Student Loan Debt Relief

Meanwhile, the Administration released proposed regulatory text focused on providing debt relief for borrowers facing hardship on their student loans.  In the wake of the U.S. Supreme Court’s decision on the Administration’s original student debt relief plan, President Biden announced a new path to provide debt relief for as many borrowers as possible under the Department’s existing rulemaking authorities.  The text will be discussed as part of a negotiated rulemaking session on February 22 and 23 (press release).

The proposal outlines a set of factors that could be used to identify hardship, such as a borrower’s total student loan balance and required payments relative to household income and whether a borrower has high-cost burdens for essential expenses like health care and child care.  The text specifies that the Secretary of Education may consider these and other factors to determine whether borrowers are experiencing the type of hardship that would qualify for debt relief.

As one exercise of the Secretary’s authority, the proposal would allow for automatic relief for borrowers who are highly likely to be in default in two years.  These borrowers would be identified via a methodology developed by the Secretary using available information.  Beyond such relief, the text allows the Secretary to provide further relief to borrowers experiencing hardship through an application or automatic process.

On August 14, after a federal judge rejected a legal effort to stop the action, the Department announced the beginning of automatic discharges for 804,000 borrowers who qualify for $39 billion in student loan relief.  These discharges are the result of fixes implemented by the Biden Administration to address historic failures in the administration of the federal student loan program, in which qualifying payments made under income-driven repayment (IDR) plans that should have moved borrowers closer to forgiveness were not accurately accounted for.  Borrowers are eligible for forgiveness if they have accumulated the equivalent of 20 or 25 years of qualifying months (press release and state-by-state data). 

“Today, the Biden Administration is beginning to discharge loans for those borrowers who never received the forgiveness they rightfully earned through decades of payments,” noted Secretary Cardona.  “We are standing up for borrowers who did everything right, but whose progress toward forgiveness went unaccounted due to past administrative failures that the Biden team has worked tirelessly to correct.  From day one, President Biden has focused on fixing the broken student loan system, and we will not back down or give an inch when it comes to fighting for debt relief for working families.” 

President Biden also issued a statement on the action. 

On June 30, in a split decision, the U.S. Supreme Court blocked implementation of the Administration’s one-time federal student loan debt relief plan. 

“This fight is not over,” President Biden emphasized in a statement, prior to addressing the nation with additional information on the Administration’s response (remarks and video).  “My Administration’s student debt relief plan would have been the lifeline tens of millions of hard-working Americans needed as they try to recover from a once-in-a-century pandemic.  Nearly 90% of the relief from our plan would have gone to borrowers making less than $75,000 a year, and none of it would have gone to people making more than $125,000.  It would have been life-changing for millions of Americans and their families.  And, it would have been good for economic growth, both in the short- and long-term.” 

“President Biden, Vice President Harris, and I will never stop fighting for borrowers, which is why we are using every tool available to provide them with needed relief,” Secretary Cardona stressed in his own statement, outlining the Administration’s further actions (see below).  “[T]he Administration will continue the critical work we have pursued under President Biden’s leadership to make college more affordable to more Americans and make long-overdue improvements to the student loan system.  [We] remain fully committed to ensuring students can earn a postsecondary education and build fulfilling careers -- without the burden of student loan debt blocking them from opportunity.” 

In light of the court’s ruling, the Administration has taken a number of steps (fact sheet). 

First, the Secretary initiated a rulemaking process aimed at opening an alternative path to debt relief for as many working and middle-class borrowers as possible, using his authority under the Higher Education Act (HEA).  Indeed, the Department issued a notice announcing a virtual public hearing on July 18 and soliciting written comments from stakeholders on topics to consider.  The agency will begin the negotiated rulemaking sessions this fall and complete the whole process as quickly as possible.

Second, the Department finalized the Saving on a Valuable Education (SAVE) repayment plan, ensuring that borrowers will be able to take advantage of this plan yet this summer -- before loan payments are due.  This new income-driven repayment (IDR) plan will cut borrowers’ monthly payments in half, allow many borrowers to make $0 monthly payments, save all other borrowers at least $1,000 per year, and ensure borrowers do not see their balances grow from unpaid interest.  All borrowers in repayment will be eligible to enroll in the SAVE plan.

Third, to protect the most vulnerable borrowers from the worst consequences, the Department is instituting a 12-month “on-ramp” to repayment, running from October 1, 2023, to September 30, 2024, so that those who miss payments are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.  While payments are due and interest will accrue during this period, interest will not capitalize at the end of the period.  Borrowers do not need to take any action to qualify for this on-ramp.

These steps build on the unprecedented actions the President and his Administration have taken to make college more affordable for working and middle-class families and federal student loans more manageable, including securing the largest increase to Pell Grants in a decade; fixing broken student loan programs, such as Public Service Loan Forgiveness (PSLF), so borrowers get the relief they deserve; and approving over $66 billion in loan cancellations for 2.2 million borrowers across the country, including public service workers and those who have been defrauded by their institutions. 

For further background, see the White House press briefing (transcript and video). 

The Federal Student Aid (FSA) office has also issued FAQs about debt relief and payments resuming. 

This week, the Department announced an extension of the pause on student loan repayment, interest, and collections.  This extension will help alleviate uncertainty for borrowers as the Administration requests the U.S. Supreme Court review lower court orders preventing the Department from providing debt relief for tens of millions of Americans.  Payments would resume 60 days after the agency is permitted to implement the program or the litigation is resolved, giving the court an opportunity to resolve the case during its current term.  If the program has not been implemented and the litigation has not been resolved by June 30, 2023, payments would resume 60 days after that.  More information may be found at StudentAid.gov (see also President Biden’s video update). 

Earlier, the White House and Secretary Cardona forcefully responded to a U.S. District Court judge’s ruling blocking the Administration’s student debt relief plan. 

“We strongly disagree with the District Court’s ruling on our student debt relief program, and the Department of Justice has filed an appeal,” White House Press Secretary Karine Jean-Pierre said in a statement.  “The President and this Administration are determined to help working and middle-class Americans get back on their feet, while our opponents…sued to block millions of Americans from getting much-needed relief.  For the 26 million borrowers who have already given the Department of Education the necessary information to be considered for debt relief -- 16 million of whom have already been approved for relief -- the Department will hold onto their information so it can quickly process their relief once we prevail in court.  We will never stop fighting for hard-working Americans most in need….” 

“We believe strongly that the [Administration’s] student debt relief plan is lawful and necessary to give borrowers and families breathing room as they recover from the pandemic and to ensure they succeed when repayment restarts,” Secretary Cardona added in his statement.  “We are disappointed in the decision of the Texas court to block loan relief moving forward.  Amidst efforts to block our debt relief program, we are not standing down.  The Department of Justice has appealed today’s decision on our behalf….” 

Per court orders, the Department pulled offline and is no longer accepting applications for discharges. 

The agency also started sending updates to applicants, including those approved for discharges (example). 

Separately, the Secretary issued a statement regarding a federal court’s approval of a settlement in Sweet v. Cardona, which will provide billions of dollars of relief to over 200,000 borrowers, and the Department of Justice announced a new process for handling cases in which individuals seek to discharge federal student loans in bankruptcy.