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WASHINGTON (AP) — Americans struggling to repay federal student loans due to financial hardship could have some of their debt canceled under President Joe Biden’s latest proposal for widespread loan forgiveness. There is.
Several categories of borrowers would be eligible for relief under Biden’s second attempt at a broad reversal after the Supreme Court rejected the first plan last year. For example, people with old loans or large amounts of interest are eligible for relief. The Department of Education expanded the offer on Thursday to include people facing financial hardship.
The plan was expanded following pressure from advocates and Democrats who say the proposal doesn’t go far enough for struggling borrowers who don’t fit into other cancellation categories.
The question of whether any relief will materialize is urgent, as conservatives have vowed to fight attempts to cancel mass student loans. The proposal is currently going through a rulemaking process that is expected to take months to finalize, and a legal challenge is almost certain.
Biden initially sought to cancel benefits of up to $20,000 for an estimated 43 million people with incomes below $125,000. After the Supreme Court ruled that it overstepped its authority, Biden asked the Education Department to come up with a new plan based on a different legal basis.
The new proposal is more narrowly focused and focuses on several categories of borrowers whose loans could be canceled in part or in full.
Here’s what we know so far about who could be eligible for cancellation under the Biden plan.
difficulty
Borrowers facing financial hardship could see relief under the administration’s latest proposal. The proposed regulations include automatic relief for borrowers deemed likely to default within two years, up to the full amount of their federal loans.
Additional borrowers will be eligible for relief up to their outstanding loans based on a broader definition of financial hardship. These factors include, but are not limited to, an individual’s relative loan balances and payments compared to their gross income. Other considerations include whether the borrower has unavoidable high expenses, such as paying for childcare or medical bills.
The administration said it could not provide an estimate of how many people could qualify under the hardship proposal.
The draft plan was intended to be as expansive as possible within the law and court rulings, according to a senior government official who briefed reporters on condition of anonymity.
In addition to the list of factors that includes age, disability, repayment history, etc., the proposed regulations would also allow consideration of “any other hardship factors identified by the Secretary.” Borrowers may be eligible for relief automatically or through an application.
The department’s language on financial hardship represents an initial draft of the policy and is subject to change. These proposals will be discussed next week when the Federal Rulemaking Committee meets to discuss the details.
Resetting interests
Borrowers whose loans have ballooned due to snowballing interest may be eligible for relief of up to $10,000 or $20,000, depending on their income.
The general goal of this category is to reset a borrower’s loan to its original balance, but there are some limitations.
For individuals earning up to $125,000 or couples earning up to $250,000, the proposal would eliminate up to $10,000 in unpaid interest. This only applies to amounts that have accumulated over the original loan amount, so a borrower whose current balance is $7,000 more than her original loan will have her $7,000 repayment forgiven.
Borrowers whose married couples earn less than $125,000 or $250,000 may have their accrued interest reduced by up to $20,000.
old loan
Borrowers can have their remaining balance wiped out if they have repaid the loan for at least 20 or 25 years, depending on the loan type.
Those who started repayments 20 years ago, or before July 1, 2005, are eligible for full cancellation if they received their loans as undergraduates. Those with other types of federal student loans may qualify if they started repaying them 25 years ago, i.e. before July 1, 2000.
When you start making payments depends on the type of loan. For Federal Stafford Loans, Direct Subsidized Loans, or Direct Non-Subsidized Loans, repayment begins after the initial grace period ends. For Federal PLUS Loans or Direct PLUS Loans, repayment begins on the date the loan is fully disbursed.
The proposal is aimed at helping older borrowers who have struggled with student loans for decades and may never be able to pay them back.
Other forgiveness programs
Although various student loan forgiveness programs have been around for years, some eligible borrowers may not be aware of them or may not apply for them. Those borrowers could have their loans automatically canceled under this proposal.
This would allow the Department of Education to cancel the entire loan balance of a borrower who meets the eligibility requirements for one of the existing income-driven repayment plans. Loans for those eligible for other targeted relief programs, such as Public Service Loan Forgiveness, Borrower Repayment Defense, and Closed School Discharge Programs, would also be canceled.
Advocates see this as a way to get relief to those who need it most but are struggling with the complicated application process or simply don’t know if they qualify. ing.
low value program
Borrowers could have their loans canceled if they attended a for-profit college program whose graduates would be unable to repay their federal student loans.
The Education Department will determine the value of college programs under a separate initiative known as the “employment rule,” and borrowers who graduate from programs that don’t provide value could have their outstanding loans erased. .
Borrowers are subject to cancellation if, while participating in the program, a graduate’s average federal student loan payment is too high compared to their average salary.
Generally, a program is considered failing if its graduates pay more than 8% of their average annual income in federal student loan payments. Borrowers are also subject to termination if the average salary of graduates of the program is lower than that of college workers with only a high school diploma.
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The Associated Press education team receives support from the Carnegie Corporation of New York. AP is solely responsible for all content.
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