The New Biden Student Loan Forgiveness Program: What to Know

Much has changed since our August 2023 report on the new strategies for the Biden student loan forgiveness initiative, which we presented in our feature article “Student Debt Relief: How “Plan B” Relies on This 1965 Law.”

Proposals for the new “Plan B” slated for release during fall 2024 now differ from the original program in several significant ways that borrowers need to understand. Some of these differences relate to key aspects, such as who qualifies for relief, or how to apply for student loan forgiveness under the proposed new program.

In its controversial June 2023 decision, the Supreme Court stuck down the Biden Administration’s original student loan forgiveness plan, holding that the program lacked specific Congressional authorization under the 2003 HEROES Act. That statute only enables the Secretary of Education to “waive or modify” loans for borrowers impacted by events like war, military operations, or a national emergency. However, the federal Covid-19 Public Health Emergency had already expired, and the HEROES Act had never been applied to cancel student loan balances.

But this time, the Administration will instead enact the new Biden student loan forgiveness program’s “Plan B” under the landmark Higher Education Act of 1965 (HEA), which some are now calling the “HEA Plan.” As we discuss at length in our previous report, the Higher Education Act specifically grants authority to the Secretary of Education to “compromise, waive, or release” student loans issued by the Education Department, and to “consent to modification” of their principal, interest, payment schedules or other features.

What’s more, the HEA was used by previous Republican and Democratic administrations to cancel or modify student loan obligations in certain instances. For example, the statute enabled the creation of the Education Department’s Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) programs that cancel remaining student debt after borrowers make payments for several years. The Higher Education Act also enabled Sweet v. Cardona, the $6 billion 2022 settlement that discharged debts and reimbursed loans for 300,000 borrowers defrauded by a group of mostly for-profit colleges.

However, legislation drafted under Title IV of the Higher Education Act requires that the U.S. Department of Education modify regulations through a protracted federal administrative law process known as negotiated rulemaking. In these “neg reg” discussions, advocates for affected interest groups negotiate proposed rule changes with the Department.

In the case of the regulatory changes required by Biden’s new student loan forgiveness plan, the negotiations got underway in October 2023, concluded in February 2024, and resulted in rule drafts that the Department has revised since the following April. Although this rulemaking phase has consumed about 13 months, this process is finally closing.

On July 31, the Administration announced that it would take the next step towards providing student loan forgiveness to tens of millions of borrowers during fall 2024. On August 1, the Department started emailing borrowers with outstanding federally held student loans to update them on potential student debt relief and provide them with an opportunity to opt out of the forthcoming program.

In a statement, Secretary of Education Miguel Cardona said that “today, the Biden-Harris administration takes another step forward in our drive to deliver student debt relief to borrowers who’ve been failed by a broken system. . .The Biden-Harris Administration made a commitment to deliver student debt relief to as many borrowers as possible as quickly as possible, and today, as we near the end of a lengthy rulemaking process, we’re one step closer to keeping that promise.”

Finalizing new rules that will give Cardona expanded authority to grant student loan forgiveness is certainly great news for borrowers. Education department officials say that the final regulations should enable the implementation of the new plan by October.

The likely elimination of application procedures marks a huge change from the previous program.

In the old program, borrowers had to affirmatively apply for relief. That requirement meant some borrowers have still not received the student loan forgiveness for which they are eligible.

Under the proposed new program, for four of the five qualifying groups relief will be automatic, and no applications will be necessary. In other words, there will be no need for most borrowers to complete applications because the Education Department will process and approve relief for borrowers automatically.

This is why the Education Department has switched to an opt-out system. The program should automatically award their student loan forgiveness if eligible borrowers don’t opt out. They’ll simply need to verify that they’ve received their relief.

Unlike the first Biden student loan forgiveness program, five proposed groups of borrowers should eventually qualify under the new plan. Four of them should receive relief during fall 2024, with a fifth group expected as an addition somewhat later.

In short, the Department proposes to award partial or full debt relief to 23 million borrowers who enrolled at low-value institutions, experienced runaway interest, held loans in repayment for very long periods, failed to apply despite their eligibility, or face severe economic hardships.

Based on new guidance uploaded to several pages across the Department of Education’s website since July 31, the following summaries describe the groups of eligible borrowers for which the new plan is expected to provide partial or full debt relief. Remember that none of the following summaries describes regulations currently in effect; they describe the most recent proposals at the time of this report’s publication in September 2024.

Borrowers Who Enrolled in Low-Financial Value Institutions

These include institutions that failed one or more of the Department of Education’s accountability standards, along with institutions that failed to provide borrowers with sufficient financial value.

We’ve recently covered several outrageous examples of these kinds of schools here at OnlineEducation.com. They include two colleges targeted by regulators: the for-profit University of Antelope Valley in Lancaster, California which shut down in March 2024, and Eastern Gateway Community College in Youngstown, Ohio which is now in the “teachout plan” closure phase and will shut down in October 2024. Students from the former Ashford University before its rebranding as the University of Arizona Global Campus might also qualify for relief under this borrower group’s plan.

For the purposes of the proposed rules, what would failing ED’s accountability standards mean? That would mean the institution:

• Has student loan default rates that are high, producing graduates whose earnings are no better than those of a high school graduate, or whose debt makes up an excessive share of their income, or
• “Was subject to a final agency action to terminate aid for failing to provide sufficient financial value”

ED says that schools or programs facing situations similar to those two above, and which shut down before the agency makes a final determination, would also fail the Department’s standards should graduates have either of the following two characteristics:

• High debt-to-earnings ratios
• Insufficient earnings relative to a high school graduate

Borrowers would be eligible for debt relief under the proposed rules if they borrowed loans to attend a program or institution during a period when it:

• Was denied recertification, or
• Failed these accountability standards, and lost its eligibility as a participant in the Federal Student Aid Program

Relief is also available to students who attend a non-degree program that closed because it failed to meet gainful employment requirements. Based on measures that ED sets, programs could fail this test when borrowers earn too little or have unaffordable debts.

Borrowers Who Now Owe More Than They Owed at the Beginning of Repayment

This provision targets those who currently owe more than they initially borrowed because they experienced runaway interest accruals. This is the new plan’s widest-reaching provision with almost 23 million borrowers eligible for cancellation of some or all of their debt; most of them are Pell Grant recipients.

The following loans held by the Education Department are eligible for this relief if their current balance exceeds the balance of the loan when it entered repayment:

• Unconsolidated Direct Loan
• ED-held Federal Family Education Loan (FFEL) Program loan
• ED-held Perkins loan

In addition, a consolidation loan is eligible if the current balance exceeds the balance of the loans included in that consolidation loan when its original loans entered repayment.

Some borrowers would be eligible for relief that’s as much as $20,000 of the amount of the difference between their current balance and the balance on their federal student loans when they entered repayment. Subject to an income test, other borrowers enrolled in an income-driven repayment plan could also receive relief that cancels all their principal and interest exceeding the balance of principal and interest when their federal student loans entered repayment. However, several additional restrictions apply to these runaway interest accrual situations.

Longtime Borrowers in Repayment for Decades

The proposed plan provides relief for borrowers with only undergraduate loans and holding at least one loan in repayment for a minimum of 20 years. It also provides relief for those with at least one graduate loan that’s been in repayment for 25 years or more.

The Education Department reports that in cases of consolidation loans, ED would check when the underlying loans—not the consolidation loan—initially entered repayment. ED could fully forgive loans meeting these criteria.

Qualifying Borrowers Otherwise Eligible for Loan Forgiveness Who Haven’t Applied

As we point out above, the previous student loan forgiveness program required borrowers to affirmatively apply. However, not all borrowers eligible for relief applied, or timely filed valid applications.

For example, a borrower eligible for immediate loan forgiveness but who hasn’t successfully enrolled in an income-driven repayment plan would be eligible for the cancellation of some or all of their debt. Moreover, borrowers who haven’t successfully applied but are eligible for a closed-school discharge or other kinds of forgiveness opportunities would also find themselves eligible for partial or complete debt relief.

Borrowers Facing Economic Hardships That Prevent Their Loan Repayments

These are individuals that the Education Department considers likely to default on their loans, and the program would enable these individuals to describe their financial hardships through a new automated application system. Some of these hardships may relate to financial challenges, age, or medical illnesses.

This fifth group of eligible borrowers originally appeared with press materials released when the Administration announced this new plan’s initial draft proposals in April 2024. However, recent press releases published on the Education Department’s website do not mention this group, and some observers suggest that this part of the plan probably won’t be available until 2025.

In our previous article, we discussed an Education Department proposal for a new IDR program called the SAVE Plan. We cited a New York Times report that the program would slash some borrowers’ monthly payments by more than 50 percent.

We pointed out that critics warned the plan would face legal challenges because after 20 years of timely payments, the student loan forgiveness provision essentially converts the remaining debt balance to a grant. Louisiana Senator Bill Cassidy argued that such grants are “deeply unfair” to the 87 percent of Americans who don’t benefit from student loans.

The Education Department approved the SAVE Program during the summer of 2023, and it enrolled about eight million borrowers. Then a group of states with Republican leaders sued to challenge the program.

In August 2024, a federal appellate court startled legal analysts when it issued a sweeping nationwide universal injunction, prompting the Education Department to freeze payments and interest on all the SAVE enrollees’ accounts by placing them in forbearance. That injunction also appears to bar any student loan forgiveness for them—even if they receive relief through another separate program in addition to SAVE.

The Biden Administration then filed an emergency appeal to the United States Supreme Court. On August 28, the court refused to lift the injunction, although the ruling is not final and the case could return to the Supreme Court. Meanwhile, it’s important to recognize that the Administration’s new student loan forgiveness program wasn’t enacted through the SAVE Plan, and thus shouldn’t be vulnerable to legal challenges targeting SAVE.

Nevertheless, legal observers now expect the same group of Republican state leaders to also challenge Biden’s new loan forgiveness initiative in court. The Supreme Court and the elections in November might now play pivotal roles that determine the future of this program.