Supreme Court could axe Biden’s loan forgiveness but other paths exist
President Joe Biden’s student loan debt relief plan is teetering on the edge of a Supreme Court cliff.
Other avenues for forgiving or winnowing student loan borrowers’ debt, however, are alive and well. There’s even a plan in the works to keep people from borrowing to attend a subpar school.
The administration has streamlined loan forgiveness for people who work in the public sector, canceled the debts of students taken advantage of by predatory colleges and universities and unveiled a new income-driven repayment plan that could reduce how much borrowers have to pay.
Together, these programs affect millions of borrowers, have led to billions in student loan debt being forgiven and could erase billions more. Most are meant to be long-term changes rather than a one-time fix.
Whether the court undoes Biden’s signature plan, or not, other programs are essential to addressing the nation’s student loan debt in the long run: One-time debt relief would wipe out a chunk of the country’s $1.7 trillion student loan debt portfolio, but it could quickly rebound if widespread borrowing continues unabated.
Student loan debt forgiveness::Four questions the Supreme Court could answer this weekIs student loan forgiveness dead? Hope is dwindling, but here are Biden’s remaining options
Changing how student loan payments work
A proposal from the White House, expected to take effect next year would address student loan payments, interest on payments and other aspects of how repaying loans work, for people using a so-called income-driven repayment plan. Nearly all federal student loans are eligible for one of these plans. The changes include:
- For undergraduate loans, cutting in half the amount borrowers have to pay each month from 10% to 5% of discretionary income;
- Raise the amount of income considered non-discretionary, which means it is protected from being factored in to how much people have to repay, guaranteeing that borrowers earning under 225% of the federal poverty level – that’s about what a person making $!5 an hour makes in a year – will not have to make monthly payments.
- Forgive loan balances after 10 years of payments, instead of 20 years, for borrowers whose original loan balance was $12,000 or less. The federal Education Department predicts this change means nearly all community college borrowers would be debt-free within 10 years.
- Cover borrowers’ unpaid monthly interest, so no borrower’s loan balance will grow as long as they make their monthly payments – even when that monthly payment is $0 because their income is low.
About 14,000 people weighed in on the January proposal from the White House.
Get ready:Student loan payments are set to restart later this year.
Easing loan forgiveness for public sector workers
The premise of the Public Service Loan Forgiveness program, created in 2007, is simple: Give up high private sector wages. Work a public sector job for 10 years. Pay down your student loan debt at the same time. After a decade, the federal government erases whatever’s left of that debt.
But when Education Secretary Miguel Cardona took office in 2021, he learned that in the history of the program, only 7,000 people had loans forgiven this way. The program’s complex requirements prevented many borrowers from benefitting. For example, only Direct Loans qualified for the program, cutting out borrowers with Federal Family Education Loans (FFEL). Borrowers had to enroll in specific income-driven repayment plans, and late payments sometimes weren’t counted toward a borrower’s 10 years of making payments.
The Biden administration temporarily changed PSLF to ease some of the red tape. That translated into billions in student loans forgiven for more than 373,000 people.
Later this year, the Education Department will make permanent some of the temporary changes so more borrowers will qualify to have their debt wiped out.
Here’s how student loan debt is being forgiven, now:Feds bet on changes to rules for another debt relief option
Easing debt forgiveness for borrowers who have disabilities
Another change later this year: Some of the bureaucracy around discharging federal student loans for borrowers who are considered totally and permanently disabled will ease. One of the changes eliminates checking on these borrowers’ incomes every few years. These and other adjustments to rules for borrowers with disabilities are expected to erase outstanding balances worth billions.
Improving debt forgiveness when a college collapses or misleads
New Biden-era rules that take effect later this year are intended to make it easier for borrowers to erase their debt when universities mislead them about the quality of their programs or suddenly close.
In the past, borrowers had to apply for relief through the so-called borrower defense rule. The time-intensive, bureaucratic process left many with debt for incomplete or worthless degrees. As of December, nearly 459,000 applications are pending under that rule.
The new rules also will ban institutions from requiring students to sign non-arbitration clauses and allows legal services groups to take on their cases in class-action suits.
Still rebuilding:A college closed, upending one veteran’s life.
Even ahead of that rule taking effect, the department forgave billions in loans for tens of thousands of students who attended these institutions, using its discretion under federal law. These include the now-defunct Corinthian Colleges and ITT Technical Institute, and others including DeVry University, which the Education Department said mislead students about its job placement rates.
A college closed, leaving thousands without a degree:How to keep it from happening to you
A bigger Pell Grant
The Pell Grant, which aims to cut college costs – for students from low-income families, grew by $900 during the Biden administration. Unlike loans, Pell Grants don’t have to be repaid except in rare circumstances.
The maximum Pell available will become $7,400 later this year, but may be smaller depending on a family’s income. It can take a bite out of the average price tag for a four-year degree at a public university, which costs about $9,400. The Pell doesn’t go as far at a private institution, where the average annual cost climbs to $37,600, according to the National Center for Education Statistics.
More than 6 million college students received a Pell Grant in the 2020-21 academic year.
When does FAFSA open for 2023-24? Apply for financial aid now with this step-by-step guide
Discharging student loan debt through bankruptcy
Shedding debt by declaring bankruptcy used to be nearly impossible, but that’s changing. In November, the Education Department and Department of Justice made it easier for those with student debt to discharge their obligations via bankruptcy.
Ex-couples can split their student loan debt
Congress passed a law last year allowing couples who combined their student loans when they were married to separate the debt, opening up the possibility for some of these borrowers to have part of their debt forgiven.
Divorce your ex’s debt:Biden signs bill allowing former couples to sever joint consolidation student loans
Naming and shaming colleges that fall short
Another proposal aims to help prospective borrowers avoid taking on debt that doesn’t pay off.
The Education Department plans to better warn students from spending big on colleges where the payoff may not be so great, something Biden said his administration would do when he announced his student loan forgiveness plan last August.
It’s taken the first step, asking for feedback on the best way to identify the programs that provide the least financial value for students.
Contact Chris Quintana at (202) 308-9021 or [email protected] Follow him on Twitter at @CQuintanadc
Connect with Nirvi Shah at [email protected] or on Twitter: @NirviShah