President Joe Biden is once again pushing for widespread student debt forgiveness, unveiling a new plan on Monday that has the potential to assist around 30 million borrowers in eliminating some or all of their college loans.
This latest effort for broad debt relief comes shortly after the Supreme Court blocked Biden's previous initiative to aid student borrowers in a June 2023 ruling, which would have provided up to $20,000 in forgiveness to approximately 40 million Americans.
Biden, who had emphasized student loan relief as a key campaign promise, introduced the new plan on Monday, highlighting its potential to be "life changing" for millions of Americans. Currently, about 43 million individuals are burdened with $1.7 trillion in student debt, a financial strain that some borrowers and their advocates argue impedes their ability to purchase a home or reach other financial goals.
"Although a college degree remains a pathway to the middle class, that pathway has become increasingly costly. Far too costly," Biden stated at an event at Madison College in Madison, Wisconsin. "The financial burden of repaying student loans has become so overwhelming for working and middle-class individuals that many struggle to repay them even decades after completing their education."
Here's what to know about Biden's new plan and who would qualify.
How is this plan different from the one struck down by the Supreme Court?
The new plan relies on a different law to provide debt relief to student borrowers.
The previous plan relied on the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act, a pandemic-era stimulus package. The Supreme Court ruled that law didn't provide the Biden administration with the authority to forgive student debt.
The new plan turns to an older law, the Higher Education Act, which allows the Secretary of Education to "compromise, waive or release" federal student loans. It's through this mechanism that the Biden administration is tackling its new debt relief program.
Who will qualify for debt forgiveness under the new plan?
There are 5 major groups of borrowers who could benefit under the new plan.
- 2.5 million borrowers who have been in repayment for 20 years or more.
The Biden administration said people with only undergraduate debt could qualify for forgiveness if they first began repaying their loans at least 20 years ago, or on or before July 1, 2005. Borrowers with graduate school debt would qualify if they first began repaying their loans 25 years ago, or on or before July 1, 2000.
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Borrowers will not need to be enrolled in an income-driven repayment plan to qualify for the relief, according to the White House. The cancellation will apply to both direct loans and direct consolidation loans.
Who is eligible for the debt cancellation?
- People with debt who attended "low-financial-value programs"
While college education is meant to equip individuals with the necessary skills for higher-income careers, some programs have failed to deliver on this promise, leaving graduates in debt without a viable degree. This includes programs offered by for-profit institutions like the now-defunct Corinthian Colleges.
The initiative will forgive student debt for loans obtained to attend colleges or programs that lost eligibility for Federal student aid participation or were denied recertification due to fraudulent practices. Borrowers who graduated from institutions that do not offer adequate value, leaving them unable to earn more than a high school graduate, will also be eligible for relief.
Assistance for borrowers facing financial hardship
- People experiencing hardship in paying back their loans.
Borrowers struggling with financial difficulties that impede their loan repayment capabilities may also qualify for debt forgiveness. Although specific financial criteria were not disclosed by the White House, this provision aims to support borrowers at a high risk of defaulting on their student loans or those burdened by challenges such as medical debt.
- 25 million borrowers whose balances ballooned because of interest.
Many borrowers have witnessed their loan balances increasing due to a financial problem known as "negative amortization," where the balance continues to grow despite regular payments. As part of a new plan, approximately 25 million individuals affected by this issue may have up to $20,000 of their interest waived.
- 2 million low- and middle-income borrowers who qualify for forgiveness but haven't applied.
The proposal also aims to offer debt relief to around 2 million low- and middle-income borrowers eligible for programs like Public Service Loan Forgiveness or income-driven repayment plans but have not yet submitted applications.
"No application will be necessary for borrowers to receive this relief if the plan is approved as outlined," stated the White House.
What are the next steps to getting the plan approved?
The Department of Education has indicated that it intends to introduce a formal proposal in the "coming months." This would typically be followed by a 60-day public comment period. If the rule is finalized by November 1, it would normally take effect the following July — in this instance, July 2025.
However, the Higher Education Act empowers the education secretary to expedite rules for "early implementation" under certain circumstances. Recently, the Biden administration utilized this authority to hasten student loan forgiveness offered through a new federal repayment plan. By invoking this power, Biden could potentially begin canceling debt later this year.
When will the new plan take effect?
The timeline for the implementation of the new plan is currently uncertain as it needs to overcome additional obstacles before being put into action. In response to questions from the media regarding when U.S. student loan recipients might witness the cancellation of their interest balances, officials mentioned that the forgiveness could potentially begin "early this fall."
Is there a possibility of the plan facing legal challenges?
Absolutely, conservative opponents are anticipated to contest Biden's plan in court.
Republicans have consistently opposed Biden's proposal for student loan forgiveness, arguing that it provides an unjust advantage to individuals who have already repaid their loans or did not pursue higher education. Critics argue that the Supreme Court has clearly stated that widespread loan forgiveness must be legislated by Congress.
If Biden's plan encounters a legal challenge, the courts may instruct the administration to suspend the cancellation until legal issues are resolved. This situation could potentially delay the plan beyond the upcoming November presidential election. Even if the plan withstands legal scrutiny, a victory for Donald Trump would almost certainly result in the demise of Biden's proposal.
