Broad-Based Debt Relief

Both the House and the Senate narrowly passed legislation intended to prevent the Biden Administration from implementing its planned broad-based student loan debt relief program, that is currently held up by the Supreme Court. The President vetoed the legislation (June 7), however, and neither the House nor the Senate will be able to overcome the veto.

The Supreme Court heard oral arguments in February on lawsuits pending before lower courts against the Biden Administration's broad-based loan forgiveness program, which the Administration attempted to implement last September. 

As consequence of the Surpreme Court's intervention on pending cases, the program remains on hold until the Court can issue a decision (expected this summer). The outcome of any and all pending lawsuits against the program around the country will likely be guided by any future Supreme Court decision. 

The Administration suspended new applications for debt relief pending resolution of the Supreme Court's case. About 26 million persons applied for relief, with16 million persons tentatively approved so far. 

The Biden Administration esimates that more than 40 million borrowers would qualify for the debt relief program, with nearly 90% of relief benefits going to out-of-school borrowers earning less than $75,000 per year.

Under the Administration's plan, up to $20K per person of student loan cancellation will be possible for debtors earning under $125K per year ($250K for married couples) if the person received Pell Grant assistance in college (i.e., financial aid grants -- not loans - that go to the most needy students). If the person did not receive Pell Grant assistance, loan cancellation would be limited to $10K tied to the same income limits.

(updated: 6-7-23)

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Debt Repayment

Legislation enacted to raise the Federal debt limit included a provision to statutorily end the current student loan debt repayment pause on August 30, 2023. 

The Biden Administration had already indicated it would administratively end the pause this summer in tandem with the official end of the COVID-19 Public Health Emergency on May 11, 2023.

(updated: 6-7-23)

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Student Loan Income-Driven Repayment

The Department of Education issued a proposed rule (January 10) that would implement a new student loan repayment approach, which will primarily benefit low- and middle-income students.

Under the proposed rule, students would not begin repaying debt until income reaches certain levels––$30,600 per year for an individual and $62,400 for a family of four. These levels represent a calculation off of the Federal proverty leve. Monthly payments will be capped at 5% of discretionary income.

The proposal also cuts in half monthly payments on undergraduate loans for borrowers who do not otherwise have a $0 payment in this plan. Also, borrowers will no longer see growth in balances due to the accumulation of unpaid interest after making required monthly payments, such what would be the case if you have no required payment given new income level threshholds.

Loan forgiveness eligibility would be expanded. Those persons borrowing $12K or less would be eligible for loan forgiveness after 10 years of monthly payments. Every additional $1K borrowed above that level would add an additional year before eligibility. The proposal also includes additional permissible deferrments on monthly payments, such as military service and cancer treatments.

The Department claims that borrowers will see total payments per dollar borrowed decrease by 40% collectively under the proposal, with the borrowers with the lowest projected lifetime earnings having payments that are 83% less. Top earners will see just a 5% reduction. A typical graduate of a four-year public university would save nearly $2,000 a year relative to current rules.

The proposed rules will undergo a public comment and review plan, and the Department expects to finalize a rule package later this year.

(posted: 1-10-23)

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Pell Grant Increase Approved for FY 2023

Congress approved final FY 2023 funding for the Federal Government (December 2022) and included a $500 maximum Pell Grant increase–from $5,835 to $6,335). Last year's maximum Pell Grant award increased by $400.

(posted: 1-10-23)

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Updated Rules on Targeted Student Loan Relief

The Department of Education finalized rules (October 31) to improve targeted student loan discharge programs. The rules do not go into effect until July 1, 2023.

Key rule provisions include:

• A framework for borrowers to raise a defense to repayment tied to five categories of actionable circumstances: substantial misrepresentation, substantial omission of fact, breach of contract, aggressive and deceptive recruitment, or judgments or final secretarial actions.

• Provides an automatic discharge one year after a college’s closure date for borrowers enrolled at the time of closure, or left 180 days before closure and who do not accept an approved teach-out agreement or a continuation of the program at another location of the school. Those who accept but do not complete a teach-out agreement or program continuation will receive a discharge one year after their last date of attendance.

• Allowing more payments to qualify for the Public Service Loan Forgiveness (PSLF) program including partial, lump sum, and late payments, and permitting certain kinds of deferments and forbearances (such as those for Peace Corps and AmeriCorps service, National Guard duty, and military service) to count toward PSLF.

• Removing instances of interest capitalization wherever not required by statute. Interest capitalization occurs when accrued interest is added to the principal balance of the loan, so that future interest accrues on a higher amount. Capitalization would be eliminated for borrowers entering repayment, exiting forbearance, defaulting on a student loan, and exiting most income-driven repayment plans.

• Allow for a broader set of disability statuses recognized by the Social Security Administration (SSA) to qualify for loan discharge; eliminate the three-year income-monitoring period for borrowers who receive discharges based upon a determination by a physician or SSA; and, widen the types of documentation and signatures borrowers may submit to demonstrate they are eligible for relief.

(updated: 11-8-22)

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Student Loan Forgiveness Actions - Targeted

The Education Department announced (August 31) that it is discharging all remaining federal student loans for borrowers who attended Westwood College between January 1, 2002 through November 17, 2015. The Department concluded that Westwood engaged in widespread misrepresentations about the value of its employment prospect credentials. The value of student loans discharged is $1.5 billion covering 79K borrowers.

Earlier in August, the Department discharged $3.9 billion worth of student loans for 208K students who attended ITT Technical Institute between 2005 and 2016. The Department claimed that “ITT engaged in widespread and pervasive misrepresentations related to the ability of students to get a job or transfer credits, and lying about the programmatic accreditation of ITT's associate degree in nursing.”

The Department also settled a lawsuit (June 22) by about 200,000 borrowers who claimed that they were defrauded by their educational institutions, but had not received relief from the Department. The Department is separately deciding on the individual cases of another 68,000 borrowers within six months. The fully-discharged loan amount agreed to under the settlement is estimated to total about $6 billion. This lawsuit was first filed during the Trump Administration.

Earlier in the summer, the Department announced (June 1) that it was discharging all remaining federal student loans borrowed to attend any campus owned or operated by Corinthian Colleges Inc. This will result in 560,000 borrowers receiving $5.8 billion in full loan discharges. The Department claims that this is the largest single loan discharge ever made.

(updated: 8-31-22)

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Student Aid Near-Future Rulemaking

The U.S. Department of Education has been utilizing a so-called "negotiated rulemaking" process (i.e., negotiating with education interest groups) during 2021, that will continue in 2022, to develop updated or new rules pertaining to student aid including loans and other financial assistance. Among the more significant areas potentially to be addressed in 2022 rulemaking:

• Loan forgiveness related to defrauded students and for those where a college has closed.

• Restoration of banned mandatory arbitration which limited the ability of students to bring suits against higher education institutions.

• Income-based student loan repayment and forgiveness.

• Gainful Employment rules on higher education.

(updated: 2-2-22)

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