How does the latest proposed student loan debt forgiveness program from the Biden-Harris Administration work?
Last Tuesday, the Biden Administration and the US Department of Education released a first set of draft rules aimed at providing student debt relief for the following categories:
- Borrowers that owe more than their initial balance due to rising or “runaway” interest rates
- Borrowers that have been making payments for over two decades
- Borrowers that would be eligible for student loan forgiveness under other agency programs but haven’t enrolled in those programs
- Borrowers that have attended colleges that didn’t provide them with sufficient financial value
If implemented, the Biden-Harris Administration expects that an estimated 30 million borrowers will be impacted by this new debt relief proposal.
Here is what you need to know for each category:
For Borrowers with Runaway Interest
The Department is proposing automatic relief of up to $20,000 of the amount that currently exceeds what the borrower originally owed when they first began repaying their student loans. This relief amount is applicable to any student loan held by the Department of Education, such as parent loans, consolidated loans, loans in default, etc. Borrowers within this category may also be able to obtain a second type of relief if they are enrolled in any Income-Driven Repayment (IDR) plan and have an income of $120,000 (single) or $240,000 (married filing taxes jointly) or less annually. This second relief ruling would permit the U.S. Secretary of Education to forgive the full amount that exceeds what the borrower originally owed at the beginning of their repayment.
For Borrowers Making Payments Over Two Decades
The Department is proposing forgiveness for undergraduate debt only if the borrower has begun repayment at least 20 years ago, beginning on or before July 1, 2005. Graduate debt borrowers only eligible for forgiveness if they have begun their repayment at least 25 years ago, beginning on or before July 1, 2000.
For Borrowers Eligible for, But Not Enrolled in Other Student Loan Forgiveness Programs
The Department would authorize forgiveness to these borrowers if they are eligible for relief programs such as any IDR plan or the Saving on A Valuable Education (SAVE) plan but have not successfully applied to those plans due to paperwork requirements, bad advice or other obstacles. The Department also proposes relief for borrowers that are eligible for forgiveness through the closed school discharge opportunities but have not successfully applied for this type of forgiveness.
For Borrowers that Attended Colleges with Low Financial Value Programs
The Department is proposing assistance to those who retained debt from an institution that lost access to Federal aid due to high student loan default rates, producing graduates that have a high percentage of debt compared to their income, graduates that do not earn a higher income than a high school graduate or an institution that was subject to a final agency action to terminate aid for providing insufficient financial value. The Department also is proposing relief to borrowers whose colleges faced the above issues but closed before any action was taken by an outside agency and if the borrowers had high levels of debt compared to their income or are not earning more than a high school graduate.
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