Editor's Note Aug. 26, 2022: This article has been updated to note that the relief includes current students and borrowers who have federally-held undergraduate, graduate, and Parent PLUS loans where the first disbursement was on or before June 30, 2022. A previous version of the article indicated loans would need to be fully disbursed.
Days before the student loan repayment pause was set to expire, President Joe Biden announced on Wednesday that he is canceling $10,000 in student loan debt for millions of borrowers and extending the pause on payments and interest accrual for federally-held student loans until Dec. 31, 2022.
Biden capped the loan cancellation at $10,000 for single borrowers making less than $125,000, or households earning less than $250,000. The relief includes current students and borrowers who have federally-held undergraduate, graduate, and Parent PLUS loans where the first disbursement was on or before June 30, 2022. NASFAA has confirmed with the Department of Education (ED) that loans disbursed by June 30, 2022 are eligible, as opposed to “loan originated,” as has been reported in the press. Additionally, borrowers who were dependent students in the 2021-22 year will be eligible for relief based on parental income, rather than their own income. Borrowers who fall under the income caps and who received Pell Grants in college will receive an extra $10,000 — totaling $20,000 in forgiveness. NASFAA is not aware of any parameters as to when or how much a student must have received in Pell Grants to qualify.
The student debt relief is a one-time, pandemic-related loan cancellation, according to the Department of Education (ED). In a press release, ED writes that as the economy improves and the COVID-19 pandemic slows down, Biden made his decision to phase out relief “responsibly so that people do not suffer unnecessary financial harm.”
Biden first announced the plan on Twitter, saying the decision kept with his campaign promise to give working and middle class families “breathing room” as borrowers prepare to start repaying loans in January 2023. This will be the final repayment pause, according to Biden’s announcement.
“Getting an education should set us free; not strap us down! That’s why, since Day One, the Biden-Harris administration has worked to fix broken federal student aid programs and deliver unprecedented relief to borrowers,” Secretary of Education Miguel Cardona said in a statement. “Today, we’re delivering targeted relief that will help ensure borrowers are not placed in a worse position financially because of the pandemic, and restore trust in a system that should be creating opportunity, not a debt trap.”
NASFAA President and CEO Justin Draeger said he was encouraged that the administration is taking steps towards loan reform, but pointed to NASFAA’s recently issued set of recommendations that would improve the student loan system and simplify repayment for borrowers in the future.
“Today's announcement should provide relief to millions of low- and middle-income student loan borrowers, with a particular emphasis on those who struggled most to afford higher education,” Draeger said in a statement. “Whether it does will largely depend on how well this can be implemented by the U.S. Department of Education. As with all federal student aid benefits, we urge the Department to carefully consider how this relief can be implemented as easily as possible, while still ensuring commonsense safeguards to ensure the right people get the right benefits.”
About 8 million borrowers may be eligible to receive relief automatically because their income data is already available to ED, according to the press release. ED will have income data for any borrowers who completed a FAFSA in 2021-22 and if the borrower was a dependent in 2021-22, ED will be using parental income information to calculate loan cancellation eligibility.
For those borrowers for whom ED doesn’t already have existing income data, an application will be available in September. ED said it will be announcing further details on how borrowers can claim this relief in the weeks ahead.
Borrowers who want to be notified when the application is open should sign up for notifications at the ED subscription page. The Office of Federal Student Aid (FSA) released a webpage explaining the announcement with answers to frequently asked questions.
In a stakeholder call Wednesday with senior administration officials, one official said Parent PLUS loans held by ED would be included in the relief. When asked about the process on how Biden came to this decision amid pushback to cancel more student debt, another official said it was to target relief so lower-income borrowers would receive more than $10,000 in forgiveness.
“If you look at who Pell Grant recipients are, about half of them come from families that make under $30,000 a year, and roughly the other half of them come from families that make between $30,000 to $60,000 a year,” the official said. “And collectively, those Pell Grant recipients make up about 60% of student loan borrowers. So that just emphasizes, to me at least, how a strong majority of borrowers are folks who come from lower-income and middle-income families.”
Forthcoming Regulations to Reduce Borrower Payments
Additionally, the administration announced a forthcoming proposed rule that would create a new income-driven repayment (IDR) plan under which borrowers would pay no more than 5% of their discretionary income monthly on undergraduate loans. The Notice of Proposed Rulemaking (NPRM) is the result of last fall’s negotiating rulemaking tackling Affordability and Student Loans. The committee failed to reach consensus on IDR and as a result, ED has the discretion to issue proposed rules as it sees fit.
The proposed rule would also raise the amount of income that is considered non-discretionary income in order to guarantee that no borrower earning under 225% of the federal poverty level would have to make a monthly payment. (Borrowers earning less than 225% of the federal poverty level is the annual equivalent of a $15 wage for individual borrowers, according to ED.)
The forthcoming proposed rule would also forgive loans after 10 years of payments, instead of 20 years, for borrowers with balances of $12,000 or less, according to ED. Additionally, the proposed rule would cover the borrower's unpaid monthly interest so that their debt doesn’t grow as long as they make their monthly payments. That includes borrowers whose monthly payments are $0 because their income is low, according to ED.
The purpose of the proposed rule is to “substantially reduce future monthly payments for lower- and middle-income borrowers” and “protect more income from loan payments,” according to ED. The proposed regulations will be published in the coming days on the Federal Register and the public is invited to comment on the draft rule for 30 days, ED states. ED intends to issue a final rule by Nov. 1, 2022. Unless ED authorizes early implementation, the new plan would be in effect as of July 1, 2023.
Democratic leadership praised Biden’s action as a means of expanding access to higher education and offering borrowers needed relief in the wake of the pandemic.
“This is a milestone moment for borrowers. Tonight, tens of millions of borrowers across the country who’ve been saddled with student debt can sleep easier knowing their balances will finally go down—and millions will see their debt wiped entirely,” said Sen. Patty Murray (D-Wash.) chair of the Senate Health, Education, Labor and Pensions (HELP) committee.
Democrats also said that the action would serve as a lifeline to borrowers in preparing to return to repayment.
“President Biden is providing unprecedented relief for America’s student loan borrowers,” said Rep. Bobby Scott (D-Va.), chairman of the House Committee on Education and Labor. “Today’s announcement delivers on President Biden’s promise to cancel up to $20,000 of borrowers’ federal student debt. Also, extending the pause on student loan repayment will further help get borrowers back on track. Taken together, these actions will help struggling borrowers and families recover from the pandemic, prepare for the return to student loan repayment, and make ends meet.”
Progressive Democrats also offered the administration praise for taking action on debt cancellation.
“Cancelling student debt will provide financial relief to millions of Americans who borrowed to pay for college because they didn’t come from wealthy families,” said Sen. Elizabeth Warren (D-Mass.) who had been calling for up to $50,000 in forgiveness. “This powerful action will also help narrow the racial wealth gap among borrowers.”
Republicans blasted the announcement as unfair, irresponsible and confusing in the rollout of this latest guidance.
“President Biden will say and do anything to appease his radical progressive base, even if it means bankrupting our country and kneecapping taxpayers in the midst of an inflation crisis,” said Rep. Virginia Foxx (R-N.C.), ranking member of the House Education and Labor committee. This is a slap in the face to those who never went to college, as well as borrowers who upheld their responsibility to taxpayers and paid back their loans. It’s a signal to every freshman stepping foot on campus to borrow as much as they can because taxpayers are picking up the tab.”
Republican leadership also said the decision was a “reward” for “far left activists,” and would do nothing to assist those who did not pursue higher education.
“President Biden’s student loan socialism is a slap in the face to every family who sacrificed to save for college, every graduate who paid their debt, and every American who chose a certain career path or volunteered to serve in our Armed Forces in order to avoid taking on debt,” said Sen. Mitch McConnell (R-Ky.). “This policy is astonishingly unfair.”
Not to be lost in today's frenzy on #studentloanforgiveness, here's the newly released memo from ED General Counsel that justifies rescinding the now deemed "incorrect" memo that said ED didn't have the authority to cancel loans. https://t.co/JVmJFZ8iI7— Justin Draeger (@justindraeger) August 24, 2022
The memo ties the administration’s authority to the Higher Education Relief Opportunities For Students (HEROES) Act of 2003, which according to ED “provides the Secretary broad authority to grant relief from student loan requirements during specific periods (a war, other military operation, or national emergency, such as the present COVID-19 pandemic).” The memo also rescinds a non-binding memo from the Trump administration that outlined that the education secretary “does not have statutory authority to provide blanket or mass cancellation.”
Whether the administration has the authority to cancel loan debt will ultimately be decided if the action is challenged in the courts, by someone who has legal standing. With Republicans currently in the minority, it’s unclear who would bring such a legal challenge, although plenty of fiscally conservative groups oppose debt forgiveness.
Many schools started receiving phone calls from students and alumni on Tuesday, when reports about debt forgiveness first became public. While there don’t appear to be any new requirements for schools at present time, NASFAA encourages schools to be as helpful as possible as more information becomes available, while informing students that more details on how to apply will become available in the weeks ahead. As a reminder, students can check their student aid history, including loan balances and Pell Grant recipient status by logging in to their federal student aid account on studentaid.gov. Schools can encourage borrowers who want to be notified when the application is open to sign up for notifications at the ED subscription page.
Additional questions about debt forgiveness can be submitted via NASFAA’s AskRegs.
Publication Date: 8/24/2022