On August 24, President Joe Biden and the U.S. Department of Education (the “Department”) announced a new Student Debt Relief Plan (“Plan”) that would cancel up to $20,000 of federal student loans for millions of eligible borrowers. This long-awaited Plan also indicated that the Department would allow for a final extension of the student loan repayment pause through the end of the calendar year and usher in new income-based repayment options for federal student loan borrowers. According to the White House, nearly 90 percent of student loan relief under the Plan will be directed to borrowers earning less than $75,000. As many as 20 million borrowers may see their student debt balances entirely cancelled under this policy.
Final Student Loan Repayment Pause
The Biden administration’s new policy will extend the pause on student loan payments through December 31, 2022. Payments on federal student loans will resume in January 2023. The initial pause on student loan repayments was initiated by the Department at the onset of the COVID-19 pandemic in March 2020 and has remained in effect, following multiple extensions granted by both the Trump and Biden administrations.
Student Loan Forgiveness
In addition to extending the payment pause, the Department will cancel up to $20,000 for borrowers who are Pell grant recipients and up to $10,000 for borrowers who are non-Pell grant recipients. To be eligible for cancellation, a borrower’s annual income must be below $125,000 (for individuals) or $250,000 (for married couples or heads of households). Relief will be capped at the amount of a borrower’s outstanding debt. The policy will apply equally to borrowers who have left school and current students, so long as the loans were originated before July 1, 2022. If student borrowers are dependents, their forgiveness will be assessed based on their parents’ income.
Loans will be automatically forgiven for the nearly 8 million borrowers for whom the Department already has the relevant income data. If borrowers are unsure whether the Department has their income data, the Biden administration will launch an application in the following weeks for students to apply for forgiveness. The application will be available before the pause on repayment ends on December 31, 2022.
Public Sector Loan Forgiveness
The Biden administration also plans to waive specific eligibility criteria for the Public Service Loan Forgiveness (PSLF) program. Borrowers who have been employed by non-profits, the military, or federal, state, or local government for 10 years or more may now be eligible to have all federal student loans forgiven through the PSLF program, but only if they meet the PSLF criteria and apply by October 31, 2022.
New Income-Based Repayment Plans
The newly announced program will also alter existing income-based repayment plans by lowering monthly loan repayments from 10 to 5 percent of a borrower’s discretionary monthly income for undergraduate loans; raising the amount of income considered as non-discretionary; forgiving a borrower’s loan balances of $12,000 or less after 10 years of payments, instead of 20 years; and covering a borrower’s unpaid monthly interest, thus preventing a borrower’s loan balance from growing so long as they make their monthly payments. The proposed changes to repayment plans will be published in the Federal Register as a Notice of Proposed Rulemaking. The public will have 30 days to comment.
While there have been questions about the legality of the Department’s decision to cancel student debt, the Office of the General Counsel in conjunction with the Department of Justice Office of Legal Counsel released a memorandum on August 23 justifying the Plan. This Plan comes on the heels of the Department’s recent efforts to forgive wide swaths of student debt incurred by borrowers who attended ITT Technical Institute and several other institutions previously subjected to adverse regulatory actions. This effort is complemented by an expansive new Borrower Defense to Repayment (“BDR”) rule expected to be finalized this fall by the Department. Under BDR, student borrowers feeling they have been defrauded or otherwise misled by their institution can seek to have their loans forgiven outright. The Department estimates this rule will result in more than $8 billion in student loan discharges. Under the draft rule, students will have the opportunity to seek forgiveness of their entire loan balances, with the Department seeking to recoup these costs from the borrower’s institutions.
If challenged in court, the Department may have to argue that Congress clearly delegated authority to the Department to forgive loans and implement each of the aforementioned policy initiatives.
The Supreme Court recently addressed a similar issue in West Virginia v. EPA, holding the federal government cannot act on economically significant policy without clear Congressional authorization.
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