Biden Administration Narrows Focus of New Student Debt Forgiveness Program

• Department of Education officials met with negotiators for the first time Oct. 10 and 11.
• Negotiators representing stakeholders in higher education urged the department to adopt widespread debt forgiveness.
• The department steered negotiators to focus on the most in-need borrowers.
• The committee will convene again in November and December.

The Biden administration is taking the next steps to create a new federal student loan debt forgiveness program, but this time with a more focused approach.

The Department of Education (ED) met with negotiators Tuesday and Wednesday to discuss potential ways the department could forgive outstanding federal student loan debt for struggling borrowers. Unlike the president's initial plan — which offered forgiveness for all borrowers under a certain income threshold and was later struck down by the U.S. Supreme Court — this Plan B focuses on borrowers who have been harmed the most by the student loan system.

One aspect notably missing from the first two days of discussion: the amount of debt that would be forgiven for each borrower.

Instead, negotiators in the opening discussions pitched ED on what kinds of borrowers should be included in any upcoming forgiveness plan, as well as why these borrowers need specific help. Neither negotiators nor the department, however, spent time declaring just how much debt might be canceled.

Tamy Abernathy, lead negotiator for the department, called these initial meetings more of a "listening" experience for ED. The department will return in November with more concrete plans based on the negotiators' ideas.

The conversation centered on how best to serve the following types of borrowers:

• Borrowers whose debt balance is larger now than when they originally borrowed
• Borrowers whose loans first entered repayment "decades ago"
• Borrowers whose college programs did not provide "sufficient" financial value
• Borrowers eligible for relief under programs like income-driven repayment (IDR), but who have not applied
• Borrowers who have experienced financial hardship, but for whom the current student loan system does not already have a remedy

Negotiators will meet again with the department in November and December. Negotiated rulemaking will likely stretch into mid-2024, perhaps beyond. The process is lengthy, but it provides a stronger legal basis for forgiving student loans.

Borrowers Whose Debt Balance Has Grown

Many borrowers currently owe more in federal student loans than they originally took out.

This happens for a variety of reasons. For some, they entered into forbearance or deferment due to the inability to make payments, but interest continued to accrue during that time, causing their loan balance to balloon. For others, they've only been able to make payments on interest and fees while the principal balance remains unchanged.

ED asked negotiators to come up with a solution to benefit these borrowers.

Melissa Kunes, an administrator at The Pennsylvania State University representing public colleges and universities, suggested that ED count all payments made toward the interest of a loan and reapply those payments to the principal balance. She added that the department should then wipe the remaining interest for that loan moving forward.

Essentially, let's say a student originally took out a $10,000 loan, has paid $8,000 solely on interest and fees and the principal balance remains at $10,000. Kunes' plan would see the $8,000 reapplied to the principal, bringing the total loan balance to just $2,000 remaining.

Borrowers Unable to Benefit From Forgiveness Programs

Programs like Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) offer debt cancellation after a set number of years. But for many, that forgiveness has been out of reach.

Temporary waivers and one-time adjustments have extended this benefit to millions of borrowers, but not all. Meanwhile, there are some who never enrolled in these programs to begin with, despite being eligible.

While many negotiators suggested fixes to PSLF and IDR, the department's lead negotiator said changes to those programs are not on the table.

Lane Thompson, student loan ombuds for the state of Oregon representing state agencies, recommended widening forgiveness for those who have benefited from these programs. For example, people who qualify for debt relief through PSLF should have all their debt erased, not just loans from the Direct Loan program.

Jessica Ranucci, an attorney at the New York Legal Assistance Group representing consumer advocacy groups, added that ED should erase debt for people who were denied relief through these programs for reasons out of their control. Again, that would include erasing debt for people with loan types that aren't from the Direct Loan program, such as those from the Federal Family Education Loan (FFEL) program.

Borrowers With Debt Lasting Decades

The standard repayment plan may only be 10 years, but a variety of factors may force students to carry debt for well over 25 years.

ED asked negotiators to pitch potential debt forgiveness solutions to address these borrowers.

One such plan, proposed by Ranucci, was to offer debt forgiveness for all loans taken out before July 1, 2010. She did not, however, provide specific amounts or percentages that might be forgiven for debts stretching back to this date.

Ranucci and Kyra Taylor, an attorney at the National Consumer Law Center representing legal assistance organizations, implored ED to apply debt forgiveness to FFEL loans. The FFEL program ended in 2010, meaning all FFEL loans are fairly old. Additionally, Ranucci and Taylor said these loans are more likely to have been mismanaged by servicers who tend to steer borrowers into costly forbearance programs rather than an IDR plan.

Thompson added that older loans are less likely to ever be repaid in full, so it is unreasonable for the federal government to collect on these loans if the principal will never be paid off.

She added that older loans are also more likely to be consolidated, perhaps multiple times. This makes it difficult to understand why a borrower's monthly payment is what it is.

"These loans have become more confusing than they are collectible," Thompson said.

Negotiators agreed that when it is unreasonable to expect a borrower to ever repay a loan, it's best to discharge remaining debt.

Borrowers Who Went to Low-Value Programs

Negotiators urged the department to expand on existing rules to provide debt cancellation to borrowers who attended college programs that led to below-average incomes.

For example, the current gainful employment (GE) rule holds for-profit institutions and certificate programs accountable when graduates fall below an income threshold. A program also fails the GE rule if a borrower's annual loan payment is more than 8% of their annual salary.

Negotiators recommended ED apply this framework to all programs, not just for-profit and certificate programs.

Abernathy seemed open to the idea. She added, however, that canceling debt for these students would not harm the institutions they attended, and these institutions would not be required to pay back the department for any discharged loans.

Yael Shavit, an attorney within the Massachusetts attorney general's office representing state attorneys general, said ED should consider including students who attend a program where only a small percentage of graduates are able to make consistent payments on their principal loan balance. This would help include more students whose institutions encouraged them to enter into forbearance or deferment, she said.

Borrowers Experiencing Hardships

The department's broadest discussion point included all borrowers experiencing a hardship that isn't addressed through existing programs.

Negotiators suggested numerous situations that may qualify under the hardship umbrella, including:

• Borrowers who are incarcerated
• Borrowers with a chronic illness
• Borrowers with high healthcare costs
• Borrowers who have filed for bankruptcy
• Parent PLUS loan borrowers with unmanageable debt
• Borrowers with sick family members they must care for
• Borrowers with a family member who is the subject of a missing persons case
• Victims of student loan scams
• Borrowers with multiple, concurrent jobs
• Borrowers receiving any type of public assistance
• Spouses of someone in the military service

John Whitelaw, an attorney with the Community Legal Aid Society representing borrowers with a disability, implored the department to focus on hardships that ED could identify through data sharing with other departments. For example, by widening the scope to all borrowers who receive public assistance, ED can quickly capture a large swatch of those experiencing hardship.

"It is just as — if not more — important that you look for markers of hardship," he said.