Biden’s New Student Loan Forgiveness Backup Plan: 6 Takeaways

The Biden administration has formally initiated a process to create a new student loan forgiveness plan, after the Supreme Court struck down Biden’s first debt relief plan last month. Biden’s previous program would have provided up to $20,000 in federal student loan forgiveness for millions of borrowers. But the Supreme Court ruled that the initiative was an unconstitutional overreach of executive power. 

This month, the Biden administration formally launched an effort to establish a new student loan forgiveness plan that officials hope will survive legal scrutiny.

“We believe the Supreme Court got it wrong,” declared Education Secretary Miguel Cardona in a blast email to millions of borrowers this month. “We are taking action aimed at opening an alternative path to debt relief for working and middle-class borrowers. We started the process to provide relief to as many people as we can, as fast as we can, through the rulemaking process. Under the law, this path will take time, but we are determined to keep fighting for borrowers and we will keep you updated in the months ahead.”

Here's what borrowers need to know about this “alternative” student loan forgiveness plan now under development.

New student loan forgiveness plan will be under a different legal authority

The HEROES Act of 2003 was the legal basis for Biden’s original student loan forgiveness plan. This statute from two decades ago, passed in the wake of the September 11^th attacks, provides emergency authority for the Education Department to “modify” or “waive” key federal student loan rules in response to a national emergency. The Biden administration had argued that this broad power includes the ability to modify rules about loan forgiveness eligibility. But the Supreme Court disagreed, concluding that the administration essentially crafted a new student loan forgiveness plan that had not existed before, which the HEROES Act does not allow.

The new, “backup” student loan forgiveness plan will be issued under the Higher Education Act, an entirely different statute that governs much of the federal student loan system. The HEA has a so-called “compromise and settlement” provision that also grants broad authority to the Education Department to waive federal student loan obligations. 

Notably, multiple administrations have relied on this HEA authority to settle defaulted federal student loans through lump sum payments on a case-by-case basis. And the Biden administration recently relied on the HEA authority to provide group student debt relief as part of the Sweet v. Cardona settlement, which resolved a class action lawsuit over stalled and rejected Borrower Defense to Repayment applications.

Process to create new loan forgiveness plan will be much different

One of the benefits of using the HEROES Act to enact mass student debt relief was that the statute allows the Education Department to bypass what is normally a lengthy and cumbersome legal process required to establish new regulations. This allowed the Biden administration to roll out the program relatively quickly, once key officials decided to move forward with debt relief.

But new programs under the HEA are different. Unlike the HEROES Act, to establish new HEA programs the Education Department must go through a complicated bureaucratic process called “negotiated rulemaking.” Negotiated rulemaking involves the establishing of a rulemaking committee comprised of key stakeholders – which itself can take some time to form — which must then hold public hearings and consider comments submitted by members of the public. Draft regulations then must be written, reviewed and released to the public for additional periods of public comment before they can be finalized, enacted and given the force of law. The process could take a year or longer.

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Details of new student loan forgiveness plan are not yet clear

Because the process to create the new debt relief program under the HEA is only just getting started, it is far too early to know what the new student loan forgiveness plan may look like. Biden administration officials have promised that they will try to make the program as far-reaching and impactful as Biden’s original loan cancellation plan. But we are months away from knowing what the details of this new student loan forgiveness plan will look like. 

New student loan forgiveness plan will face legal challenges, but may be more solid under HEA

The new student loan forgiveness plan will almost certainly face legal challenges, just like the original program did. And those challenges will probably make their way back to the Supreme Court, the majority of which has expressed clear hostility toward mass student loan forgiveness that has not been expressly authorized by Congress through federal statute. 

However, at least some legal experts are legal experts are suggesting that a student loan forgiveness program established under HEA authority might be more legally sound than under the HEROES Act. The clear language of the HEA provides the Education Department with authority to “compromise, waive, or release” any “claim” against borrowers, and that authority is “final.” Some legal scholars have suggested that this could insulate any such program from legal challenges, particularly if the new program allows for case-by-case determinations of student loan forgiveness eligibility.

Borrowers can have input on the new student loan forgiveness plan

Borrowers can submit public comments now as the initial negotiated rulemaking process gets off the ground.

“ONLY 4 DAYS LEFT TO SUBMIT COMMENTS TO @usedgov ON WHY STUDENT DEBT RELIEF MATTERS TO YOU,” the Student Borrower Protection Center announced in a tweet on Monday, referring to the July 20^th deadline for the initial round of public comments. “Join the thousands (that's 14,839 & climbing) who have submitted so far. These comments will be critical in shaping the final relief policy.”

You can submit a public comment directly to the Education Department through a platform provided by the Student Debt Crisis Center.

Student loan payments resume soon, but other debt relief is available

Biden’s new student loan forgiveness plan will not be in place by the time student loan payments resume later this summer. The student loan pause officially ends in August. Interest will start accruing in September, and borrowers’ first student loan payments will be due in October.

But the Biden administration has rolled out other relief for student loan borrowers to ease the return to repayment. A 12-month “on-ramp” period will protect borrowers from late fees, default, and negative credit reporting for the initial year in repayment. Borrowers in default on their loans will also have a full year to avoid collections activity and get out of default through the Fresh Start program.

Borrowers will soon be able to start benefiting from the Saving on a Valuable Education (SAVE) plan, a new Income-Driven Repayment option that will be replacing the REPAYE plan and will lower monthly payments for many borrowers. And the administration has awarded student loan forgiveness to the first batch of over 800,000 eligible borrowers under the IDR Account Adjustment, a sweeping initiative that has already resulted in nearly $40 billion in student loan forgiveness.