Some student loans may soon be easier to forgive. Here’s what that could mean for you

Carolyn Kaster/AP
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Federal student loan programs might be more easily accessible, more forgiving and available to more people soon under new regulations proposed by the U.S. Department of Education.

The Biden administration’s proposed rules, unveiled on Wednesday, July 6, seek to expand and improve existing programs that have previously received criticism for their limited accessibility and ease of use, the department said in a news release.

Among the new regulations are provisions for expanding borrower defense in instances where colleges are accused of lying or taking advantage of borrowers, easing and expanding the Public Service Loan Forgiveness program, removing interest capitalization in certain cases and allowing a broader set of disability statuses to be included in qualifying for discharges.

“If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it,” U.S. Secretary of Education Miguel Cardona said in the release. “These proposed regulations will protect borrowers and save them time, money, and frustration, and will hold their colleges responsible for wrongdoing.”

As of 2021, the Federal Reserve reported that 30% of all adults say they “incurred at least some debt for their education.” Of those adults who incurred debt for their education, 20% still owed debt as of last year, and 12% of those who owed debt were behind on their payments.

The median amount of education debt among adults with outstanding payments was reported to be between $20,000-$24,999.

Biden has reportedly been mulling forgiving some portion of federal student loans, with polls showing a majority of people in the U.S. supporting forgiving up to $10,000 in loan debt per each borrower.

But Jason Altmire, president and CEO of Career Education Colleges and Universities (CECU), a trade association representing for-profit colleges, slammed the proposed regulations regarding borrow defense to repayment as “a clear and troubling message that the Department intends to use the rulemaking process to discharge federal student loans en masse while hurting unfavored institutions and their students in the process.”

“This is an unprecedented expansion of the Department’s authority that was never contemplated by Congress and that will have substantial negative economic consequences on institutions and taxpayers,” Altmire said.

If you hold student loan debt, here’s what the new changes — which the department says will be finalized by Nov. 1 — could mean for you.

Protection from predatory behavior by colleges

The new regulations would help borrowers receive debt forgiveness in instances where their college is accused of taking advantage of them or lying. These situations include “allowing for group claims, eliminating overly strict limits on when borrowers can file a claim, expanding the type of misconduct that can lead to an approved claim to include aggressive and deceptive recruitment practices, and ensuring borrowers receive timely decisions about their claims,” the release says.

Furthermore, the department proposes prohibiting colleges from making borrowers sign arbitration agreements and instead promising borrowers a chance to take their case to court.

This regulation aims to increase transparency in arbitration proceedings, helping the/department better investigate possible wrongdoing by colleges.

The department also proposed automatic discharges to borrowers enrolled in a college that closes so long as the borrower was enrolled within 180 days prior to the closure and did not complete their education at the school.

“The Department has seen a significant number of college closures, and often these schools leave borrowers holding debt but no degree. Many of those borrowers default on their loans after the closure,” the release says.

Some analysts are pushing back against the department’s push for borrower defense. The included provisions could be weaponized against for-profit institutions and should instead aim for greater balance between protecting students and institutions, according to Nicholas Kent, chief policy officer at CECU.

“We don’t think it is grounded in existing statue, and we think it suffers from inadequate due process protection,” Kent told McClatchy News.

Public service workers and loan forgiveness

The existing Public Service Loan Forgiveness (PSLF) program offers loan forgiveness for public service workers employed full-time by qualifying federal, state, local or tribal organizations and non-profits organizations.

Under the new regulations, obtaining forgiveness through PSLF would be easier for borrowers, allowing more payments to qualify within the program, including lump sum and late payments, along with certain forbearances and deferments, such as a cancer treatment deferment.

The proposal also seeks to expand access to the program to a greater number of workers and to create a formal reconsideration process for denied applications.

“These tools have been around in the department’s toolbelt for a while,” Kent said. “The department is proposing to expand those tools to make the benefits that flow from the loan forgiveness provision much more generous for borrowers.”

Cap on how much interest is added to payments

The broadest rule proposed by the department suggest capping interest capitalization when it is not required under statute.

As of July 1, student loan interest rates are more expensive, with rates increasing by a sizable 1.26 percentage points. New undergraduate student loans climbed 33.8% while graduate student loans rose 23.9% and direct PLUS loans grew 20.1%, according to reporting from Forbes. Existing federal student loans were not impacted by the change as they operate on a fixed rate.

Given the increase in interest, the new provision could limit how much interest borrowers can accrue on their principal balance.

Under the proposed regulations, borrowers struggling to repay their loans could get a boost as the department exempts capitalization “when a borrower enters repayment, exits forbearance, defaults on a student loan, and exits most of the income-driven repayment plans,” the release says.

Borrowers with disabilities and loan forgiveness

The proposed regulations included a provision to expand the set of disability statuses recognized as eligible for forgiveness and eliminate barriers that make the process for discharge overly long and complicated. This includes doing away with the three-year income-monitoring period for certain borrowers and expanding the limited types of documentation borrowers need to submit to demonstrate qualification for relief.

For borrowers with disabilities, this means a greater number of borrowers will have access to discharges. The process to receive forgiveness will also be easier and more accessible.

When can you expect to see changes?

Within the next week, the department will publish an official version of the proposals and begin accepting public comments for a period of 30 days. After a review period, the department will respond to comments in the finalized ruling which is expected by Nov. 1.

Following the release of the finalized version, the Office of Management and Budget will review the rules and seek feedback from other federal agencies before the White House clears the rule.

If all goes to plan, the proposed rules will be implemented by July 1, 2023.

This story has been updated to reflect the context surrounding Jason Altmire’s comments on the proposed rules.

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