What is Student Loan Forgiveness?
Student loan forgiveness is a program aimed at relieving federal student loan borrowers of their federal student loan debt burden. It involves the cancellation or discharge of all or a portion of a borrower's federal student loan debt. This can be achieved through various avenues such as broad student loan forgiveness, public service loan forgiveness, borrower defense claims, or total and permanent disability discharge.
History
The history of Biden's student loan forgiveness traces back to the broader issue of student debt, which gained significant attention during the Democratic campaign trail. As candidates sought radical solutions to address the crisis affecting more than one in three young adults and millions of Americans beyond the age of 60 still grappling with college loans.
The escalation of the student debt crisis can be linked to changes in legislation, notably the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Before this law, private student loans were eligible for bankruptcy protections similar to other forms of private credit. However, the 2005 act made it substantially more challenging for struggling former students to discharge their debts through bankruptcy, contributing to the exponential growth of outstanding educational loans borrowed from private financial entities.
During the 2020 presidential election, Joe Biden, then-candidate, proposed providing $10,000 in debt forgiveness to all student debtors. On August 24, 2022, he announced a plan to forgive $10,000 for an estimated 43 million borrowers, along with an additional $10,000 for Pell Grant recipients. The relief was targeted to singles earning under $125,000 and married couples earning under $250,000. This proposal aimed to reduce debt for 43 million borrowers and eliminate student loan debt for around 20 million individuals.
However, the U.S. Supreme Court ruled on June 30, 2023, that Biden's plan required action by Congress, and the HEROES Act did not permit the administration to act unilaterally. The proposed forgiveness plan faced obstacles, including potential exclusion of 800,000 Federal Family Education Loan (FFEL) borrowers who initially could consolidate into Direct Loans for forgiveness. Still, this option was halted due to potential legal issues.
What Happened to Biden’s Student Loan Forgiveness Program?
The Biden student loan forgiveness program faced a setback when the Supreme Court rejected President Joe Biden's one-time $441 billion debt relief initiative. This financial aid program aimed to provide debt relief to borrowers earning less than $125,000 (or $250,000 for married couples), allowing them to qualify for forgiveness of up to $10,000 of outstanding federal loans. Additionally, those who received Pell Grants for their education expenses could have been eligible for up to $20,000 of loan forgiveness.
However, following the Supreme Court ruling, the Department of Education is now prohibited from forgiving any federal loans under this specific program. The rejection by the Supreme Court has prompted the unveiling of a beta site, indicating potential shifts in the administration's approach to student loan forgiveness. The current situation underscores the complexities and challenges associated with implementing comprehensive debt relief measures in the face of legal constraints.
What are Qualifying Groups for Student Loan Forgiveness?
The proposed Plan B for student loan forgiveness aims to target specific groups with strict eligibility criteria to address the needs of the most vulnerable borrowers. According to negotiation notes released in early November, the Education Department plans to cancel more student debt for the following four groups:
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Borrowers with Balances Greater than Original Borrowed Amount. If the interest on a borrower's loan surpasses the principal balance, the government would erase any amount above the originally borrowed sum.
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Borrowers in Repayment for at Least 25 Years. Borrowers who have been in repayment for a minimum of 25 years, including periods of default, deferment, or forbearance, could have their remaining balance erased by July 1, 2025.
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Borrowers from Programs with Insufficient Financial Value. Individuals who attended career-training programs that resulted in unreasonable debt loads or insufficient earnings, or those who attended institutions with unacceptably high student loan default rates, may qualify for loan forgiveness.
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Borrowers Who Never Applied for Eligible Relief Programs. Borrowers eligible for targeted loan forgiveness programs like Public Service Loan Forgiveness (PSLF) or income-driven repayment (IDR) plans but never applied could still receive loan forgiveness. The forgiveness amounts would depend on the terms of the eligible program.
Additionally, the Education Department considers to extend student loan relief to a potential fifth borrower group - those experiencing "financial hardship." The criteria for this group are not yet finalized but may include factors such as attending a closed school, receiving a Pell Grant, having both parent and student loans, enrollment in Medicare, non-completion of a program, facing significant medical or childcare costs, being over a certain age, or having declared bankruptcy.
It's important to note that these eligibility criteria under Plan B are more stringent compared to Biden's original relief plan, which had a broader scope, allowing anyone earning less than $125,000 (or $250,000 as a married couple) to qualify for up to $10,000 in student debt cancellation, with additional eligibility for those who received a Pell Grant.
Who Qualifies for Student Loan Forgiveness?
Following the Supreme Court's rejection of the forgiveness plan, the Biden administration established a Student Loan Relief Committee to undergo "negotiated rule-making" in the coming months, determining the next steps for student debt relief. While it remains unclear if any new forgiveness program will share the same eligibility requirements as the initial one, the administration has expressed a commitment to prioritizing relief for federal borrowers facing financial hardship.
Despite the unavailability of Biden's original student loan forgiveness plan, individuals may still qualify for loan forgiveness based on various criteria:
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Public Service Employment. Work full-time in public service for 10 years and make 120 qualifying payments on federal student loans.
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Teacher Loan Forgiveness. Serve as a teacher in a low-income school or at an educational service agency for five consecutive years.
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Nurse or Nurse Faculty Loan Forgiveness. Serve as a nurse or nurse faculty member, addressing the needs of a high-need population in a critical shortage area.
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Perkins Loan Cancellation. Qualify for Perkins loan cancellation.
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Total and Permanent Disability. Experience a total and permanent disability.
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Qualifying Discharge Reasons. Qualify for student loan repayment discharge due to other reasons, such as being defrauded by your school.
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Income-Driven Repayment Plans. Make monthly payments for 20 or 25 years on an income-driven repayment plan.
As the negotiation process continues with the Student Loan Relief Committee, the specific eligibility requirements for potential new forgiveness programs may evolve. It is essential for borrowers to stay informed about updates and changes to ensure they meet the criteria for available relief options.
How to Apply for Student Loan Forgiveness?
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Public Service Loan Forgiveness (PSLF). Use the PSLF Help Tool to generate and submit the PSLF & Temporary Expanded PSLF (TEPSLF) certification and application to your federal student loan servicers. Submit this form annually to ensure your servicer has a record of your progress. After completing 10 years of qualifying federal student loan payments, submit a final PSLF form to federal student loan servicer MOHELA.
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Teacher Loan Forgiveness. Submit the Teacher Loan Forgiveness Application to your loan servicer(s). Ensure the chief administrative officer of your school or agency completes the certification section of the application.
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Nurse CORPS Loan Forgiveness. Apply through your account on the Health Resources & Services Administration’s (HRSA) site. Follow the detailed process outlined in the provided guide.
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Income-Driven Repayment (IDR) Plan Forgiveness. Your loans should automatically qualify for forgiveness after 20 or 25 years of repayment. Reach out to your loan servicer to inquire about any additional steps you may need to take.
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Total and Permanent Disability (TPD) Discharge. Borrowers with a total and permanent disability may receive an automatic discharge of their student loans. If not automatic, complete a TPD discharge application and submit it to the servicer. Include supporting documentation from the U.S. Department of Veterans Affairs (VA), the Social Security Administration (SSA), or an authorized medical professional with your application.
Will Student Loan Reform Bill Become Law?
The chances of the College Cost Reduction Act becoming law this year appear to be slim. The bill faces obstacles in both the House and the Senate, with challenges arising from the current political landscape.
In the House, where Republicans maintain a narrow majority, the bill passing faces difficulties. Moving to the Senate, currently under Democratic control, further complicates the prospects of the bill becoming law. Even if some Senate Democrats were to align with Republicans to pass the measure in Congress, President Joe Biden is expected to veto the bill.
While the College Cost Reduction Act may encounter challenges this year, it serves as a preview of potential legislative developments in the following year. If Republicans secure control of the Senate and the White House, coupled with maintaining or expanding their House majority, similar reforms could gain traction and become law in the future. The political landscape and balance of power will play a crucial role in determining the fate of student loan reform bills in the coming years.
Prohibitions on the New Student Loan Forgiveness
The proposed legislation includes prohibitions on new student loan forgiveness measures, placing significant constraints on a President's authority to implement regulations that could potentially offer more affordable payment plans or broader student loan forgiveness. This restriction is particularly relevant to President Biden's recent use of the regulatory process to introduce initiatives like the SAVE plan and his ongoing efforts to establish a new student loan forgiveness program under the Higher Education Act, expected to be released later this year.
According to the bill, the Secretary of Education would be required to confirm that any new regulations or executive actions related to the student loan program will not increase costs to the federal government. Furthermore, the legislation explicitly prohibits the issuance of regulations that cannot meet the threshold of not increasing costs to the federal government. This signifies a legislative attempt to control and limit the financial implications of new regulations and executive actions pertaining to student loan programs.
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How to Choose a Lender
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