8 Million Borrowers Could Get Student Loan Forgiveness Based On Hardship Under New Plan — If It Proceeds

After months of anticipation, the Biden administration on Friday formally unveiled draft regulations for a new student loan forgiveness plan geared toward borrowers who are experiencing financial hardship. The program, if it gets implemented, could allow eight million borrowers to wipe out their federal student loan debt.

“For far too long, our broken student loan system has made it too hard for borrowers experiencing heartbreaking and financially devastating hardships to access relief, and it’s not right,” said U.S. Secretary of Education Miguel Cardona in a statement on Friday. “The rules proposed by the Biden-Harris Administration today would provide hope to millions of struggling Americans whose challenges may make them eligible for student debt relief.”

The new student loan forgiveness initiative is almost certain to face legal challenges, however. And Republican state officials have been successful so far in challenging several other Biden administration student debt relief programs.

Here’s what borrowers should know about the new plan.

Who Would Qualify For Student Loan Forgiveness Based On Hardship

The new hardship-based student loan forgiveness plan is an extension of the so-called “Plan B” program the Biden administration unveiled earlier this year. That initiative, designed to be a second shot at mass debt relief after the Supreme Court struck down President Biden’s first attempt last year, would focus relief on four categories of borrowers. This would include those who first entered repayment more than two decades ago, and borrowers whose balances have ballooned due to interest accrual.

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Advocates for borrowers had pushed the Education Department for a year to establish a fifth pathway for relief based on hardship. The department ultimately did so, but opted to create a separate set of rules and regulations governing this option. On Friday, the department released draft regulations, which would provide two separate routes to hardship-based student loan forgiveness.

“The first pathway would recognize the Secretary’s authority to grant individualized, automatic relief without an application,” said the department in its statement on Friday. “The Secretary could provide relief on a one-time basis to borrowers who the Department determines, based on a predictive assessment using existing borrower data, have at least an 80% chance of being in default within the next two years.” Officials would consider a number of hardship indicators based on information already available to the department such as income, types and balances of student loans, debt to income ratios, and Pell Grant recipient information.

“The second pathway would allow current and future cohorts of borrowers to receive relief based on a holistic assessment of the borrower’s hardship and would be primarily application-based,” says the department. Officials would conduct a robust review of a borrower’s overall circumstances to determine “whether a borrower is highly likely to be in default or experience similarly severe negative and persistent circumstances,” particularly if there are no other options for relief.

Borrower advocacy groups celebrated the release of the new loan forgiveness plan.

“Finally, eight million borrowers are getting the relief they desperately deserve,” said Kristin McGuire, Executive Director of Young Invincibles in a statement on Friday. “For too long, current and future borrowers have been left behind to juggle the burden of debt. This proposal brings us yet another step closer to the promised widespread debt relief, with a critical emphasis on financial hardship, ensuring that young adult borrowers are not a forgotten group.”

New Student Loan Forgiveness Plan Is Likely To Be Challenged

But borrowers may want to temper their expectations, as the plan is widely expected to face legal challenges. The Biden administration has already had several of its other student loan forgiveness initiatives halted by the courts.

In addition to Biden’s first mass debt relief program that was overturned by the Supreme Court last year, a federal court in Missouri has already issued an injunction blocking the initial portion of the “Plan B” student loan forgiveness program. A coalition of Republican-led states, spearheaded by the state of Missouri, successfully challenged the program before the department even published the governing regulations. The Biden administration is now seeking a dismissal of the lawsuit, given that technically, the program does not even exist yet.

Separately, the Biden administration is also facing legal challenges over the SAVE plan, a new income-driven repayment program designed to lower borrowers’ payments and curtail interest accrual. The SAVE plan is now blocked, as is student loan forgiveness under several other IDR plans.

Republican lawmakers blasted the latest Biden student loan forgiveness plan. House Education and the Workforce Committee Chairwoman Virginia Foxx (R-NC) characterized it as another attempt to “shift responsibility for paying for college from those who took out loans to those who didn’t,” according to a statement on Friday.

What’s Next For Hardship Student Loan Forgiveness

Nevertheless, the Biden administration is proceeding with next steps to try to implement the new hardship-based student loan forgiveness plan.

“The proposed regulations will be published in the Federal Register in the upcoming weeks,” said the Education Department on Friday. “After the proposed regulations are published, the public may submit comments through the Regulations.gov website for 30 days.”

If the plan does not get struck down by the courts, the department expects to finalize the regulations sometime in 2025 (typically, Education Department regulations go live in July). However, if the program survives a legal challenge, its fate will ultimately depend on the outcome of the upcoming national elections.