8 Million Borrowers Could Get Hardship-Based Student Loan Forgiveness Under New Plan – If It Continues

After months of anticipation, the Biden administration on Friday officially presented the draft regulations regarding a new student loan forgiveness plan addressed to borrowers in a difficult financial situation. The program, if implemented, could allow eight million borrowers to repay their federal student loan debt.

“For too long, our broken student loan system has made it too difficult for borrowers experiencing heartbreaking and financially crippling hardship to access benefits, and that is not right,” U.S. Secretary of Education Miguel Cardona said in a statement Friday. “The policies proposed today by the Biden-Harris administration would provide hope for millions of struggling Americans whose challenges may make them eligible for student debt relief.”

However, the new student loan forgiveness initiative will almost certainly face legal challenges. Republican state officials have so far succeeded in challenging several other student debt relief programs of the Biden administration.

Here’s what borrowers should know about the new program.

Who would qualify for hardship-based student loan forgiveness

The new hardship-based student loan forgiveness plan is an extension of the so-called “Plan B” program. revealed by the Biden administration earlier this year. The initiative, intended to be a second chance at massive debt relief after the Supreme Court rejected President Biden’s first attempt last year, would focus relief on four categories of borrowers. This would include those who first started repayments more than two decades ago and borrowers whose balances have increased due to accrued interest.

Borrower advocates have been pushing the Department of Education for a year to establish a fifth hardship aid pathway. The department ultimately did so, but decided to create a separate set of rules and regulations governing this option. On Friday, the department released draft regulations that would provide two separate paths for student loan forgiveness in the event of hardship.

“The first measure would recognize the Secretary’s authority to grant individualized, automatic assistance without the need for an application,” the department said in its document statement on Friday. “The Secretary could provide one-time assistance to borrowers who the Department determines, based on a predictive assessment using existing borrower data, have at least an 80% chance of default within the next two years.” Officials will consider a range of hardship indicators based on information already available to the department, such as income, student loan types and balances, debt-to-income ratio and information about Pell Grant recipients.

“The second pathway would enable current and future groups of borrowers to obtain relief based on a holistic assessment of the borrower’s hardship and would be based primarily on the submission of an application,” the department says. Officials would conduct a detailed review of the borrower’s overall situation to determine “whether there is a substantial likelihood that the borrower will default or experience similarly serious, adverse and persistent circumstances,” especially if there are no other options for relief.

Borrower support groups celebrated the release of a new loan forgiveness plan.

“Finally, eight million borrowers are getting the help they desperately deserve,” Kristin McGuire, executive director of Young Invincibles, said in a statement Friday. “For too long, current and future borrowers have been left to reconcile the burden of debt. This proposal brings us another step closer to the promised universal debt relief by placing a critical emphasis on financial hardship, ensuring that young adult borrowers do not become a forgotten group.

New student loan forgiveness plan likely to be questioned

Borrowers may want to temper their expectations, however, as the plan is widely expected to face legal challenges. Courts have already halted several other Biden administration student loan forgiveness initiatives.

In addition to Biden’s first massive debt relief program, which was invalidated by the Supreme Court last year, a federal court in Missouri has already issued an injunction blocking the initial part of “Plan B” student loan forgiveness program. A coalition of Republican-led states, led by Missouri, successfully challenged the program before the department even published applicable regulations. The Biden administration is now moving to dismiss the lawsuit on the grounds that the program technically does not yet exist.

Separately, the Biden administration also faces legal challenges over the SAVE plan, a new income-driven repayment program intended to lower borrowers’ payments and limit interest accrual. The SAVE plan is now on hold, as is student loan forgiveness under several other IDR plans.

Republican lawmakers have criticized Biden’s latest student loan forgiveness plan. House Education and Workforce Committee Chairwoman Virginia Foxx (R-NC) described it as another attempt “shift the responsibility for paying for college from those who took out loans to those who did not,” according to Friday’s statement.

What’s next for hardship student loan forgiveness

Nevertheless, the Biden administration is taking next steps to try to implement a new hardship-based student loan forgiveness plan.

“The proposed regulations will be published in the Federal Register in the coming weeks,” the Department of Education said Friday. “After the proposed regulations are published, the public has a 30-day period to submit comments via Regulations.gov.”

If the plan is not rejected by the courts, the department expects to finalize the regulations in 2025 (Department of Education regulations typically go into effect in July). However, if the program survives the legal challenge, its fate will ultimately depend on the outcome of the upcoming national elections.