President Joe Biden and his administration are moving forward with plans to provide student debt relief to as many people as possible.
The administration announced Monday the details of its new plan to reduce student debt balances for millions of borrowers. The proposed regulations — which were drafted as part of the months-long negotiated rulemaking process — feature several different ways for borrowers to see their debt balances reduced, if not eliminated entirely.
The provisions of the plan include forgiving excessive interest that has accrued, discharging balances that have been in repayment for 20 years or more and relief for borrowers who attended now-closed or insolvent institutions.
"[The] plan is focused on the reasons that people are struggling with their student loan debt," James Kvaal, Under Secretary of Education, told CNBC Make It.
"People who are upside down on their student loans because interest has racked up faster than they could pay it, people who have been making payments on their loans for decades and still owe those loans — it's a sign of how aggressive the President is [being] in tackling the student loan crisis," he said.
The relief provisions will soon be open for a public comment period where the administration will consider revisions to its proposal before it goes into effect. Some provisions are expected to roll out as early as this fall, the administration said.
As with Biden's previous student debt forgiveness proposals, it's possible this plan will come under legal scrutiny if challenged by opponents. But this plan differs from his previous action by using a different legal authority — the Higher Education Act — and narrowing the scope of borrowers eligible for relief.
In the event this plan is enacted and a future presidential administration wanted to repeal it, it would need to go through the same lengthy rulemaking process, Kvaal said.
Here's the relief borrowers may expect to see in the coming months.
Up to $20,000 of accrued interest forgiven
Interest accrues daily on student loans and some borrowers have interest rates as high as 8%. As a result, many borrowers wind up with balances higher than what they initially took out for school, despite making regular payments.
Biden's plan aims to address that "runaway interest" by canceling up to $20,000 of the amount a borrower's balance has grown due to unpaid interest after entering repayment. Single borrowers who earn $120,000 or less and married borrowers earning $240,000 or less who enroll in an income-driven repayment plan would be eligible to have their entire excess interest balances discharged, the administration said.
Some 25 million borrowers stand to benefit from their interest balances being reduced if the plan goes into effect as proposed. An estimated 23 million of those borrowers will have their entire balance growth forgiven, according to the administration.
Automatic loan discharge for forgiveness-eligible borrowers
The Biden administration has canceled debt for over 1 million borrowers through existing forgiveness programs, including Public Service Loan Forgiveness, income-driven repayment and closed school loan discharges.
The administration estimates another 2 million borrowers are eligible to have their debt forgiven under these programs, but have not yet applied.
The new plan will allow the administration to use available data to identify and automatically clear balances for these borrowers as they are eligible, without borrower action.
Debt forgiveness for long-term borrowers
Another 2 million borrowers could benefit from a provision that will clear debt balances that are at least 20 years old for undergraduate borrowers and 25 years for graduate borrowers. It will apply to undergraduate borrowers with direct loans or direct consolidation loans who entered repayment on or before July 1, 2005, and graduate school borrowers who entered repayment on or before or July 1, 2000.
Currently, borrowers enrolled in the Saving on a Valuable Education plan or other income-driven repayment plans are eligible to have their remaining balances discharged after 20 or 25 years, but the new regulation would eliminate the IDR requirement.
Relief for attendees of 'low-financial-value' programs
The Biden administration has made a concerted effort to "hold colleges accountable when they leave students with mountains of debt and without good job prospects," it said in its statement.
As such, the new plan would waive loans for borrowers who attended institutions or programs the administration identifies as "low-financial-value."
That includes schools that have lost eligibility to receive federal student aid or were denied recertification due to cheating or taking advantage of students, as well as programs that have since closed or have a history of leaving students with high debt loads and poor earnings outcomes.
Help for borrowers facing financial hardship
The administration says it is committed to pursuing a "specific action" for student loan borrowers experiencing a variety of financial hardships, although it's not yet clear who may receive relief and to what degree their balances will be reduced.
"This could include delivering automatic forgiveness to borrowers predicted to be likely to default on their loans, or through an individualized applications where borrowers could detail their financial hardship that is preventing them from being able to fully pay back their loan, such as a child care or medical expense," the administration said in its statement.
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