The Biden administration on Friday unveiled its latest proposal to cancel student loans for millions of Americans, moving forward with efforts even as other major attempts at debt relief remain pending in court. are.
The new scheme aims to help borrowers facing financial difficulties that make it difficult to repay their loans in full. The Education Department estimates that up to 8 million people could have their debts partially or fully canceled at a cost of about $112 billion.
This effort will create two new paths to forgiveness. First, the government will automatically forgive a borrower’s loan if it determines there is at least an 80% chance of default within the next two years, based on a formula. The Department of Education uses its own internal data to make these predictions and does not require individuals to apply for one-time programs.
Borrowers who do not qualify for automatic forgiveness will be able to apply for a second program. Under the program, the government would use a long list of factors, including household income, debt levels and debt levels, to make a “holistic” assessment of whether someone is facing financial hardship. Do you have a disability? What school did you attend?
Government officials say the new plan is aimed at canceling debts when borrowers have such difficulty repaying their balances that it is no longer worth the government to try to collect. suggested.
“Remember, default repayments and collections are not free,” Education Secretary Miguel Cardona said at a press conference. “This costs taxpayers money and could harm borrowers.”
The new plan is proposed as the first step in a formal rulemaking process under the Higher Education Act, which could take months to complete, and questions remain as to whether a potential Trump administration will implement the plan. has been done.
Nevertheless, the move received praise from student loan advocates who have long argued that the president has broad authority to forgive debt, especially for troubled borrowers.
Read more: Am I eligible for student loan forgiveness?
U.S. Secretary of Education Miguel Cardona speaks at the White House in September. (AP Photo/Rod Lamkey Jr.) · ASSOCIATED PRESS
“That’s good. It’s necessary. It’s overdue,” said Mike Pearce, executive director of the Student Borrower Protection Center. “This is a power that the Secretary of Education has held for half a century and has been used haphazardly. But we need comprehensive clarity on how it should be used and who it should help. I never did.”
The move comes amid a long and tangled legal battle over student debt forgiveness, with the Biden administration repeatedly having its efforts to cancel debt blocked by lawsuits brought by Republican-led states. It’s here.
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The Supreme Court has rejected President Biden’s first full-scale attempt to provide broad student loan forgiveness in 2023, finding that the administration overstepped its authority under federal law on which it had relied.
In April, the administration announced a new plan aimed at helping about 30 million struggling borrowers under a separate legal authority. A group of Republican state attorneys general filed a lawsuit seeking an injunction to block the proposal before it was finalized, and a federal judge suspended the proposal earlier this month. Government officials stressed that the new plan announced Friday is legally separate from those rules, even though both rely on the same law.
The Biden administration’s new generous student loan repayment plan, known as SAVE, is also currently frozen in court. As a result, approximately 8 million borrowers who were enrolled in the program now have their loans suspended.
Kevin Carey, New America’s education policy program director, said he was skeptical the new program would survive a court challenge. But even if it were possible, he said, a “comprehensive” assessment of potentially millions of forgiveness applications would be a logistically difficult task.
“I think this is either very naive or very cynical,” he said. “The cynical interpretation is that the authorities are not going to do this because they expect law enforcement to stop them.”
Jordan Weissmann is a senior reporter at Yahoo Finance.
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