he does survive legal challenge, if he does not secure a reelection, it is expected that Donald Trump will nix the whole thing.
So What Do You Do In the Meantime?
If you are struggling with federal student loans, there is no need to wait and see what happens with the President's currently proposed plan. Many income driven repayment plans are available to you, along with the income driven repayment recount, and the Fresh Start program they can quickly get you out of default.
But you may not know where to begin, and your service or may not be providing you with the best, most accurate, advice. The good news is, I may be able to help. Just click on this link to be taken to my analysis portal, where you can upload your federal student loan information. I will then review it at no charge, and if I can help, I will reach out to you.
Sound like a good deal? Then just click here to get started.
