President Joe Biden recently announced a new student loan forgiveness plan that aims to provide relief to millions of borrowers. This initiative, which is the President’s second attempt to cancel student debt on a large scale, is set to target specific groups of borrowers for relief. The program, which has been in the works for months, may be launched as early as this fall and could provide automatic loan forgiveness to many borrowers without the need for an application.
During the negotiated rulemaking sessions held over the last six months, key stakeholders agreed on the importance of automating student loan forgiveness whenever possible. Under Biden’s plan, borrowers who are eligible for loan forgiveness under existing programs but have not yet applied or enrolled may receive automatic debt cancellation. Additionally, undergraduate borrowers who entered repayment at least 20 years ago, and graduate borrowers who entered repayment at least 25 years ago, could be eligible for loan forgiveness under this program.
Biden’s plan also addresses accrued and capitalized interest, especially for borrowers who have experienced negative amortization. The Education Department would have the data needed to determine the amount of interest eligible for forgiveness, potentially eliminating the need for an application in these cases. Borrowers who attended low-financial-value programs could also be eligible for automatic loan forgiveness under the new plan, as the Education Department should already have data on schools that lost their eligibility to participate in federal student aid programs.
For some borrowers, however, an application may still be required to receive student loan forgiveness under Biden’s plan. Borrowers experiencing other cost burdens, as well as those predicted to fall into default based on existing data, may need to submit a formal application for consideration. The Education Department’s guidance includes over a dozen possible indicators of hardship that could determine eligibility for forgiveness, including income, expenses, other debts, age, disability status, and eligibility for means-tested public benefits.
While the new student loan forgiveness plan is not yet active, it will undergo several additional steps before becoming available to borrowers. These steps include the publication of final governing regulations and a public comment period on those rules. The program is not expected to be officially live until closer to the fall, and the department will provide updated guidance on any application requirements. Although Biden’s first student loan forgiveness plan had an online application, the potential legal challenges could delay the implementation of this new program, as the Biden administration seems aware that courts could intervene.
