President Joe Biden is set to introduce a new plan for forgiving student debt, following the Supreme Court’s rejection of his initial proposal. This time around, Biden is focusing on creating a more legally resilient aid package by targeting specific groups of borrowers who are facing financial hardship. The plan aims to provide relief to up to 25 million Americans by addressing the issue of “runaway interest.”
Consumer advocates have long criticized the high interest rates on federal student loans, which often exceed 8%. These exorbitant rates can pose significant challenges for borrowers who are struggling to keep up with payments or are enrolled in certain repayment plans. The Biden administration estimates that more than 25 million federal student borrowers currently owe more than their original loan amount, highlighting the urgent need for debt relief.
Under the new plan, borrowers could potentially have up to $20,000 in unpaid interest on their federal student loans forgiven, regardless of their income level. This relief would be particularly beneficial for low- and middle-income borrowers, with single individuals earning $120,000 or less, and married couples making $240,000 or under, qualifying for full interest cancellation since they entered repayment. Eligibility for this forgiveness is tied to enrollment in an income-driven repayment plan, with no additional application required.
Jaylon Herbin, director of federal campaigns at the Center for Responsible Lending, emphasizes the detrimental impact of interest capitalization on families’ ability to achieve financial stability. By erasing this debt burden, millions of borrowers will have a better chance of paying off their loans in a timely manner, moving closer to realizing their version of the American Dream.
Additional Debt Forgiveness Criteria
In addition to interest cancellation, Biden’s plan targets specific groups of borrowers for debt forgiveness. This includes individuals who are eligible for debt relief under existing government programs but have not yet applied, borrowers who have been in repayment for 20 years or more on their undergraduate loans, or over 25 years on their graduate loans, attendees of low-quality institutions, and individuals experiencing financial hardship. The definition of financial hardship is still ambiguous, but it may encompass those burdened by medical debt or high childcare expenses.
Shift to Rulemaking Process
While Biden initially sought to cancel student debt through executive action, he has now transitioned to the rulemaking process to ensure the longevity and legality of the debt forgiveness program. The president aims to implement these changes before the November election, signaling his commitment to addressing the student debt crisis through structured policy measures.
President Biden’s new student debt forgiveness plan represents a targeted and comprehensive approach to alleviating the burden of student loans for millions of borrowers. By focusing on interest forgiveness, specific borrower groups, and legal safeguards, the plan demonstrates a commitment to fostering financial stability and economic mobility for individuals grappling with student debt.