As national student debt approaches $1.8 trillion, the past two years have seen major developments in the federal student loan program. NCSL recently hosted a two-part webinar series, “Student Loan Forgiveness in Focus,” to help explain the many ways the U.S. Department of Education is providing student debt relief and explore how these actions may impact the state-federal relationship in higher education.
In the final webinar of the series, the department broke the news of its new student debt relief plan and answered questions on how borrowers can take advantage of the limited-time waiver program for Public Service Loan Forgiveness. Earlier in the series, experts from The Pew Charitable Trusts discussed the most common pathway for loan relief through income-driven repayment plans. NCSL experts also summarized recent state legislative activity on student debt.
Here is a summary of recent federal actions on student loans:
Biden Student Debt Relief Plan
The administration’s debt relief plan would cancel up to $10,000 in student debt for individual borrowers with annual incomes under $125,000 or households making less than $250,000. Borrowers who received a Pell Grant could be eligible for up to $20,000 in debt cancellation. Comments from the Education Department indicate that all loans disbursed before July 1, 2022, are eligible. For borrowers whose income is not already known to the department, a simple application to certify income is expected to be available by early October.
The plan will likely provide relief for over 43 million borrowers, and 20 million of those will likely see their entire debt wiped out. The University of Pennsylvania Wharton School estimates the plan will cost up to $519 billion over 10 years, while the Committee for a Responsible Federal Budget projects the plan will cancel $525 billion in student debt.
Details about the plan continue to be released, but it could face litigation that would delay or prevent its implementation.
Student Loan Pause
The student loan pause, in effect since March 2020, has been extended again through Dec. 31. Until then, borrowers may cease payments and won’t see interest accrue or face collections activity. Every month of the pause, regardless of whether borrowers make a payment, still counts toward other loan-forgiveness options such as income-driven repayment and Public Service Loan Forgiveness. According to the Congressional Budget Office, each month of the pause costs around $4.3 billion. In the end, the 34-month loan pause will likely cost about $150 billion.
The department also announced the “Fresh Start” initiative, which gives the nearly 7 million borrowers who are currently in default on their loans an opportunity to reenter repayment in good standing when the loan pause ends.
Existing Forgiveness Authorities
Since 2021, the Biden administration has forgiven over $33.5 billion in student loans using existing loan forgiveness authorities, including Public Service Loan Forgiveness, Borrower Defense to Repayment and Total and Permanent Disability.
In just the past year, $10 billion in loans has been forgiven, mostly through a waiver process that allows eligible borrowers to retroactively receive credit toward forgiveness for past loan payments regardless of loan program or repayment plan. The Education Department is offering this one-time waiver program through Oct. 31.
Another $14.5 billion in loans has been forgiven through the Borrower Defense to Repayment authority, which allows debt relief for borrowers who make successful claims that they were misled or defrauded by their institution, or were attending a school when it closed. Another $9 billion in relief has been provided to students who are unable to repay their loans due to a total and permanent disability.
The department also proposed a new, more generous income-driven repayment plan. Income-driven repayment is likely the most common pathway for average borrowers to have their loans forgiven. Under current plans, borrowers’ debts can be forgiven after 20 or 25 years of successful repayment. Undergraduate borrowers who enroll in the new plan will make monthly payments based on 5% of their discretionary income, which is defined as any income above 225% of the federal poverty level—about $30,577 for an individual. Borrowers with less than $12,000 in debt can also receive forgiveness after 10 years of successful payments, and the proposal will eliminate interest capitalization by covering borrowers’ unpaid monthly interest.