Biden Formally Unveils New Student Loan Forgiveness Plan: A Look at 4 Key Details for Borrowers

President Biden formally announced a new student loan forgiveness plan on Monday during a speech in Wisconsin. This comes after months of work following the Supreme Court’s rejection of Biden’s first attempt at student debt relief. The new program isn’t live yet, but it could be before the end of the year. 

“The Biden-Harris Administration’s historic student loan efforts are already improving lives in every part of the country,” said U.S. Secretary of Education Miguel Cardona in a statement on Monday, referencing the $143 billion in student loan forgiveness already approved under other programs. 

“Thanks to our unapologetic commitment to provide relief to as many borrowers as possible as quickly as possible, our regulatory efforts would help tens of millions more borrowers find financial breathing room — and help fix our country’s broken higher education system.”  

Here are the key takeaways and what borrowers should know about Biden’s new student loan forgiveness plan.

Student loan debt relief redux: A legal and practical twist

Biden’s latest attempt at mass student loan forgiveness is distinct from his first debt relief initiative.

The first debt cancellation plan would have provided a limited amount of loan forgiveness — $10,000 in most cases, but up to $20,000 in certain circumstances — to a vast swath of borrowers, provided their earnings fell below the program’s generous income thresholds. 

In contrast, the new plan is more targeted, offering several paths to relief based on a borrower’s loan history, the school they attended and their personal circumstances. Under this plan, many borrowers could even receive complete student loan forgiveness.

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The legal leap from HEROES to HEA

The legal basis for this latest initiative is also different. Biden’s initial loan forgiveness plan was enacted under the HEROES Act, a 2003 statute granting the Department of Education authority to waive or modify federal regulations related to student loan programs during a national emergency. However, the Supreme Court ruled that Congress didn’t intend for the HEROES Act to encompass mass student debt ancellation.

The new plan instead relies on the so-called “compromise and settlement authority” of a different statute, the Higher Education Act (HEA). It expressly allows the Education Department to waive federal student loan balances in certain contexts.

Who stands to benefit from Biden’s forgiveness plan? A closer look at 5 key groups

Under President Biden’s new student loan forgiveness plan, a diverse range of borrowers will find relief. This plan opens the doors for five distinct groups:

• Borrowers with accumulated interest: Those who have accrued or capitalized interest on their student loans. 
• Eligible, yet unrolled borrowers: Individuals who qualify for existing student loan forgiveness programs like income-driven repayment plans or Public Service Loan Forgiveness but are not currently enrolled or haven’t applied.
• Long-term borrowers: Borrowers with undergraduate student loans who first entered repayment at least 20 years ago, and those with graduate school loans who began repayment at least 25 years ago.
• Victims of “low-financial-value programs”: Former students of programs that either shut down or lost their eligibility to participate in the federal student aid program.
• Borrowers facing hardships: Individuals experiencing financial or personal hardships that prevent them from fully paying back their student loans, either now or in the future.

Advocacy groups applaud while critics rebuke Biden’s forgiveness plan

Advocacy groups for borrowers have largely praised Biden’s new loan forgiveness initiative. 

“Today’s announcement makes tens of millions of borrowers one step closer to realizing the life-changing impact of student debt cancellation,” said Student Borrower Protection Center Policy Director Aissa Canchola Bañez in a statement. “For too long, student debt has blocked homeownership, inhibited savings, limited career opportunities and economic mobility, and choked at the promise of entire generations. Taken together, the Biden Administration’s actions are setting a path to a debt free, brighter economic future for more than 30 million Americans.”

Similarly, Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending (CRL), commended the Administration’s consistent efforts to make student loan repayment more equitable. 

“Congress never required the Department of Education to capitalize most interest on these loans; so, it’s well past time to make things right for the millions of affected borrowers. This is a policy shift CRL has promoted for years. We urge the Administration to continue enacting meaningful reforms like those proposed today that will allow borrowers to save money to buy home, start business or save for retirement,” Chabrier said.

But Republicans criticized the new program. U.S. Senator Bill Cassidy (R-LA), ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee disapproved, saying, “These loan schemes do not forgive debt. They transfer the debt from those who willingly took it on to the 87 percent of Americans who decided to not go to college or already worked to pay off their loans. This is an unfair ploy to buy votes before an election and does absolutely nothing to address the high cost of education that puts young people right back into debt.”

Related: Republican Challenge to Block SAVE Plan: How Worried Should Student Loan Borrowers Be?

When will Biden’s new student loan forgiveness program launch?

The new Biden administration student loan forgiveness initiative is yet to be set in motion. Currently, the Education Department is engaged in a process called negotiated rulemaking to shape the regulations that will govern this program. Expectations are set for a final draft of these rules to be available in May, followed by a requisite public commend periodprior to the program’s implementations. 

“By law, regulations related to federal student aid must go through a negotiated rulemaking process that involves extensive public input,” said the Education Department in newly published guidance. “It started with a public hearing, and a committee of non-federal experts convened to discuss ideas and review draft regulations. Once the draft regulations are released, the Department of Education will receive and consider public comments… The rulemaking process takes time, but we’re working as fast as we can.”

The soonest the program would go live would be in the fall. “We will publish a series of proposed rules around these plans in the coming months. That will give the public a chance to comment on them,” says the Education Department. “Once we have final rules, we will work to implement them as quickly as possible.” 

Legal hurdles may put a stop to student loan forgiveness… again

But once the final rule is released, observers widely expect Republicans and conservative-learning organizations to file legal challenges. 

Biden administration officials hope that the HEA authority and the negotiated rulemaking process distinguish the new plan from Biden’s HEROES Act initiative and, thus, insulate the program from an injunction blocking relief. However, borrowers should prepare for the very real possibility that Biden’s new plan could get tied up in legal battles.