Student Loan ‘Financial Hardship’ Forgiveness: New Details Revealed

Author: Eliza Haverstock | Nerd Wallet

Eight million borrowers struggling with “lingering financial burdens,” such as those caused by unexpected medical bills, natural disasters or high child or family care costs, could qualify for federal student loan forgiveness — but that’s not finalized yet.

On Friday, October 25, the Department of Education released new details of its financial hardship proposal, including eligibility criteria and how borrowers can apply for relief.

“For too long, our broken student loan system has made it too difficult for borrowers experiencing heartbreaking and financially crippling hardship to access aid, and that is not right,” U.S. Secretary of Education Miguel Cardona said in a speech statement.

The hardship proposal is part of President Joe Biden’s “Plan B” for student loan forgiveness, which is currently facing legal challenges. The president introduced “Plan B” in June 2023 after the Supreme Court blocked his original plan to forgive up to $20,000 in student loans. The Department of Education began the rulemaking process in October 2023.

The Department of Education aims to finalize the plan in 2025, but lawsuits could impact its implementation. The Department will formally publish the proposed regulations in the coming weeks. Once published, the public will have 30 days to respond to the content regulations.gov.

“While this is another lawful method of student debt relief, backlash is expected, so it is critical that we act quickly to provide this much-needed relief,” said Kristin McGuire, executive director of Young Invincibles, a political organization focused on in a statement on issues affecting young people.

Two paths to student loan hardship forgiveness

If the hardship proposal goes into effect, borrowers will have two main paths to student loan forgiveness:

• Automatic forgiveness. If the Department of Education determines that you have at least an 80% chance of not repaying your student debt within two years, it may automatically forgive your loans one time. Hardship factors may include income, assets, the type and amount of student debt, and whether you received a Pell Grant to cover school costs.
• Application-based forgiveness. If you don’t qualify for automatic one-time forgiveness, you can submit an application that comprehensively assesses your likelihood of default or of experiencing serious, continuing financial hardship.

Don’t count on forgiveness for your difficulties just yet

For now, borrowers should not count on Biden’s “Plan B” for student loan forgiveness – especially before the November 5 presidential election. The candidates, former President Donald Trump and Vice President Kamala Harris, take very different positions on student loans.

“I have so little faith that this actual forgiveness program will ever come to an end,” says Stanley Tate, a lawyer specializing in student loans. “Even if there is a pro-forgiveness president in office, he will still face challenges from groups that have the right to question such things.”

On October 3, a federal judge in Missouri temporarily blocked Biden’s “Plan B” for student loan forgiveness, which includes a financial hardship proposal. A group of Republican-led states, including Missouri, Georgia and Alabama, filed the lawsuit in September.

“Our latest lawsuit challenges the third and weakest attempt (by the Biden-Harris administration) to enact mass student loan cancellations on a dark night without informing Congress or the public,” Missouri Attorney General Andrew Bailey said in a September statement. .

Forgiveness and relief options are now available

If you are currently struggling with student debt, consider these existing relief and forgiveness options instead:

• Income-driven repayment (IDR) plans. IDR plans limit your monthly federal student loan bills based on income and family size to just $0. After 20 or 25 years, the remaining debt will be forgiven.
• SAVE leniency in the court process. The newest federal IDR plan, SAVE, is currently facing legal challenges. As a result, borrowers enrolled in SAVE have an interest-free repayment break until at least April. If you don’t use SAVE, you can still get this interest-free forbearance if you apply for a plan now. You always have the option to change your plans in the future.
• Deferment or forbearance. You can temporarily defer your federal student loan bills by asking your servicer for a deferment or forbearance. Deferrals are generally a better option because interest usually doesn’t accrue – but you do have to meet certain eligibility criteria. If you have private student loans, ask your lender about ways to temporarily reduce or suspend your payments.
• Other forgiveness programs. Depending on where you live and what your occupation is, you may be eligible for other existing student loan forgiveness programs through federal, state, and local governments. Some private organizations and employers also offer repayment assistance. Public Service Loan Forgiveness can forgive the student debt of government and nonprofit employees.
• Refinancing if you have private student loans. If you have private student loans, your relief options are limited and you do not have access to federal student loan forgiveness. Refinancing private student loans for a lower interest rate can reduce your monthly payments and the overall amount you pay. However, you can only qualify for the lowest advertised rates if you have good credit and finances.

To learn more about your relief options, call your student loan advisor. Your service technician can review your situation and make recommendations. You may also consider reaching out to reputable nonprofit organizations that offer student loan assistance.

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Eliza Haverstock writes for NerdWallet. Email: [email protected]. Twitter: @elizahaverstock.