Written By Adam S. Minsky, JD
The Biden administration has been working on multiple overlapping student loan forgiveness and debt relief initiatives. Each initiative has its own timelines and roadblocks, making it challenging for borrowers to determine when they will receive relief.
Here’s what borrowers need to know.
Student debt relief under Sweet vs. Cardona
Last fall (2022), a federal court approved a settlement agreement between the U.S. Department of Education and a class of federal student loan borrowers to resolve disputed Borrower Defense to Repayment claims.
The Borrower Defense program can provide student loan forgiveness to borrowers who were duped into enrolling at a school based on false promises or misrepresentations. In the class action suit, called Sweet vs. Cardona, borrowers alleged that the Education Department improperly stalled or denied scores of Borrower Defense applications.
Where does relief stand now?
Under the terms of the settlement agreement, over 200,000 borrowers who submitted Borrower Defense applications prior to June 2022 may receive up to $6 billion in federal student loan discharges, along with refunds of past payments and credit report adjustments. The relief was supposed to begin last month, but the process hit a snag when several schools impacted by the settlement filed an appeal and requested to stay the relief.
A federal judge temporarily halted the settlement relief pending a ruling on the request to stay. A decision on the stay could be made as early as next week. If the judge authorizes the discharges approved under the settlement to begin, it will be implemented on a rolling basis and is expected to take around one year.
Get Started With Our New IDR Calculator
Student loan forgiveness under Biden’s one-time debt relief program
President Biden’s one-time cancellation program would have wiped out $10,000 or $20,000 in government-held federal student loans for most borrowers. Before federal courts blocked the program in response to legal challenges, the Education Department had approved millions of applications. But no one has received relief yet.
The Supreme Court is set to decide the fate of the program. Both the Biden administration and the challengers have submitted legal briefs. Oral arguments are scheduled for February 28, 2023, in what is sure to be a blockbuster court hearing. The court could issue a ruling any time after that, but it is widely expected to be some time in June, which is when the court typically issues major decisions.
What happens next?
If the court upholds Biden’s student loan forgiveness program, borrowers could see relief within weeks of the decision. But if the program is struck down, it’s anybody’s guess what the administration might do in response. Officials have maintained that there is no backup plan if the court nixes Biden’s initiative.
Student loan forgiveness through Limited PSLF Waiver
The Limited PSLF Waiver ended last October, but hundreds of thousands of borrowers who applied are still waiting for relief. The temporary waiver relaxed key eligibility rules governing the Public Service Loan Forgiveness (PSLF) program, allowing many past loan periods to count towards student loan forgiveness that otherwise would have been rejected.
How much longer?
MOHELA and the Education Department are contending with a huge backlog of PSLF applications. That, coupled with the department’s Office of Federal Student Aid being flat-funded in the recent omnibus budget bill passed by Congress, has resulted in many borrowers experiencing long processing times. MOHELA and department officials are advising borrowers that the review process could take 90 days, but in practice, it may take much longer.
Student loan forgiveness under IDR Account Adjustment
Similar to the Limited PSLF Waiver, the IDR Account Adjustment is a one-time fix designed to allow millions of borrowers to receive retroactive credit towards loan forgiveness under Income-Driven Repayment (IDR) plans. IDR plans tie monthly student loan payments to a borrower’s income and provide for student loan forgiveness if the balance isn’t paid in full within 20 or 25 years (depending on the plan).
The “adjustment” will allow many past periods of repayment, as well as certain past periods of deferment and forbearance, to count towards a borrower’s IDR repayment term. For borrowers working in public service, the adjustment can also potentially count towards PSLF, effectively extending many elements of the Limited PSLF Waiver.
The timing of the adjustment has been, well, adjusted several times now as the Education Department continues to contend with operational pressures and budget constraints associated with simultaneously implementing so many student loan relief initiatives. The department’s current guidance indicates that borrowers who become eligible for student loan forgiveness as a result of the IDR Account Adjustment should start to receive discharges this spring. All other borrowers should see the benefits of the adjustment later this summer.
Do you need to take action?
Importantly, borrowers with non-Direct federal student loans (like commercial-held FFELP loans) may need to consolidate those loans into the federal Direct consolidation program by April 30, 2024, to qualify. Borrowers should review the Education Department’s current guidance on the initiative and check back periodically for updates.
Related: FFELP Loan Forgiveness Options
Student loan forgiveness under new regulatory changes to federal programs
Last fall, the Biden administration unveiled sweeping new regulations designed to streamline and expand eligibility for key federal student loan forgiveness and discharge programs. Some of the key changes include the following:
- Reforms to Borrower Defense to Repayment that will broaden the type of school misconduct that can qualify a borrower for relief.
- Reforms to Public Service Loan Forgiveness (PSLF) that expand the definition of qualifying payments and qualifying employment.
- Reforms to the Total and Permanent Disability (TPD) Discharge program that will make it easier for many disabled borrowers to qualify for relief and keep their loans in a discharged status.
These new regulations are set to go into effect on July 1, 2023.
Student loan forgiveness under overhaul of REPAYE plan
Last month, the Education Department released details on a planned overhaul of the Revised Pay As You Earn (REPAYE) plan, one of the more popular IDR plans available to borrowers.
Under the proposed changes, undergraduate borrowers may see their payments cut in half, while borrowers with graduate school loans would see smaller reductions to their payments. In addition, undergraduate borrowers with relatively small initial balances may be eligible for student loan forgiveness in as little as 10 years, as opposed to 20 years under the current version of the plan. Graduate school borrowers would still be on a 25-year term.
Unlike the other regulatory changes announced by the Biden administration, the REPAYE overhaul will probably not go into effect until sometime after July. Officials have yet to release a firm implementation timeline, but the plan's new version might be available sometime next year.
Not sure what to do with your student loans?
Take our 11 question quiz to get a personalized recommendation for 2024 on whether you should pursue PSLF, Biden’s New IDR plan, or refinancing (including the one lender we think could give you the best rate).
