WASHINGTON — The Biden administration is pursuing a new path to student loan cancellation for Americans facing high medical bills, child support and other financial hardships who are unable to pay their loans.
The proposed rules announced Friday would be President Joe Biden’s third attempt at student loan cancellation, which has faced repeated legal challenges from Republican states. His first plan was rejected by the Supreme Court last year, and his second plan was temporarily blocked by a federal judge in Missouri.
Many hurdles must be cleared before the new rules can become official, and it is unclear whether they will be completed before Biden leaves office in three months. Like Biden’s other loan forgiveness proposals, it could face court challenges from conservatives who say it is unconstitutional and unfair.
If the new rules are finalized, the Department of Education will be able to proactively cancel loans to borrowers if the department determines there is an 80% chance that the loan will be delinquent within two years. . Others may request a review to determine whether they meet the criteria for cancellation.
It is intended to help borrowers who are unlikely to be able to repay their loans. The Department of Education estimates that about 8 million Americans will be subject to cancellations.
“For too long, our country’s broken student loan system has made it extremely difficult for borrowers experiencing heartbreaking and financially devastating hardship to receive relief,” said Education Secretary Miguel Cardona. “And that’s not correct.”
Potential targets include those facing unexpected medical expenses, high childcare costs, large costs related to caring for a chronically ill relative, and those experiencing financial hardship due to natural disasters. The Ministry of Education said this could include people who are in the same category.
Under the proposal, the department could use a variety of factors to determine whether someone is likely to default on a loan. This includes household income, age, whether you receive public benefits, and overall debt as well as student loans.
It is also permitted to consider “other indicators of hardship identified by the Secretary.” Typically, a loan is considered in default if payments are not made within about nine months.
About 1 million borrowers default on their debts each year, and Cardona said the new rules will prevent the agency from trying to recover funds that have no hope of recovery.
“Repayment and recovery of defaulted loans is not free, it costs taxpayers money,” Cardona said in a call with reporters. “And there comes a point where the cost of trying to collect on a defaulted loan just isn’t worth it.”
The proposal will go through a 30-day public comment period before becoming official. The administration said it plans to finalize the rule in 2025. With less than two weeks until the Nov. 5 presidential election, he faces an uncertain future.
Vice President Kamala Harris, the Democratic nominee, has not provided details about her plan to cancel student loans if elected president. Republican candidate Donald Trump called Biden’s cancellation proposal unfair and illegal.
Biden’s latest proposal is the result of a federal regulatory process that included experts from across higher education. Supporters pushed for the hardship clause, saying too many borrowers are stuck in debt they can never repay.
The Biden administration said the Secretary of Education has authority under the Higher Education Act to forgive debt in certain cases. He also noted that other federal agencies routinely forgive debt, taking into account factors such as “conscience” and fairness.
This is a similar legal argument used to justify Mr. Biden’s second attempt at student loan forgiveness, and it is a similar legal argument used to justify Mr. I am proposing relief. A federal judge in Missouri blocked the plan amid legal challenges from Republican states.
Biden campaigned for the White House on a promise to cancel new student loans, but his biggest plan was blocked by his Republican opponents. Last year, the U.S. Supreme Court struck down a plan to waive up to $20,000 for millions of Americans after several Republican states filed suit to block it.
Amid the legal battle, the administration has increasingly turned its attention to efforts to cancel student loans through existing programs, including one for public employees. The government has now announced that it has canceled a total of $175 billion for approximately 5 million borrowers.
The hardship provision was initially discussed as part of Missouri’s currently pending second plan, but the Department of Education split it into its own proposal and spent more time on the details.
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