US Department of Education in Washington, DC
Caroline Breman | CQ-Roll Call, Inc. | Getty Images
The Biden administration announced Wednesday that it is moving to make sweeping changes to the federal student loan system, including making it easier for public employees to get debt forgiveness and setting new limits on how much interest can accrue.
“We are committed to fixing a broken system,” U.S. Education Secretary Miguel Cardona said in a statement.
Key elements of the proposal include:
- Protections for defrauded borrowers: Under the proposed regulations, students who attended for-profit schools that lied to them or took advantage of them could be considered for debt cancellation as a group, meaning individuals would not be burdened to present their case themselves. Defrauded borrowers will also be given more leeway when they can file a loan cancellation lawsuit, and the definition of school misconduct will be expanded to include aggressive and deceptive recruiting practices. Many colleges may also be prohibited from requiring borrowers to sign mandatory pre-dispute arbitration agreements or class action waivers.
- Revision of the Public Service Loan Forgiveness Program: The program allows debt cancellation after 10 years for those who work for the government or for specific nonprofit organizations. Borrowers who have been in certain types of forbearance or deferments can have those months credited toward their relief schedule. These periods are not currently eligible. Late payments will also no longer be excluded from the borrower’s total qualifying payments.
- Changes to the way interest accrues: The practice of interest capitalization on federal student loans, where accrued interest is added to the principal balance, will also be eliminated in cases where a loan goes into forbearance or defaults on its loan.
The public has 30 days to comment on the Department of Education’s proposed regulations, and the final rules will go into effect no later than July 1, 2023.
Up to 40 million Americans could be affected by the changes.
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Federal student loan forgiveness has not yet been decided
While these changes have long been called for by advocates, the Biden administration is under increasing pressure to respond more deeply to the student loan crisis by forgiving much or all of the debt.
The nation’s $1.7 trillion in outstanding student loan balances outstrips credit card or car debt, with more than 10 million borrowers delinquent on their payments before the pandemic.
During the campaign, Biden said he supported clearing $10,000 from borrowers’ accounts. It would cost about $321 billion and completely simplify loans for about a third of student loan borrowers.
As the White House considers how to move forward with loan forgiveness, if at all, the amount it must cancel remains one of the biggest hurdles.
The NAACP has been vocal about how $10,000 won’t go nearly far enough for black student loan borrowers. Wisdom Cole, national director of the association’s youth and college division, recently said on Twitter that giving up just $10,000 would be a “slap in the face.”
The top Democrat in the Senate, Chuck Schumer of New York — along with Sen. Elizabeth Warren, D-Mass., and other Democrats — are pushing the president to cancel at least $50,000 for everyone.
Still, no amount of forgiveness would leave all borrowers happy. More than 3 million student loan borrowers owe more than $100,000.
At the same time, many Americans are outraged by the idea of forgiving student debt, including those who never took out student loans or went to college. Some Republicans have said they will try to block the president’s efforts to cancel the debt.
With midterms looming in November, these are key considerations for Biden.
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