An Attorney Explains Who May Qualify For Student Loan Forgiveness

A new student loan forgiveness plan is in the works. In the wake of last summer’s Supreme Court ruling striking down the administration’s initial mass student debt relief initiative, President Biden announced a “Plan B.” And the Education Department is now taking some big steps to establish the new program.

Biden’s initial loan forgiveness program was premised on legal authority provided by the HEROES Act of 2003, a statute that confers emergency powers to the Education Department to modify federal student loan programs in response to a national disaster, like a pandemic. The Supreme Court interpreted this authority narrowly, however, concluding that Congress did not specifically contemplate expansive student loan forgiveness as a remedy for national emergencies.

In response, the Biden administration is trying a different student loan forgiveness route via the Higher Education Act. The HEA has its own statutory provision that gives the Education Department the power to “compromise, waive, or release” federal student loan obligations — an authority which the department has used before, both for group discharges and case-by-case settlements (typically in the context of defaulted federal student loans).

To establish a new HEA-based student loan forgiveness program, the administration must draft regulations, which is a lengthy administrative process. As the Education Department launched a rulemaking committee this month, it released an initial outline summarizing several groups of borrowers who could qualify for loan forgiveness. The outline is preliminary and designed to initiate what will be a lengthy public process to establish new regulations defining the program’s parameters. But it offers big clues about which borrowers could potentially benefit from the initiative.

Student Loan Forgiveness For Borrowers With Large Balances Due To Interest Accrual

In its outline, the Education Department states, “Many borrowers have seen their balances grow due to the accrual of unpaid interest such that many borrowers now have overall balances higher than what they originally borrowed. Are there ways to help borrowers who are in this situation that could put them on a better path for successful repayment?”

This suggests that the department is looking to provide relief to borrowers who have experienced significant balance growth over the course of many years. This could be due to lengthy periods of deferment and forbearance, particularly during periods when loan servicers engaged in so-called “forbearance steering” practices — putting borrower’s into an interest-accruing, non-payment status rather than more favorable programs like income-driven repayment.

Borrowers also could have experienced balance growth due to periods of negative amortization associated with income-driven repayment plans. Historically, these plans allowed borrowers to have affordable payments, but with no limitation on interest accrual. This means that borrowers could have seen their balances increase dramatically over time due to interest accrual and periodic capitalization, leading to a compounding effect. In essence, such individuals could have made significant payments over the course of many years, only to see their balances grow substantially.

Borrowers Who Do Not Apply For Existing Student Loan Forgiveness Programs

The Education Department’s outline also highlights borrowers “who are eligible for forgiveness under programs such as income-driven repayment but who do not apply for those programs.”

Under the Biden administration, the department has taken steps to broaden access to automatic student loan forgiveness. For example, the department has implemented a data-sharing initiative between the Social Security Administration and the Office of Federal Student Aid to allow for automatic loan forgiveness for disabled borrowers under the Total and Permanent Disability discharge program. The administration has also implemented group discharge relief for borrowers defrauded by their schools under Borrower Defense to Repayment, even for those who did not formally apply.

But despite these efforts, some borrowers will still fall through the cracks, perhaps because their circumstances do not neatly fall within the parameters of automatic relief. Additional barriers, such as poverty or health issues, may interfere with these borrowers’ abilities to apply for loan forgiveness on their own. The department may establish some sort of pathway to debt cancellation for these individuals under Biden’s new plan.

Student Loan Forgiveness For Those Who Were Shortchanged By Their School

There are several student loan forgiveness programs in place for borrowers who were harmed by some sort of problem with their school. The Closed School Discharge program, for instance, allows borrowers to cancel their federal student loans if their school closed while they were in attendance, and they were unable to complete their degree program as a result. And the Borrower Defense to Repayment program provides a pathway to student loan forgiveness for borrowers whose school misled them through misrepresentations or false promises about key aspects of their educational program.

But borrowers can be harmed by schools in other ways. For example, schools may not set borrowers up for career success, leaving them saddled with unaffordable debt and no viable means of repaying it.

In its outline, the Education Department asks, “How should the Department consider debts taken out by students to attend programs when we later find that such programs did not provide a minimum level of financial value sufficient to make loans affordable for many or most borrowers?” This suggests that Biden administration officials are looking for an alternative pathway to student loan forgiveness for borrowers who were harmed by their school — perhaps due to a school’s inability to provide borrowers with gainful employment — but who do not fit the criteria for forgiveness under existing programs.

Student Loan Forgiveness For Borrowers With Older Loans

Both Democratic and Republican administrations have taken steps to offer more routes to student loan forgiveness and affordable repayment over the years. But those efforts only really became consistent starting in 2007 and 2008, when Congress and President Bush authorized the creation of Income-Based Repayment and Public Service Loan Forgiveness. Other initiatives followed thereafter. Some of these programs restrict eligibility to those who took out student loans after a certain date.

In its outline, the Education Department asks, “How should the Department treat loans that first entered repayment many years ago, including well prior to the creation of additional benefits?” The department may be looking to provide a road to loan forgiveness for borrowers who have student loans that significantly pre-date the establishment of many newer student debt relief programs.

Student Loan Forgiveness For Borrowers With Significant Hardships

Finally, the Education Department says in its outline, “Borrowers who experience hardship with respect to their student loans may have certain ways to reduce or delay loan payments or seek forgiveness on their loans. Yet borrowers may continue to experience hardship in ways that the current student loan system does not adequately address. What are potential types of hardship that borrowers may continue to face and how might the Department address those cases of hardship?”

The department appears to be looking for ways to help borrowers who are struggling, despite the availability of many newer student loan forgiveness and repayment programs. For instance, a borrower eligible for seemingly affordable income-driven repayment plans like the new SAVE program may still have trouble making their payments if they have high medical expenses, caregiving responsibilities, or other major financial obligations. This could also potentially be a pathway to relief for Parent PLUS borrowers, who may be older and struggling due to hardships, but are blocked from accessing the most favorable federal student loan programs.

Rulemaking Continues For Biden’s Student Loan Forgiveness Plan

The Biden administration just concluded the first round of negotiated rulemaking, where these categories of borrowers were discussed on a preliminary basis. The Education Department will be holding two more rounds of public hearings in November and December, after which officials will publish draft regulations.

The new student loan forgiveness plan will take time to finalize, and it may not be available to borrowers until 2025. But it’s possible that the Biden administration could implement the program sooner.