The United States Department of Education in Washington, DC
Caroline Brehman | CQ Roll Call, Inc. † Getty Images
The Biden administration announced Wednesday that it was making sweeping changes to the federal student loan system, including making it easier for government officials to get debt forgiveness and setting new limits on interest accrual.
“We are determined to fix a broken system,” U.S. Education Secretary Miguel Cardona said in a statement.
Key elements of the proposal include:
- Protection for cheated borrowers: Under the proposed regulations, students attending for-profit schools that lied or abused would qualify for debt forgiveness as a group, meaning individuals would not have the burden of defending their cases alone. Scammed borrowers would also have more leeway when they could file a loan cancellation claim, and the definition of school misconduct would be expanded to include aggressive and deceptive recruiting practices. Many colleges could also be banned from requiring borrowers to sign mandatory pre-dispute arbitration agreements or class action waivers.
- A review of the public loan forgiveness program: The program enables debt forgiveness after 10 years for those who work for the government or specific non-profit organizations. Borrowers who were in certain types of forbearance or procrastination could count those months toward their enlightenment timeline. Currently, these periods are not eligible. Late payments would also no longer be excluded from a borrower’s total eligible payments.
- Changes in how interest is accrued: The practice of interest capitalization on federal student loans, where the accrued interest is added to the principal balance, would also be eliminated in cases where a loan terminates a forbearance or defaults on their loan.
The public has 30 days to comment on the Ministry of Education’s proposed regulations, and the final rules will come into effect by July 1, 2023.
As many as 40 million Americans could be affected by the changes.
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Federal student loan forgiveness still undecided
While proponents have long called for these changes, the Biden administration is under increasing pressure to respond more deeply to the student loan crisis by canceling much or all of its debt.
The $1.7 trillion outstanding student loan balance exceeds credit card or car debt, more than 10 million borrowers were behind on their payments ahead of the pandemic public.
During the campaign trail, Biden said he was in favor of removing $10,000 from borrowers’ accounts. This would cost approx $321 billion and fully forgiven the loans for about a third of student loan borrowers.
As the White House deliberates on how to proceed with loan forgiveness, the amount it must cancel remains one of its biggest sticking points.
The NAACP has spoken out that $10,000 would not go far enough for black student loans. Wisdom Cole, National Director of the Association’s Youth and College Divisions, recently said on Twitter that ignoring just $10,000 would be “a slap in the face.”
Top Senate Democrat Chuck Schumer of New York — along with Senator Elizabeth Warren, D-Mass., and other Democrats — is urging the president to cancel at least $50,000 for everyone.
Still, no amount of forgiveness would make all borrowers happy. More than 3 million student loan borrowers have more than $100,000 in debt.
At the same time, many Americans are outraged at the idea of student debt forgiveness, including those who never borrowed for college or went to college. Some Republicans have said they would try to block an attempt by the president to cancel the debt.
With the November midterms approaching, these are all important considerations for Biden.