Ever feel like you’re slogging through a Debtlandia bog, thanks to those student loans wrapped around your ankles? Join the club! It seems the government shares our need for a life preserver, though. Despite some serious legal snags, the Biden administration is going full steam ahead with a plan to wipe out federal student loans for a whole bunch of us.
Beep-beep, Coming Through with New Rules!
On Friday, our friends at the U.S. Department of Education displayed a shiny new set of debt relief rules as part of their masterplan to instigate a sweeping student loan forgiveness overhaul. They’re hoping that once rubber-stamped, this plan could possibly cancel the debt of around 8 million borrowers who are feeling a bit hard done by financially. They’ve even cooked up a new “holistic” hardship application, which aims to keep offering debt relief forever and a day.
Echoing how most of us feel about our student loans, Education Secretary Miguel Cardona stated, “We are committed to overhauling America’s broken student loan system.” No kiddin’, Miguel. The strain is real, pal.
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The Backstory: How We Ended Up Here
The original plan by Uncle Joe, which aimed to make up to $20,000 vanish from each borrower’s total, got a thumbs down from the Supreme Court last year. Not to be deterred, Biden and his team promised to come up with a new plan, standing on different legal grounds. Enter “Plan B,” which officially kicked off its process in February.
Plan B’s ambition still held strong — up to $150 billion in forgiveness for approximately 30 million borrowers, including specific relief for certain groups. But alas, Republican-led states brought the plan to a screeching halt with a series of lawsuits. While these legal battles continue, the ever-determined Education Department is pushing a part of the plan they believe is exempt from existing court orders.
Let’s call it “Plan C,” shall we?
So, Who Could Qualify for Student Loan Forgiveness?
Under the current guidelines, the rescuers are focusing on helping borrowers swimming in the deep end of financial hardship. The rescue plan here is two-fold.
Firstly, an automatic debt forgiveness will rain down on borrowers predicted to be most likely to default on their federal student loans within the next two years. A delicate cocktail of factors, such as income, total debt, Pell Grant status, etc., will be used to select these “lucky” few. “Loan default” is just a fancy way of saying you missed nine monthly payments, which could see Uncle Sam dip into your paycheck.
Mind-bending estimates suggest about 6 million borrowers might be in line for this automatic free pass, based on the Education Department’s data.
On the other hand, if you’re not automatically chosen, don’t fret. There’s a new hardship application brewing. This is your chance to go cap in hand and plead your case of financial doom. The department reckons about 2 million existing borrowers could gain from this, and others may do so in the future. It’s a golden ticket designed to offer relief for a long, long time.
Each application will be judged individually, considering little extras like growing loan balances, risk of default, medical bills, childcare costs and more. If other repayment options can’t cut the mustard, you could be looking at a total loan discharge. Free at last!
The Hairy Legal Bits and When Borrowers Might Catch a Break
With the presidential election looming, top dogs in the Education Department are scrambling to deliver as much relief as possible, pronto! However, these new rules are still under wraps and haven’t yet seen daylight in the Federal Register. Once that’s done over the next few weeks, there’s a mandatory public comment period of 30 days, with a final ruling expected some time in 2025.
With that timeline stretching beyond the November 5 election and the new administration taking office on January 20, 2025, things are a bit up in the air. Whether any relief will be passed out before the new guard takes over is anyone’s guess. These rules could even be scrapped if the incoming peeps don’t approve.
The possibility of getting mired down in legal quagmires also makes things a bit dicey. With federal courts already giving the thumbs down to Plan B, these new rules could very well face the same fate with further lawsuits on the cards.
Despite all the uncertainty, Cardona reiterates the commitment: “We will not waver in our mission to make college more affordable and accessible.” Hear, hear, Miguel.
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Chew on This: More Tips from Money:
- Why the FAFSA Isn’t Opening in October Like Usual This Year
- Student Loan ‘On-Ramp’ Ends: Missed Payments Will Hurt Your Credit Again
- Why an ‘Affordable’ College Degree Now Means No Student Debt
Ready to bite the bullet? Kick those student loans into touch today — with these new forgiveness options and refinancing opportunities, you could finally paddle your way out of Debtlandia.