Biden’s New Student Debt Forgiveness Plan Looks to Help Borrowers ‘Experiencing Hardship’

• President Joe Biden's administration wants to provide debt relief to borrowers experiencing hardship.
• Defining "hardship," however, has proven difficult.
• Higher education stakeholders proposed various definitions to the Department of Education.
• It remains to be seen whether the department will implement a broad or narrow definition.

President Joe Biden's administration wants to provide student loan debt forgiveness to borrowers "experiencing hardship," but it is having difficulty deciding how to identify these borrowers.

Representatives from the Department of Education (ED) worked with higher education stakeholders Tuesday to develop a new debt forgiveness plan after the U.S. Supreme Court struck down Biden's original plan in June.

This time around, the Biden administration is pursuing debt forgiveness through a process known as negotiated rulemaking.

Negotiated rulemaking allows federal agencies, including ED, to change existing regulations. The department must set an agenda, choose representatives from various groups that would be impacted by the change, and gather for discussions in an effort to reach consensus on a final rule.

After a first negotiated rulemaking session held Oct. 10-11, the department laid out a proposal to address federal student loans held by long-term and high-debt borrowers. It had not, however, released a proposal to address the widest-ranging group of borrowers it hopes to aid: those experiencing "hardship."

In this second negotiated rulemaking session for Biden's new plan, ED and negotiators discussed various ways to define borrowers experiencing hardship, but the department didn't settle on a definition.

Still, some common themes emerged out of the session that could inspire the department's formal proposal.

Use of Bankruptcy Standard

Negotiators seemed to agree that ED's debt forgiveness proposal should not force borrowers to prove "undue hardship" to qualify for relief, which is the standard in bankruptcy court.

ED asked negotiators to debate the merits or drawbacks of this standard. One issue many negotiators shared was that this standard requires borrowers to prove that they have made "good faith efforts" to repay their student loan debt, but this would be difficult for the department to adjudicate at scale.

Additionally, some argued that the inability to make payments is a sign of hardship, and, therefore, shouldn't preclude borrowers from relief.

Kyra Taylor, an attorney at the National Consumer Law Center representing legal assistance organizations, said all borrowers who have defaulted on their loans should be eligible for debt forgiveness. The fact that they defaulted is evidence that they are going through a hardship in paying off their debt, so they would benefit most from relief.

She agreed that some components of the bankruptcy standard could be helpful.

For example, the standard allows courts to discharge student loans if a borrower's "financial circumstances are unlikely to change," so they will likely not be able to pay off their loans in the future.

Taylor said this could be used to forgive student loans for borrowers over 65, as their income is unlikely to increase as they get older. Additionally, a chronic disability will impact a borrower's future income, so ED may use this standard to relieve these borrowers of their debt.

"The ways in which hardship manifests for people varies," she said, "and it varies across each of the categories we've identified."

Issues With Automatic Forgiveness

Negotiators agreed that the fewer hoops borrowers need to jump through for relief, the better.

However, automating debt forgiveness may be difficult. Tamy Abernathy, the lead negotiator for the department, said some indicators of hardship would be difficult or impossible for ED to obtain, such as how much a borrower spends on childcare in a given month.

Negotiators debated the merits of having an application.

An overly complicated application may deter some borrowers from applying. Sherrie Gammage, the representative for student loan borrowers who attended a four-year institution, said that older borrowers who aren't computer literate may be locked out of relief they desperately need if they are required to submit documentation to prove their hardship.

More generally, negotiators felt it would be unfair to force borrowers to prove their hardship through a single application.

Some alternatives to an application included automatically forgiving student loan debt for:

• Borrowers who received a Pell Grant
• Parent PLUS loan borrowers whose child received a Pell Grant
• Borrowers approved for a Social Security overpayment waiver
• Borrowers who have made $0 monthly payments on their loan through an income-driven repayment (IDR) plan
• Borrowers with experience in the foster care system
• Borrowers who qualify for SNAP benefits

Still, if the department requires an application to prove hardship, Lane Thompson, the representative for state officials, said borrowers should be allowed to self-certify their information. This would be similar to the original debt forgiveness application that asked borrowers to confirm they were under an income threshold and whether they received a Pell Grant.

ED would then be able to audit these applications after the fact, Thompson said, to ensure borrowers get relief quickly.

"I think it's worth having an application, and administratively, I don't think it makes sense to have to confirm additional documentation after that," she said.

A Need for Broad-Based Forgiveness

Jalil Bishop, the representative for student borrowers who attended graduate school programs, stressed that there is no one-size-fits-all approach to defining "hardship."

"I think that it's important for us to consider what we're aiming for," he said. "It's not about trying to create a program or a data point or proxy that's going to be a silver bullet; I think it's really about trying to create a set of tools that can capture as many borrowers who are experiencing hardship as possible."

What those guidelines will be is still unclear.

Abernathy told negotiators that ED will provide a concrete proposal by Dec. 4. The department will meet with negotiators one last time Dec. 11 and 12, when negotiators will vote on the final proposal.

Even with consensus, however, negotiated rulemaking will likely stretch into mid-2024.