The new plan would cancel student loans for people facing financial hardship

Student loan borrowers who are struggling with high medical bills, child care costs, and other types of financial hardship can see this student loan debt erased as part of a new path to obtaining a pardon from the Biden administration.

The administration announced the proposed rule on Friday. This is Biden’s third attempt to cancel student loans for millions of Americans, but legal challenges from Republican states have so far prevented his plans from moving forward. His first plan was rejected by the Supreme Court last year, and his second plan was temporarily halted by a federal judge in Missouri.

RELATED: The Biden administration has canceled student loans for more than a million public sector workers

It is not clear whether Biden may finalize a new path before he leaves office in January. The new plan is also likely to face lawsuits from conservatives who argue that student loan forgiveness is unconstitutional.

Who would qualify for financial hardship loan forgiveness?

The new rule would allow the Department of Education to proactively cancel loans for borrowers if the agency determines they have an 80% chance of defaulting on their loans within two years. Others may apply to see if they meet the cancellation criteria.

It is intended to help borrowers who will likely never be able to repay their loans. The Department of Education estimates that about 8 million Americans would be eligible for cancellation.

“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,” said Education Secretary Miguel Cardona.

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The Department of Education said eligible people include those with unexpected medical bills, high child care costs, high costs associated with caring for relatives with chronic illnesses and those facing financial hardship as a result of natural disasters.

Under the proposal, the department could use a number of factors to assess whether a person is likely to default on their loans. It includes household income, age, whether they receive public benefits and their total debt – not just student loans.

It also allows consideration of “any other indicators of hardship identified by the Secretary.” A loan is usually considered in default if no payment has been made for approximately nine months.

Cardona says about 1 million borrowers default every year, and the new rules will prevent his agency from collecting money that is unlikely to be recovered.

“The servicing and collection of defaulted loans is not free, it costs taxpayers money,” Cardona said in a call with reporters. “And there comes a point when the cost of trying to collect a defaulted loan is just not worth it.”

Why do Republicans oppose student loan relief?

According to AP-NORC poll released in Juneonly 39% of American adults believe it is important for the federal government to forgive student loans. Less than a third of respondents — about 30% — approve of Biden’s handling of student loan debt.

Virginia Foxx, R-N.C., chairwoman of the House Education and Workforce Committee, called Biden’s latest move a “sham scheme” to confuse voters before the presidential elections.

“This latest egregious voter bribery attempt is a sign of a desperate administration that has squandered an opportunity to achieve meaningful and lasting college cost reform,” Foxx said in a statement.

What’s next?

The proposal will enter a 30-day public comment period before it becomes official. The administration has said it plans to finalize the rule in 2025. It faces an uncertain future that comes less than two weeks before Presidential elections on November 5.

Vice President Kamala HarrisDemocratic candidate, has not detailed her plans to cancel student debt if she wins the presidency. Republican candidate Donald Trump called Biden’s recall proposals unfair and illegal.