College students.
Mark Chilton/Getty Images
- Biden’s Education Department released proposals to improve student-loan forgiveness programs.
- If approved, the changes will go into effect no later than July 1, 2023.
- Here’s what you need to know about the suggested reforms.
The student-loan industry is on track for major reforms.
On Wednesday, President Joe Biden’s Education Department released a list of proposed improvements to four major student-loan forgiveness programs. From easing access to relief for public servants and those defrauded by for-profit schools to tackling surging interest on student loans, the proposed rules cover a range of areas that borrowers have struggled with and the department plans to prioritize.
“We are committed to fixing a broken system. If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it,” Education Secretary Miguel Cardona said in a statement. “Student loan benefits also should not be so hard to get that borrowers never actually benefit from them.”
The list of proposals is part of the department’s rulemaking process, and the next step for these rules is a 30 day public comment period, in which anyone can submit feedback on the proposals. The department will then plan to finalize rules by November 1 and implement them no later than July 1, 2023. If you are enrolled, or planning to apply, for a loan forgiveness program, here’s what these new rules could mean for you.
Borrower defense to repayment
Borrower defense to repayment is a student-loan forgiveness process for borrowers who believe they were defrauded by a for-profit school, allowing them to submit a borrower defense claim for relief. Here are the key changes the department plans to make to this program:
- A single streamlined process for relief that will apply to all claims made as of July 1, 2023
- A broader standard of school misconduct that can fall into these categories: substantial misrepresentations, omissions of fact, contract breaches, and aggressive and misleading recruitment tactics
- Reconsideration of claims for borrowers who were not approved for full debt relief
- A clear timeline for individual and group borrower defense claims
- An expectation that the department will hold colleges accountable for costs of approved claims
Public Service Loan Forgiveness
The Public Service Loan Forgiveness (PSLF) program is designed to forgive student debt for government and nonprofit workers after ten years of qualifying payments. Leading up to Biden’s presidency, the program had a 98% denial rate, leading to reforms in October that included a waiver through October 31, 2022 allowing prior ineligible payments to qualify for the program. These proposed improvements build on that waiver:
- Give borrowers more flexibility by allowing lump-sum and partial payments to count toward forgiveness
- Make the full-time employment requirement simpler by defining it as 30 hours of work a week and clarify how to calculate hours for non-tenured teachers
- Allow certain types of deferments and forbearances to count toward forgiveness progress, including cancer treatment deferment, Peace Corps service deferment, military service deferments, and National Guard Duty forbearance
- Reconsider applications that were denied
- Open public comment on other types of employment that currently don’t qualify for PSLF.
Total and permanent disability discharges
Borrowers who are determined to be totally and permanently disabled by a physician, the Social Security Administration, or the Department of Veterans Affairs can qualify for student-debt relief. Here’s how the department proposes easing that process:
- Expand the types of disabilities recognized for discharges
- Eliminate the three-year monitoring period that tracks a borrower’s income after they receive debt relief, which has been a major paperwork hurdle for many qualifying borrowers
- Expand the types of accepted documentation to qualify for the program
Closed school discharges
In the past, schools have shut down in the middle of a borrower’s education, leaving them with student debt but no degree. To ensure those borrowers aren’t buried with debt, the department proposed the following changes:
- Provide automatic debt relief to borrowers who were still enrolled 180 days before a school’s closure within one year
- Clarify that students can get debt relief as long as they didn’t graduate or attend a teach-out program, which allows students to finish their studies at a different school
