Biden administration inches toward new student debt cancellation policy

The emerging proposal would cancel loans for people with "financial hardship."

February 15, 2024, 4:17 PM

Inching closer to delivering on a Plan B for federal student loan borrowers after President Joe Biden's sweeping debt cancellation plan was rejected by the Supreme Court last summer, the Department of Education has announced a broad proposal that would cancel loans for borrowers dealing with "financial hardship."

Through the new approach, which is a lesser-known, monthslong administrative process that is far less splashy than Biden's initial attempt to cancel $10,000-20,000 in debt for every borrower making below $125,000, the administration is continuing to pursue other pathways that they believe are within the department's legal authority.

"When the Supreme Court struck down President Biden's boldest debt relief plan, within hours, we announced a new rulemaking process designed to provide borrowers relief under the Higher Education Act," Department of Education Secretary Miguel Cardona said on a call with reporters on Thursday morning.

"The proposal we're releasing today outlines a few new ways to help borrowers who are struggling to make payments on their loans," he said.

The administration hopes this more bureaucratic approach will not be overturned by the court yet again -- though borrowers should be cognizant that it is almost certain to face lawsuits once it reaches its final stages.

Officials declined to give specific details on exactly how many people or who, specifically, could qualify for this new pathway to debt relief because the rulemaking process is still underway and likely will continue through at least the summer -- but also because, officials said, they were purposefully trying to work around the "limits of the law and the court decision" that struck down the previous loan cancellation program as too broad.

The thinking is that keeping details vague will allow the future relief to be targeted narrowly enough to avoid the same fate as the last policy but still allow the department to try and reach as many people as possible.

The borrowers who may receive student loan debt forgiveness under the new policy proposal is incredibly vast: It could range from automatic cancellation for people who are on the edge of defaulting on their loans in the near future to application-based relief that could be used on more individualized cases, like people who are struggling to pay down their debts because of costs like health care or housing.

But it doesn't stop there. Other factors include looking at the amount borrowers are paying toward their student loans compared to how much money borrowers have, including income and assets, as well as loans they have outside of higher education and whether they've been able to pay those down.

The department also wants to look at whether borrowers received a Pell Grant, which is for low-income college students, and whether they use any other government support programs.

"One way we can provide crucial breathing room to those borrowers is to identify hardships, including a borrower's total student loan balance, how much they have to pay compared to their income and whether a borrower has student loan debt that interferes with paying for basic needs, like getting food on the table and access to health care for their families," Cardona said.

PHOTO: U.S. Secretary of Education Miguel Cardona takes part in a press briefing with White House Press Secretary Karine Jean-Pierre about student loan debt at the White House in Washington, June 30, 2023.
U.S. Secretary of Education Miguel Cardona takes part in a press briefing with White House Press Secretary Karine Jean-Pierre about student loan debt at the White House in Washington, June 30, 2023.
Leah Millis/Reuters, FILE

Still, given how eager many borrowers are for the cancellation of their federal student loan debt -- which totals more than $1 trillion -- the lack of details on who could benefit are likely to be a point of frustration for people monitoring the process to see if it could help them.

"I would say that we expect these provisions to provide relief to a very meaningful number of borrowers, and that it is an important part of the president's historic efforts to clean up the student loan mess," a senior department official told reporters on the call on Thursday morning.

But the exact numbers, whether the administration has calculated them or not, won't be disclosed.

"We are trying to figure out how to be [as] expansive as possible within the limits of the law and the court decision," a senior administration official said.

Biden "has pushed" everyone working on debt relief policy, including ongoing efforts like loan cancellation for people on broken repayment plans, to make sure it's within the bounds of what the court has ruled, the official said.

"The goal and the aim and expectation is that this is going to help a significant number of student loan borrowers. And part of that is because, you know, the president has pushed us ... to make sure that we study the Supreme Court decision carefully, and that we pursue regulations that are consistent with it and are lawful," the senior administration official said.

Other aspects of the proposal, which are less sweeping but had been discussed at the past three monthly meetings held by the Department of Education, focus on borrowers who have more debt now than they initially took out, have loans that they first took out over 25 years ago, have large loans from schools that provided insufficient career advancement opportunities and who qualify for debt relief already under programs like Public Service Loan Forgiveness or income-driven repayment plans -- but haven't received it.

In the meantime, the Department of Education has continued to cancel debts for different borrowers who have been caught up in errors in the repayment system. So far, those efforts are estimated to impact 3.7 million borrowers -- though there have been some issues along the way with servicers carrying out the cancellation process.

In the fall, the Department of Education found that at least 16,000 people were sent bills they should never have gotten because they'd had their debts forgiven after their colleges had been deemed fraudulent, according to an internal memo confirmed to ABC News by a department spokesperson.

In all, however, the administration has approved $136.6 billion in cancellation for borrowers, including more than 1.3 million borrowers, many of whom had their debts canceled because they were "cheated" by their colleges and 930,500 borrowers who were eligible for forgiveness through income-driven repayment but hadn't seen their debts canceled because servicers had lost count of their payments.

The department has also approved debt relief for 793,400 people enrolled in Public Service Loan Forgiveness who hadn't seen their debts erased after 10 years, as the program promised.