Consensus: Student Debt Relief Committee Agrees on Financial Hardship Language

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

The Department of Education (ED) concluded its final negotiated rulemaking session for its student loan debt relief committee and reached consensus on the drafted financial hardship regulatory text.

Throughout Friday’s discussion, negotiators continued to make suggestions to the text, and the committee then took a consensus check after ED revised the drafted text following the morning’s discussion.

The department first walked negotiators through changes it made to the text by incorporating suggestions made by negotiators during Thursday’s meeting, which ED said were appropriate for the regulatory text.

At the top of the text, ED changed the title of the regulation from “forgiveness” to “waiver” in order to make the text more consistent.

In the section outlining “factors that substantiate hardship,” the department accepted a number of technical suggestions. ED also noted that it would include some specificity in the eventual preamble of the regulatory text to provide further clarity, but the department felt it did not need to add that language to the regulatory text itself. For example, the preamble would make it clear that Parent PLUS loans would be eligible for relief.

Negotiators had asked the department to include more specificity in this section, but ED argued that it did not want to get too specific, stressing that it wants breadth and flexibility in considering the terms throughout so that it can retain flexibility in administering student loan debt relief.

The department made a few other technical changes in the text. For example, instead of referring to an institution's “sector,” the text now refers to the institution's “type.”

The text also replaced a provision related to an effective date for relief by relying on the publication date date of the regulations, which ED said would help with construction of its predictive model that would be used for determining automatic relief.

In response to a question posed during Thursday’s session, requesting the department to give examples of borrowers who would be eligible for the relief, ED said it declined to provide hypothetical examples because they would not be helpful due to the department’s discretion to administer relief. According to ED, the text sufficiently provides specificity about how the secretary would exercise discretionary authority to administer the relief.

The committee then shared its initial round of feedback and broadly thanked ED for coming back to the table for the committee to discuss the issue of financial hardship and asked some clarifying questions.

Negotiators also stressed the impact servicer errors had on hardship and cited public testimony as powerful examples, where some borrowers described instances where their loan balances had quadrupled.

Negotiators mostly pushed back on ED’s hardship threshold, where it would implement relief for borrowers who were 80% likely to be in default in the next two years.

Following this discussion, ED then further amended the text under “process for additional relief” to provide more specificity. Here, the text now reads that the secretary “may rely on data in the secretary’s possession or acquired through an application addition or any other means.”

ED’s general counsel added that they will welcome feedback in the development of the predictive model that would use historical data to determine the likelihood of a borrower defaulting on their loans.

The committee then took its consensus check and reached consensus. While the committee did ultimately reach consensus, Scott Buchanan, the executive director of the Student Loan Servicing Alliance, and primary negotiator for Federal Family Education Loan (FFEL) lenders, servicers, or guaranty agencies, abstained from voting.

Since the committee reached consensus, the regulatory text ED publishes in its proposed rule will reflect the language the committee agreed to. Once ED publishes a proposed rule there will be a public comment period before a final rule is issued. If the final rule is issued before Nov. 1, 2024, the rule will take effect July 1, 2025. 

However the department could seek to implement provisions of its final rule earlier, like it did with its SAVE repayment plan by using its authority under the Higher Education Act (HEA). If ED adjusts its timeline, it will do so through an announcement in the Federal Register.

 

Publication Date: 2/26/2024


Ben R | 2/26/2024 9:23:55 AM

The irony of the language is that most of the 17 criteria used to justify cancellation are criteria that can be identified in advance, before a new or subsequent loan has ever been issued. There doesn’t seem to be any attempt to explain this contradictory situation, where it is ok to lend the money with these criteria present, but not ok to carry the debt with these same criteria.

For example, if it’s not ok to have a high debt/income ratio, why is it ok to lend essentially unlimited amounts of graduate/Plus loans to those with meager wages or low anticipated income? If it’s not ok for someone who is older to be carrying student loans, then why is it ok to issue new loans to someone who is older with low income and/or assets in the first place?

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