By Maria Carrasco, NASFAA Staff Reporter

The Department of Education (ED) on Friday released a draft of its proposed regulations to provide student loan debt forgiveness for borrowers experiencing financial hardship, which is part of the Biden administration’s larger student debt relief plan done through the negotiated rulemaking process. The official proposed regulations will be published in the Federal Register in the “coming weeks,” which means the fate of the program will likely be in the hands of the next administration.

Through the negotiated rulemaking process stakeholders met last year and earlier this year to discuss different provisions on how ED could provide targeted student loan relief to five categories of borrowers. The negotiators convened for the last time in late February, reaching consensus on ED’s drafted regulatory text to provide debt relief to borrowers experiencing hardship. 

In April, ED released its first set of proposed rules to provide student loan debt forgiveness to borrowers, which included a number of provisions that would be applied using the Secretary of Education’s authority under the Higher Education Act (HEA) to waive student loan repayment. Most of the provisions would be applicable to federally held student loans, but a few would apply to commercially held loans in the Federal Family Education Loan (FFEL) program. 

Notably, the first set of proposed rules did not include provisions on how borrowers who experience hardship would be eligible for relief, with ED noting that proposed text would be released in the “coming months.”

On Friday, ED finally released its set of proposed regulations aimed at providing relief to borrowers facing hardship through two “pathways.” 

“The rules proposed by the Biden-Harris Administration today would provide hope to millions of struggling Americans whose challenges may make them eligible for student debt relief,” Education Secretary Miguel Cardona said in a statement. “President Biden, Vice President Harris, and I will not stop fighting to deliver student debt relief and create a fairer, more just, and more affordable student loan system for all borrowers.” 

Under the first pathway, ED’s secretary could grant individualized, automatic debt relief to borrowers without an application. ED proposes it could provide debt relief on a one-time basis to borrowers who the department determines, based on a “predictive assessment using existing borrower data,” have at least an 80% chance of being in default within the next two years.

The proposed text outlines what factors the predictive assessment would be based on in order to provide automatic debt relief. 

Those factors include: 

• household income; 

• assets; 

• type of loans and total debt balances owed; 

• current repayment status and other repayment history information; 

• student loan total debt balances and required payments, relative to household income; 

• total debt balances and required payments, relative to household income; 

• receipt of a Pell Grant and other information from the FAFSA; 

• type and level of institution attended; 

• typical student outcomes associated with a program or programs attended; 

• whether the borrower has completed any postsecondary certificate or degree program for which the borrower received Title IV aid; 

• age; 

• disability; 

• age of the borrower’s loan based upon first disbursement; 

• receipt of means-tested public benefits; 

• high-cost burdens for essential expenses, such as healthcare, caretaking, and housing; 

• the extent to which hardship is likely to persist; 

• and any other indicators of hardship identified by ED’s secretary.

“The Secretary could then waive those loans to address hardships and prevent the severe consequences of default,” ED wrote in its press release. 

The second pathway in the proposed text would allow current and future borrowers to receive debt relief based on a “holistic assessment” of the borrower’s hardship. According to ED, this pathway would be primarily application-based. 

ED proposes that it would conduct a “holistic assessment” of the borrower’s hardship based on information from the borrower’s application, and ED would consider those same 17 factors listed in the first pathway as potential hardships. 

ED wrote that a borrower would be eligible for debt relief through this second pathway if ED determines that the borrower is “highly likely” to be in default, or “experience similarly severe negative and persistent circumstances.” If no other payment relief option exists to sufficiently address the borrower’s persistent hardship, ED could then waive the loan.

According to ED, these two pathways would “operate separately and distinctly from each other” and would be fully severable. That means because these proposed regulations only concern waivers due to hardship, these proposed hardship waivers would therefore also be “separate and distinct from other proposed rules,” ED clarified, including, presumably, the earlier provisions from the Student Loan Relief rulemaking session that were released in April. Those provisions are currently blocked from becoming final under a temporary restraining order. 

ED, in its press release, wrote that this proposal would “support student loan borrowers for generations to come” and would authorize relief for “many of the most at-risk borrowers.” The proposed regulations, if finalized as-is, would provide student loan forgiveness to approximately 8 million borrowers experiencing hardship, according to ED. 

ED noted that after the proposed regulations are published in the Federal Register, the public may submit comments through the Regulations.gov website for 30 days. ED expects to finalize the regulations in 2025, which, per master calendar rules, would make July 1, 2026, the earliest possible implementation date for the financial hardship provisions. If the new administration chose to implement the new rules, they would likely use their authority to choose early implementation, which is important for borrowers because tax code provisions that exempt student loan discharge from federal taxation are set to expire at the end of 2025. 

“These regulations will still take quite some time to be fully implemented due to the timeline associated with the negotiated rulemaking process and the legal challenges to earlier proposed rules that also came out of this rulemaking session,” NASFAA’s Director of Policy Analysis Jill Desjean said. “Since final rules have not been published on any of the other student loan relief provisions negotiated in late 2023, the next administration could ultimately halt this effort by simply deciding not to publish the rules.”

With the 2024 presidential election nearly a week away, Rep. Virginia Foxx (R-N.C.), chairwoman of the House Committee on Education and the Workforce, called the proposed regulations “another sham plan to shift responsibility for paying for college from those who took out loans to those who didn’t.”

“The latest blatant attempt to bribe voters is the hallmark of a desperate administration that’s squandered the chance to make meaningful, lasting reform when it comes to college costs,” Foxx said in a statement. “Biden, Harris, and Cardona ought to be ashamed of themselves.”

Sen. Bill Cassidy (R-La.), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, said the proposed regulations are “irresponsible and unfair.”

“Once again, Joe Biden and Kamala Harris are defying the Supreme Court and Congress to unilaterally enact their student loan schemes that transfer debt from those who willingly took it on to Americans who chose not to go to college, paid their way through school, or fulfilled their commitment to pay their loans off,” Cassidy said in a statement. 

Stay tuned to Today’s News for more updates on the Biden administration’s student debt relief regulations, and read our recent article, which details the Biden administration’s debt relief efforts, and our student loan relief timeline.

Publication Date: 10/28/2024

Comments Disclaimer: NASFAA welcomes and encourages readers to comment and engage in respectful conversation about the content posted here. We value thoughtful, polite, and concise comments that reflect a variety of views. Comments are not moderated by NASFAA but are reviewed periodically by staff. Users should not expect real-time responses from NASFAA. To learn more, please view NASFAA’s complete Comments Policy.