The Biden Administration this week released a draft regulation proposal that outlines what new student loan forgiveness rules may look like going forward.
The new rules are part of proposals for programs that will help eliminate student loan debt for millions, The Department of Education said in a news release.
The proposal is the first step in getting rules for the programs clarified and accepted. The proposal will be sent to the negotiated rulemaking committee which will meet next week for hearings on the proposal.
Once the committee reaches a consensus on the proposal, the Department of Education will release an updated draft of rules for public comment next year.
“Student loans are supposed to be a bridge to a better life, not a life sentence of endless debt,” Education Secretary Miguel Cardona said in a press release about the proposals. “This rulemaking process is about standing up for borrowers who’ve been failed by the country’s broken student loan system and creating new regulations that will reduce the burden of student debt in this country.”
The proposal will be enacted through a federal statute called the Higher Education Act. According to the administration, officials believe the proposal will have a better chance of withstanding legal challenges under the HEA. Previous plans have been proposed under the HEROES Act.
The proposal covers four groups of borrowers who took out federally-backed student loans. They are:
1. Borrowers with balances greater than when they started
The Department of Education is proposing that up to $10,000 of debt be forgiven for borrowers who “have experienced balance growth due to interest,” according to a press release.
If you now owe more on student loan debts than you took out in loans because of monthly interest rate charges, you could get up to $10,000 of debt forgiven if the new rule is adopted.
According to the new rules, in the future, the issue will be addressed under the Saving on a Valuable Education plan, a plan that would curb interest accrual when the interest exceeds a borrower’s minimum monthly payment.
2. Borrowers who entered repayment decades ago
The draft regulation would provide “one-time relief,” that would clear outstanding balances for borrowers who have been paying on undergraduate loans for more than 20 years. Other borrowers would receive relief after 25 years of repayment.
3. Borrowers who are eligible for existing relief programs, but have not applied
If you are eligible for loan forgiveness through income-driven repayment plans or through the Public Service Loan Forgiveness plan but have not applied for that forgiveness, you would be eligible to have your entire outstanding balance erased.
4. Borrowers whose schools or programs failed to meet earning expectations
This policy would forgive loans for students who attended schools or programs that “failed to deliver sufficient financial value,” as defined by the Department of Education.
Borrowers who attended institutions that failed to prove to the DOE that their outcomes measure up in terms of debt default and debt-to-earnings rates, or schools that have lost access to federal aid because of financial misconduct, would be eligible to have their loans forgiven entirely under this proposal.
Additionally, if the institution closes before a determination on its merits is made, those borrowers would also see their loans forgiven.
The administration has tried several plans to erase debt since the U.S. Supreme Court in June rejected Biden’s student loan forgiveness program which would have canceled as much as $20,000 in student loan debt for individual borrowers, totaling $430 billion.
A plan announced by Biden in July aims to adjust the way the Education Department calculates certain student loan payments. The adjustments are being made, the department said, to correct past errors in counting payments and the result would show that borrowers made payments that were not counted correctly toward their debt.
Last week, borrows began receiving emails telling them their debt erased.