Biden administration to notify 25 million student loan borrowers of debt relief options

The Department of Education will send an email to Americans with student debt on Wednesday, laying out options for how roughly 25 million could have some, or all, of their debt canceled this fall.

The email is the first step of the Biden-Harris administration’s proposed rule announced in April – and still being finalized – for narrower, targeted debt relief.

The proposed rule has been in the works as a plan B ever since President Joe Biden’s initial effort to cancel some or all debt for 43 million people was overturned by the Supreme Court last summer.

If it’s implemented as drafted, and survives the expected Republican-led lawsuits, it could give some amount of debt relief to 25 million people, on top of the nearly 4.8 million people that have already had their debts canceled under Biden’s tenure.

Education Secretary Miguel Cardona will outline in the email the pathways for debt relief -- most of which are targeting people with runaway interest or who have been paying their debt for over two decades -- and inform borrowers that they have until August 30 to inform their servicers if they’d like to opt-out.

The Education Department "is in the process of finalizing who will be eligible for student debt relief, but we want to make you aware of this potential relief,” Cardona writes in the email.

Biden, in a statement on Wednesday, said the goal is to notify borrowers of the upcoming debt relief programs in advance, so they can “benefit swiftly once the rules are final.” Moving quickly to get relief out the door is sure to be important to the program’s success, given the barrage of lawsuits from Republicans on any debt relief or student loan system reform Biden has attempted so far.

“Despite attempts led by Republican elected officials to block our efforts, we won’t stop fighting to provide relief to student loan borrowers, fix the broken student loan system, and help borrowers get out from under the burden of student debt,” Biden said.

Biden’s hallmark reform to student debt repayment, the SAVE Plan, was put on hold by a court earlier this month after Republicans argued it was overstepping the administration’s authority. The plan has been touted as the most affordable loan repayment plan for borrowers, tying monthly payments to borrowers’ incomes and allowing debt relief after 10 years for people who took out small initial loan balances.

Here is who the latest debt relief plan would apply to, under this new plan.

The largest group will be people who have runaway interest, which is more than half of all borrowers. Roughly 25 million people owe a larger debt now than when they initially took out their loans due to ballooning interest. The new rule would not cancel their loans entirely, but rather reduce or cancel the interest that’s built up, according to a draft rule of the plan.

Some people would get up to $20,000 of interest canceled, while those who make below a certain income -- $120,000 as a single person or $240,000 as a married couple -- will get their entire runaway interest canceled.

The Department of Education estimated that over 90% of people, or roughly 23 million, will fall into the second bucket and be fully reset back to their initial loan amount.

The second largest group will be people who have been paying down their loans for 20 years or more, but still haven’t paid it off. This could apply to 2.6 million borrowers, the Department of Education estimated. People would be eligible if they have undergraduate loans they’ve been paying since or before July 1, 2005, or if they have graduate school loans they’ve been paying since or before July 1, 2000.

The rule will also provide debt relief to a few hundred thousand people who already qualify under programs like Public Service Loan Forgiveness but have never applied, and to those who paid for a degree from a school that didn’t provide students with the financial security it advertised.

A vaster component of the rule, which would evaluate borrower “hardship” as a qualifier for debt relief, is also still in the works but not likely on the same timeline.