Third rule proposed for student loans

WASHINGTON — The Biden administration is blazing a new trail in student loan cancellations for Americans facing high medical bills, child care costs and other types of financial hardship that leave them unable to pay back their loans.

The proposed rule, announced Friday, is President Joe Biden’s third attempt to foreclose on his student loans as he faces repeated legal challenges from Republican states. His first plan was rejected 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 is unclear whether it can be accomplished before Biden leaves office in three months. Like Biden’s other loan forgiveness proposals, the country could face legal 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% chance of defaulting on their loans within two years. Others can request a review to determine if they meet the cancellation criteria.

It is intended to help borrowers who will likely never be able to repay their loans. The Department of Education estimates that about 8 million Americans are eligible for cancellation.

“For too long, our broken student loan system has made it too difficult for borrowers experiencing heartbreaking and financially devastating hardship to access relief, and that’s not right,” said Secretary of Education Miguel Cardona.

Those who could qualify include people with unexpected medical bills, high childcare costs, high costs associated with caring for family members with chronic illnesses and people struggling financially in the wake of natural disasters, according to the Department of Education .

Virginia Foxx, RN.C., chair of the House Education and the Workforce Committee, called it a “sham plan” designed to gain votes ahead of the presidential election.

“The latest blatant attempt to bribe voters is the hallmark of a desperate administration that has squandered the opportunity to enact meaningful, lasting reforms when it comes to college costs,” Foxx said in a statement.

Under the proposal, the department could use a range of factors to assess whether someone is likely to default on their loans. It includes family income, age, whether they receive government benefits and their total debt burden – not just student loans.

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

With about 1 million borrowers defaulting each year, Cardona says the new rule would prevent his agency from collecting money that is unlikely to be recouped.

“Servicing and collecting on delinquent loans is not free, it costs taxpayers’ money,” Cardona said in a call with reporters. “And there comes a point when the cost of collecting on a defaulted loan just isn’t worth it.”

The proposal will enter a 30-day public comment period before it can become official. The government said it plans to finalize the rule by 2025. An uncertain future awaits less than two weeks before the November 5 presidential election.

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

Biden’s latest proposal is the result of a federal rulemaking process involving experts from across higher education. Advocates pushed for a hardship provision, saying too many borrowers are stuck with debt they will never be able to repay.

The Biden administration said it has powers under the Higher Education Act, which allows the education secretary to forgive debt in certain cases. It also noted that other federal agencies routinely waive debts owed to them, taking into account 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 proposed relief for groups of borrowers including those with large interest balances 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 the promise of canceling new student loans, but his biggest plans have been halted by Republican opponents. Last year, the Supreme Court rejected a plan to forgive millions of Americans up to $20,000 after several Republican states sued to block it.

Amid the legal battle, the administration has increasingly turned its attention to its work to cancel student loans using existing programs, including a program for civil servants. In total, the government says it has now canceled $175 billion for about 5 million borrowers.

The hardship provision was originally discussed as part of the second attempt plan now on hold in Missouri, but the Department of Education split it into its own proposal to spend more time on the details.