New Biden Student Loan Forgiveness Plan Targets Borrowers In Financial Distress

President Joe Biden’s administration has proposed another program forgiving federal student loans, this time targeting borrowers in financial distress who likely wouldn’t be able to pay them back anyway.

The new program would forgive loans for borrowers hit by “unexpected medical bills, high child care costs, significant expenses related to caring for loved ones with chronic illnesses, or devastating economic circumstances from the impacts of a natural disaster,” and other circumstances, the department said Friday.

Borrowers who the department determined had at least an 80% chance of defaulting on their loan, based on income and loan balance data, would be automatically forgiven. Others could apply for forgiveness based on their financial circumstances.

The new regulations could affect nearly 8 million borrowers, the department said, and are scheduled to go into effect in 2025. However, the rollout of the program could be disrupted by the same kind of legal challenges that have tied up other loan forgiveness programs.

The department is pushing forward with the new forgiveness plan while previous efforts remain on hold because of legal challenges. Biden’s efforts at forgiving student loan debt, following through on a campaign promise from his 2020 presidential election, include:

• The newly announced forgiveness plan for borrowers in distress.
• Loan forgiveness for borrowers in certain circumstances, including for borrowers who qualify for forgiveness under existing programs but haven’t applied, borrowers who have been in repayment for more than 20 years, and forgiving interest for people whose loans have grown over time even as they made payments. This program is currently on hold while courts consider a legal challenge brought by Republican-led states.
• The Saving for a Valuable Education plan, a new type of income-driven repayment plan that offers borrowers lower payments than previously available IDR plans. Like other IDR plans, borrowers enrolled in SAVE would have their loans forgiven after paying for 10 or 25 years depending on how much they borrowed and whether they used the loans for undergraduate or graduate school. The SAVE plan is also on hold until legal challenges are resolved.
• The Public Service Loan Forgiveness Program, which forgives student loans for people who work for nonprofit or government organizations and make payments for 10 years. Biden changed the rules of this previously little-used program to make it easier to qualify for, and 1 million people have had their loans forgiven as a result.
• Forgiveness for specific groups of borrowers in certain situations, such as people with disabilities, and those who attended schools that closed or had misled students with false advertising.
• A proposed broad forgiveness plan would have forgiven up to $20,000 of student debt per borrower, which was struck down by the Supreme Court last year. The court ruled that Biden’s administration lacked the authority to forgive debt. The proposals since then have relied on a different legal mechanism that Biden administration officials say is likelier to prevail in court.

The plan could also be challenged when a new president takes office in January. Since the rule will take effect after Biden leaves office, his predecessor could overturn it. Vice President Kamala Harris has voiced support for Biden’s student loan forgiveness policies, while former president Donald Trump has criticized them.