WASHINGTON (AP) — The Biden administration is pursuing a novel approach to canceling student loans for Americans facing high medical bills, child care costs and other financial difficulties that prevent them from paying back their loans.
The proposed rule announced Friday is President Joe Biden’s third attempt to cancel student loans as he faces repeated legal challenges from Republican states. His first plan was rejected by the Supreme Court last year and his second plan was temporarily halted by a federal judge in Missouri.
The novel rule would have to overcome a number of hurdles before it becomes official, and it is unclear whether it could be implemented before Biden leaves office in three months. As with Biden’s other loan forgiveness proposals, it could face legal challenges from conservatives who say it is unconstitutional and unfair.
If passed, the novel rule would allow the Department of Education to proactively cancel loans for borrowers if the agency determines that they have an 80% chance of defaulting on their loans within two years. Others may request a review to determine whether they meet the criteria for cancellation.
It is intended to support borrowers who are unlikely to ever be able to repay their loans. The Department of Education estimates that about 8 million Americans would be eligible for an annulment.
“For far too long, our broken student loan system has made it too difficult for borrowers in heartbreaking and financially devastating hardship to access relief, and that is not right,” said Education Secretary Miguel Cardona.
Those eligible could include people with unexpected medical bills, high child care costs, high costs associated with caring for chronically ill relatives and those experiencing financial hardship as a result of natural disasters, the Education Department said.
House Education and Workforce Committee Chairwoman Virginia Foxx, R-N.C., called it a “sham plan” aimed at luring voters ahead of the presidential election.
“The latest blatant attempt to bribe voters is the hallmark of a desperate administration that has squandered the chance for meaningful and lasting college cost reform,” Foxx said in a statement.
Under the proposal, the department could exploit a range of factors to assess whether someone is likely to default on their loans. This includes household income, age, whether they receive public benefits and their total debt – not just student loans.
It also allows for “any other indicators of hardship identified by the Minister” to be taken into account. A loan is typically considered delinquent when no payment has been made in approximately nine months.
Given that about a million borrowers default each year, Cardona said the novel rule would prevent his agency from collecting money it is unlikely to recover.
“Servicing and recovering defaulted loans is not free, it costs taxpayer money,” Cardona said in a phone call with reporters. “And there comes a point where the cost of trying to collect on a defaulted loan is simply no longer worth it.”
The proposal has a 30-day public comment period before it can become official. The government said it plans to finalize the rule in 2025. She faces an uncertain future as she arrives less than two weeks before the November 5 presidential election.
Vice President Kamala Harris, the Democratic nominee, has not elaborated on her plans for student debt relief if she wins the presidency. Republican candidate Donald Trump has called Biden’s cancellation proposals unfair and illegal.
Biden’s latest proposal is the result of a federal regulatory process that involved experts from across higher education sectors. Advocates pushed strenuous for the hardship provision, saying too many borrowers were trapped in debt they could never repay.
The Biden administration said it has authority under the Higher Education Act, which allows the education secretary to waive debt in certain cases. It also noted that other federal agencies routinely waive their debts, taking into account factors such as “good conscience” and fairness.
It’s a similar legal argument used to justify Biden’s second attempt at student loan forgiveness, which proposes relief for groups of borrowers including those with high interest balances and those with older loans. A federal judge in Missouri blocked that plan due to a legal challenge from Republican states.
Biden campaigned for the White House on a promise to cancel novel student loans, but his biggest plans were halted by Republican opponents. Last year, the Supreme Court rejected a plan to forgive up to $20,000 for millions of Americans after several Republican states sued to block it.
Amid its legal battles, the administration has increasingly shifted its attention to canceling student loans through existing programs, including one for public workers. In total, the government says it has now forgiven around 5 million borrowers $175 billion.
The hardship provision was originally discussed as part of the second attempt plan now on hold in Missouri, but the Education Department canceled it and made its own proposal to spend more time on the details.
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