More flexibility proposed for student debt forgiveness

New rules proposed by the Biden administration on Wednesday would make it easier for borrowers to get their federal student debt forgiven through several existing programs.

The action is intended to overhaul relief programs that have been criticized for their burdensome paperwork requirements and long processing times. It builds on the administration’s efforts to expand targeted debt cancellation for certain borrowers while President Joe Biden considers broader student debt forgiveness.

“We are committed to fixing a broken system,” Education Secretary Miguel Cardona said in a statement. “If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it.”

The proposal would smooth out a debt forgiveness process for students whose colleges deceive them, along with other programs for borrowers who are disabled and those with careers in public service.

It’s unlikely to open debt forgiveness to huge swaths of borrowers, but it’s meant to make it easier for those who already qualify. The Education Department plans to finalize the rules no later than July 1, 2023.

Some of the most significant changes are to the borrower defense program, which allows students to get their loans erased if their colleges lie to them or otherwise commit fraud.

The program has seen an explosion of claims over the last decade starting with an Obama-era crackdown on for-profit colleges. But political and legal battles have led to a backlog of more than 200,000 applications, with some borrowers waiting years for a decision.

Instead of requiring the government to review each claim individually — a rule set by the Trump administration — the new proposal would allow the Education Department to process groups of similar claims together.

If a college is found to have deceived students about their job prospects after graduating, for example, the department would be able to combine all claims from that school and approve them in one action. That option would be available if there’s evidence of widespread fraud by a school, determined by state or federal authorities or through a class-action lawsuit.

The Biden administration also hopes to hold more colleges financially liable for their students’ canceled loans. In the past, loan cancellation has typically been passed to taxpayers, but the proposal rules would make it clear that the department plans to recoup costs from colleges that commit fraud.

And for the first time, borrowers would known when to expect a decision: The policy would require the Education Department to approve or deny individual claims within three years.

The new plan drew condemnation from the for-profit college industry, which faced intense scrutiny from the Obama administration but later found an ally in President Donald Trump.

Jason Altmire, president and CEO of the industry trade group Career Education Colleges and Universities, said the policy would be an “unprecedented expansion” of the Education Department’s authority.

“Today’s proposed rule sends a clear and troubling message that the Department intends to use the rulemaking process to discharge federal student loans en masse while hurting unfavored institutions and their students,” Altmire said.

Critics of the industry applauded what they see as increased accountability. Veterans Education Success, a nonprofit advocacy group, called it a “significant improvements over current rules,” adding that it would hold “unscrupulous schools accountable for federal losses.”

Also targeted for an overhaul is the Public Service Loan Forgiveness program, which was created by Congress as an incentive for government and nonprofit workers but has been criticized for having overly rigid requirements.

Under the current rules, workers in eligible jobs who make 120 monthly payments can get the rest of their federal student debt erased. Each monthly payment must be made in full and within 15 days of its due date, otherwise it doesn’t count toward the 120 payments.

The new action would erase the 15-day rule, allowing payments to count even if they are made late or in multiple installments. It also would allow borrowers to make up to a year of payments in advance instead of making monthly payments.

For the first time, borrowers in certain situations could also make progress toward loan forgiveness even if they don’t pay. People who get their loans paused for cancer treatment, military service or to join the Peace Corps, for example, would be treated as if they were still making monthly payments during that time.

Although the changes would add flexibility, they don’t go as far as a temporary overhaul the Biden administration instituted last year in response to the pandemic.

That short-term fix allows borrowers to get previous payments counted toward loan forgiveness even if they went toward loans that aren’t eligible under the program’s rules. That flexibility will go away after Oct. 31, and the Education Department urged borrowers to use it before it expires.

More flexibility would also be introduced to a separate program intended to help borrowers with disabilities.

That program offers to cancel federal student debt for people who are permanently disabled and unable to generate significant income. But many have been granted forgiveness only to have their debt restored later after failing to submit paperwork during a three-year monitoring period.

The new action would eliminate the three-year review period and make more types of disabilities eligible for cancellation. The Biden administration temporarily lifted some of the program’s rules during the pandemic, but the new changes would be permanent.

All the proposed changes are the result of a federal rules process that has been in the works for more than a year. It adds to the Biden administration’s effort to expand student debt relief through a patchwork of existing programs. So far it has approved nearly $26 billion in debt forgiveness for more than 1.3 million borrowers.

Biden has separately faced pressure to pursue mass debt cancellation, with some Democrats urging him to erase $50,000 across the board. As a candidate, Biden supported $10,000 in forgiveness and in April he said he was “taking a hard look” at the issue, promising a decision “in the next couple of weeks.” No decision has been announced.

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