“We are committed to fixing a broken system. If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it.”
Though President Biden campaigned with a promise to cancel up to $10,000 in student debt, widespread debt cancelation action has yet to come to pass. But many aren’t happy with how long it’s taken to do anything sizable for most of Americans who are bogged down with tens of thousands of dollars in debt. But while we don’t know exactly what is happening with the administration’s plans, Biden has been overhauling some aspects of how student loans are handled. Here’s what you need to know.
Although there hasn’t been a universal student loan forgiveness program unveiled yet, the administration has made some significant moves to ensure more people qualify for federal programs like income-driven repayment (IDR) programs and public service loan forgiveness (PSLF). The first round of changes to the programs gave loan relief to 40,000 borrowers, and now, more changes proposed could see $85 billion in student loan cancelations.
New proposals to overhaul federal student loan relief programs are coming.
On June 6, the Biden administration revealed several proposals to overhaul decades-old programs which have been widely criticized for being difficult to navigate leaving people who count on them out on their own. According to The Washington Post, the new proposals “amount to some of the most significant updates to the federal student loan repayment system in years.”
“We are committed to fixing a broken system. If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it,” Education Secretary Miguel Cardona said Wednesday. “Student loan benefits also should not be so hard to get that borrowers never actually benefit from them.”
Here are some highlights of the proposed changes:
Closed School Discharge: This proposed rule would automatically discharge loans for all eligible borrows should the school close before the student was able to obtain their degree. Eligible borrowers would see their loans repaid one year after the school closes.
Borrower Defense to Repayment: Currently, there is protection for borrowers who were found to have been defrauded by their college. The new changes expand on that, allowing for loan forgiveness to happen when officials determine “an institution engaged in substantial misrepresentations or substantial omissions of fact, breached a loan contract, engaged in aggressive academic recruitment, or was subject to a judgment based on Federal or State law in a court or administrative tribunal.”
Interest Capitalization: The proposed rules to interest in terms of student loans would eliminate capitalization of interest, and reduce interest charges on loans, except where prohibited by law.
Total and Permanent Disability: Currently, there is a protection that allows borrowers who have a “total and permanent disability” to have federal student loans forgiven. The proposed changes would expand on what is considered a “total and permanent disability.”
PSLF: The proposed rule change would relax current rules on loan repayments, making it possible for repayments to count towards PSLF even when received late or when some payments were not received.
What is the timeline for the overhauled rules of student loan cancellations?
According to Forbes, department officials are looking to have these rules in place by November and would take effect next July. This could lead up to about $85 billion in loan forgiveness, which includes $39 billion for cancelations of loans to be issued over the next 10 years, and $46 billion in cancelations once the rules take effect.