Despite his two previous unsuccessful attempts to cancel student loans on a grand scale, President Joe Biden is moving ahead with a new plan to forgive student loans with a proposed new rule that would authorize forgiveness for eight million borrowers facing "hardship."
Under the new plan, the Education Department can discharge debt if it calculates a borrower has an 80% likelihood of defaulting on payments within two years based on 17 factors, including income, debt balances and assets.
Biden's first attempt at student loan forgiveness was axed by the Supreme Court on June 30, 2023. Hours later, the president announced the $475 billion Saving on a Valuable Education (SAVE) plan, which has been tied in federal courts for months and is now on hold, after a federal judge in Missouri blocked the plan earlier this month, just one day after a judge in Georgia gave approval to go forward. The states argued that the SAVE plan, which the administration had wanted to start implementing this fall ahead of the presidential election, is illegal.
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Prior, the Supreme Court denied a request from Pres. Biden to bypass lawsuit challenges that were making their way through the federal courts. "President Biden does not have the authority to erase student debt without express congressional approval," said a spokesperson for Missouri Attorney General Andrew Bailey, who along with attorneys general from Alabama, Arkansas, Florida, Georgia, Missouri, North Dakota and Ohio sued Pres. Biden and Education Secretary Miguel Cardona.
Last week, the president froze student loan repayment for six months for 8 million borrowers that had enrolled in the administration's SAVE plan.
Pres. Biden's new plan, which was announced on Friday, would authorize forgiveness when the Department of Education (DOE) determines a hardship is likely to impair the borrower's ability to fully repay the loan.
"For far too long, our broken student loan system has made it too hard for borrowers experiencing heartbreaking and financially devastating hardships to access relief, and it's not right," said U.S. Secretary of Education Miguel Cardona. "The rules proposed by the Biden-Harris Administration today would provide hope to millions of struggling Americans whose challenges may make them eligible for student debt relief."
Related: Biden freezes student loan repayments for 6 months for 8M borrowers
People with unexpected medical bills, high costs for child care for caregiving and those who took a financial hit after a natural disaster could be included in those eligible for cancellation, according to the DOE. The new rule could also allow for consideration of "any other indicators of hardship identified by the Secretary," according to the proposed new rule.
The new rule will be published in the Federal Register in the upcoming weeks, followed by a 30-day comment period. The Department expects to finalize the regulations in 2025.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
