policy

It is meant to help borrowers who are unlikely to ever be able to repay their loans. The Department of Education estimates that about 8 million Americans would qualify for the repeal.

By COLLIN BINKLEY, Associated Press

October 25, 2024 | 9:11 AM

WASHINGTON (AP) — The Biden administration is moving forward with a new path to student loan cancellation for Americans facing high medical bills, child care costs and other types of financial difficulties that prevent them from repaying their loans.

Announced Friday, the proposed rule is President Joe Bidenhis third attempt to cancel a student loan as he faces repeated legal challenges from Republican states. His first plan was struck down by the Supreme Court last year, and his second plan was temporarily halted by a federal judge in Missouri.

The new rule would have to clear a number of hurdles before becoming official, and it’s unclear whether it could be accomplished 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 finalized, the new rule would allow the Department of Education to proactively cancel loans for borrowers if the agency determines they have an 80 percent chance of defaulting within two years. Others may request a review to determine if they meet the cancellation criteria.

It is meant to help borrowers who are unlikely to ever be able to repay their loans. The Department of Education estimates that about 8 million Americans would qualify for the repeal.

“For far too long, our broken student loan system has made it harder for borrowers facing heartbreaking and financially devastating hardships to access help, and it’s not fair,” said Education Secretary Miguel Cardona.

Those who may be eligible include people with unexpected medical bills, high child care costs, high costs related to caring for relatives with chronic illnesses and those struggling financially following natural disasters, the Education Department said.

Under the proposal, the department could use a number of factors to judge whether someone is likely to default on their loans. It includes household income, age, whether they receive public benefits and their overall debt — not just student loans.

It also allows for consideration of “any other indicators of hardship identified by the Secretary.” A loan is usually considered in default if no payment has been made in approximately nine months.

With about 1 million borrowers in default each year, Cardona said the new rule will prevent his agency from trying to collect money it’s unlikely to recover.

“Service and collection of defaulted loans is not free, it costs taxpayer dollars,” Cardona said on a call with reporters. “And there’s a point where the cost of trying to collect on a defaulted loan just isn’t worth it.”

The proposal will enter a 30-day public comment period before becoming official. The administration has said it plans to finalize the rule in 2025. It faces an uncertain future, arriving less than two weeks before the Nov. 5 presidential election.

Vice President Kamala Harris, the Democratic nominee, has not detailed her plans for student debt cancellation if she wins the presidency. Republican nominee Donald Trump called Biden’s repeal proposals unfair and illegal.

Biden’s latest proposal is the result of a federal rulemaking process that included higher education experts. Advocates pushed for the hardship provision, saying too many borrowers are stuck with debt they can never repay.

The Biden administration said it has authority under the Higher Education Act, which allows the secretary of education to waive the debt in certain cases. It also noted that other federal agencies routinely waive debts owed to them based on factors such as “good conscience” and fairness.

It’s a similar legal argument used to justify Biden’s second attempt at student loan forgiveness, which proposes relief for groups of borrowers, including those with high interest rates and those with older loans. A federal judge in Missouri blocked that plan amid a legal challenge from Republican states.

Biden campaigned for the White House on a promise to cancel new student loans, but his grandest plans have been stymied by Republican opponents. Last year, the Supreme Court rejected a plan to forgive up to $20,000 for millions of Americans after several Republican states sued to block it.

Amid its legal battles, the administration has increasingly turned its attention to its work to cancel student loans using existing programs, including one for public service workers. In all, the administration says it has now written off $175 billion for about 5 million borrowers.

The hardship provision was originally discussed as part of the second-try plan now pending in Missouri, but the Department of Education scrapped it in its own proposal to spend more time on the details.