Students could have a clearer path to loan forgiveness and affordable repayment of their education debt under plans unveiled Wednesday by the Biden administration.
The rash of proposals overhaul several programs designed to discharge federal student loans when borrowers are defrauded by their colleges, as well as those who are permanently disabled, spend years in public service or face a school closure. These decades-old programs have been widely criticized for being difficult to navigate and for failing people who count on them. The proposals seek to dismantle Trump-era policies that erected more barriers for some borrowers.
Collectively, the proposals amount to some of the most significant updates to the federal student loan repayment system in years, but are sure to be met with pushback from industry leaders, conservatives and some liberal advocates.
“We are committed to fixing a broken system. If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it,” Education Secretary Miguel Cardona said Wednesday. “Student loan benefits also should not be so hard to get that borrowers never actually benefit from them.”
Department officials are aiming to have the rules in place by November, which means they would take effect next July. People can submit comments on the proposed rules over the next 30 days. The proposed changes would cost $85 billion over the coming decade, according to the department.
“Allotting lawmakers and stakeholders only 30 days to review 750 pages of regulations with massive significance for students and taxpayers is shameful,” said Rep. Virginia Foxx of North Carolina, the top Republican on the House Education Committee. “These proposals not only fail to fix the structural problems in our higher education system that have led to endless borrowing and ballooning college costs, but will make them exponentially worse.”
Among the proposals is an update to the “borrower defense to repayment” statute, which clears the debts of students whose colleges used illegal or deceptive tactics to persuade them to borrow.
The Biden administration wants to streamline the process by allowing for group claims, relaxing the limits on when borrowers can file an application and giving borrowers timely decisions about their claims. The department is also expanding the types of violations that would make borrowers eligible for loan forgiveness to include aggressive and deceptive recruitment practices, a charge that has been lobbed at a number of for-profit colleges including the University of Phoenix.
Barmak Nassirian, vice president for higher education policy at the advocacy group Veterans Education Success, said the proposed changes are a “giant step in the right direction.” Still, he is concerned the department would allow only state entities to file group claims, which could shut out people in states where attorneys general refuse to act.
“It’s a shortcoming that the department has the opportunity to correct, but beyond that, I have to congratulate them for acting very decisively” with these proposed regulations,” Nassirian said.
The department also plans to return to an Obama-era ban on mandatory pre-dispute arbitration agreements, gag rules and class-action waivers that for-profit colleges include in enrollment contracts. If students have an easier time suing schools, they would be less likely to turn to the government for relief, saving taxpayers from picking up the tab for the misdeeds of private companies.
The defense statute was revised by the Obama administration to pass more of the cost onto colleges but was rewritten by the Trump administration to limit loan forgiveness. Trump-era policies of sitting on applications for months and refusing to grant full loan discharges led to claims piling up at the Education Department and a series of lawsuits.
The proposed overhaul arrives weeks after the Education Department reached a $6 billion settlement to automatically discharge the debts of 200,000 applicants who attended 150 for-profit schools the department says engaged in misconduct. The settlement, which is awaiting court approval, has been lauded by advocates as a road map for reforming borrower defense but scorned by the for-profit industry as a naked attempt to harm the sector.
“Today’s proposed rule sends a clear and troubling message that the department intends to use the rulemaking process to discharge federal student loans en masse while hurting unfavored institutions and their students in the process,” said Jason Altmire, chief executive of Career Education Colleges and Universities, which represents for-profit colleges.
The spate of proposals released Wednesday also addresses the rules governing Public Service Loan Forgiveness, a program that promises teachers, social workers and other public servants loan cancellation after 10 years of payments. The program has courted controversy for complex rules that have shut out people who thought they were eligible. The Biden administration announced a temporary one-year waiver last fall as it worked to rectify the problems.
Now the administration wants to allow more types of payments to qualify for the forgiveness program, including lump sum, partial and late payments. It also wants to count the deferments and forbearances applicants use when they are in the Peace Corps and AmeriCorps service, National Guard duty and military service. The department also proposes to create a formal reconsideration process for borrowers whose applications are denied.
Justin Draeger, president of the National Association of Student Financial Aid Administrators, worries the lag time between the end of the waiver in November and the implementation of the new regulations next July will force borrowers to contend with the existing byzantine rules.
On a call with reporters Wednesday, Undersecretary of Education James Kvaal said, “We are continuing to assess the PSLF waiver, but my advice would be for borrowers to apply before Oct. 31 to ensure they get the benefits of the waiver.”
Another set of proposals would ease the rules surrounding loan forgiveness for borrowers who are severely disabled and whose schools close while they are pursuing a credential.
The department wants a broader set of disability statuses recognized by the Social Security Administration to qualify for discharge, eliminate the three-year monitoring period for borrowers who receive discharges and expand the types of documentation borrowers may submit to demonstrate eligibility.
On closed-school discharges, the department wants to provide automatic cancellation to any borrower who was enrolled within 180 days before the closure and didn’t complete their education within one year after.
The Biden administration also wants to address how some borrowers amass unmanageable debt, by proposing to eliminate interest capitalization in many circumstances. Interest capitalization happens when accrued interest is added to the principal balance of the loan, resulting in borrowers paying much more than they originally borrowed. The department proposes to eliminate capitalization when a borrower enters repayment, exits forbearance, defaults on a student loan and exits most of the income-driven repayment plans.