Generations of college students have used federal student loan to help cover the cost of college. Many students accepted financial aid awards of federal student loans with little understanding of the financial impact on their future. The outstanding federal student loan portfolio stands at over $1.6 trillion.
The peak of the federal student loan portfolio at the end of March 2023 at $1.644 trillion and has since dropped to $1.602 trillion at the end of September 2023. That drop is significant and can be partly attributed to the opportunities offered from the Biden administration.
President Biden and his administration have been chipping away at the federal student loan debt portfolio. It’s estimated that he has forgiven over $136 billion dollars for more than 3.7 million borrowers. Even though his attempt at mass forgiveness was overturned in the Supreme Court, many student loan borrowers have seen their balances reduced or disappear. If mass student loan forgiveness was approved, it was estimated that the program would have eliminated over $400 billion in federal student loan debt.
In this in-depth exploration, we'll dissect the various federal student loan forgiveness programs that have been offered under the Biden administration.
Deciphering the Opportunities for Federal Student Loan Forgiveness
The initiatives under the president's plan address different segments of the borrower population. The opportunities include, not presented in any order, one-time income-driven repayment (IDR) adjustment, requirement waivers under the public service loan forgiveness program (PSLF), total and permanent disability update, and borrower defense to repayment, and fast-tracked SAVE forgiveness.
One-time IDR Adjustment
The U.S. Department of Education realized that student loan servicers were not appropriately counting qualifying payments towards IDR plan forgiveness opportunities. All IDR plans offer forgiveness of remaining debt after a certain number of years of payments. Due to the inaccurate counting of payments, some borrowers had been making payments beyond their 20- or 25-year repayment terms.
To qualify for this count adjustment, Direct Loan borrowers do not need to take an action. The U.S. Department of Education has been and is currently reviewing borrower accounts and updating the counts based on the adjustment criteria. FFEL and Perkins Loan borrowers are not eligible for this adjustment unless they consolidate their loan with a Direct Consolidation Loan. Borrowers must apply for the Direct Consolidation Loan by April 30, 2024.
Since this is adjustment period is still on-going, it is estimated that borrowers have see approximately $45.7 billion in debt cancellation for 930,500 borrowers through Jan. 19, 2024.
PSLF Requirement Waivers
PSLF waivers were offered through the end of October 2023. Since the release of the PSLF opportunity in 2007, by 2020 only 2% of applications received were approved. While PSLF is a fantastic opportunity for borrowers working in public service, the plan was extremely complicated. Many borrowers who submitted their applications were rejected after they already spent more than 10 years in repayment and failed to meet the requirements
The PSLF plan, as written requires a student loan borrower with a Direct Loan to make 120 monthly payments, while working full-time for an eligible government or 501(c)(3) nonprofit employer, while repaying their loan under an eligible repayment plan. Eligible payments had to be made in a 10-year Standard Repayment plan or IDR plan.
PSLF waivers offered by the Biden administration temporarily eliminated almost all requirements, except full-time employment at an eligible employer. Borrowers with FFEL and Perkins loans were eligible to consolidate their loans into the Direct Loan program and they would receive credit for all months their loan(s) was in a repayment status. These waivers allowed borrowers to resubmit their applications. The latest information states that $56.7 billion was forgiven for 793,400 borrowers who successfully submitted their application for PSLF during the waiver period.
Total and Permanent Disability (TPD) Discharge Updates
Recent changes to the TPD qualifications, which includes a method to match with the Social Security Administration to help borrowers qualify for TPD. This has allowed for $11.7 billion in TPD discharge for over half a million borrowers who are totally and permanently disabled.
Borrower Defense Discharges
Since the Obama administration, the U.S. Department of Education has been managing discharge claims submitted under a provision in the Higher Education Act of 1965, as amended, which allows the Secretary of Education to discharge student loans if the school where they attended violates certain laws or defrauds and misleads students. These discharge requests are known as Borrower Defense discharge claims.
Several nationwide schools made the headlines several years back, such as Corinthian Colleges. Specifically, in 2015 Corinthian Colleges was fined almost $30 million dollars by the U.S. Department of Education, after it was found that they had misled students about the prospects of employment after completing their programs. Within weeks of receiving the fine, Corinthian Colleges across the country shut down. While not the only notable school who was fined for misleading students, it was one of the largest.
Not all school closures are due to illegal activity and fines. However, if a student were to attend a school which closed after cheating their students, those who borrowed federal student loans may be eligible for a Borrower Defense to Repayment discharge.
These cases have been occurring for years, and there have been a few federal cases tried in court. On Nov. 16, 2022, Sweet vs. Cardona was approved by a federal judge in California. It supported 264,000 borrowers with at least $6 billion dollars in student loan relief.
While Sweet vs. Cardona discharged loans for thousands of borrowers, there were additional borrowers who were seeking a review of their Borrower Defense claims. The Biden administration allowed students to be considered in groups rather than case-by-case. Simply meaning, once a school is determined to have cheated students, the discharge opportunity may be available to certain students who attended those schools during a certain timeframe. Under the Biden administration, the total amount forgiven for Borrower Defense claims is $22.5 billion for more than 1.3 million borrowers.
Fast-tracked SAVE Repayment Plan Forgiveness
In one of the more recent updates from the Biden administration, many borrowers are beginning to see benefits from a fast-tracked implementation of SAVE Repayment Plan forgiveness. The SAVE Plan is the newest IDR plan that was introduced at the end of the pandemic relief period. The plan is the most generous IDR plan, and it will be the most affordable plan for most borrowers.
The SAVE Plan is being released in two phases. While phase one allowed for borrowers to enroll, phase two is going to offer lower payments for some borrowers. It was announced in January of 2024 that the forgiveness opportunity for borrowers who had originally borrowed $12,000 or less could be eligible for forgiveness after ten years of payments beginning in February 2024, rather than July 1, 2024.
This forgiveness opportunity is still being rolled out. It’s estimated that borrowers will see $1.2 billion for 150,000 borrowers enrolled in the SAVE Plan.
Biden’s “Plan B”
President Biden attempted mass forgiveness, Plan A, using authority under the HEROES Act, which was enacted due to a National State of Emergency. However, after being subject to legal challenges, the plan was overturned in the Supreme Court. President Biden made it clear that he wasn’t ready to give up on mass student loan forgiveness. He stated that he is working and will continue to work on a Plan B that will go through the negotiated rulemaking process. A process which allows for proposed regulation and public comments, before issuing final regulations.
Proposed guidelines have been released by the Biden administration. It seems like Plan B will offer student loan forgiveness to borrowers who are experiencing financial hardships which could impair their ability to repay their debt. In addition to hardships, there are other considerations such as those who owe more than they borrowed, those who have been in student loan repayment for more than 20 years, those who attended institutions who have poor student outcomes (high debt, inability to obtain employment, high default rates, etc.), those who are eligible for forgiveness but did not apply.
Like “Plan A”, legal challenges can be expected for “Plan B”. The final details of this plan will not be released until final rules are published—which are expected to be released before November of 2024.
Through the Labyrinth of Federal Student Loan Forgiveness
The hope for student loan forgiveness remains for many borrowers. However, the idea of mass forgiveness with minimal eligibility requirements likely isn’t in the cards. Forgiveness opportunities due to public service, teaching, or even several decades in repayment will likely exist in the future. But newer plans and regulations have been subject to challenge. Just this past week, the Kansas Attorney General Kris Kobach announced his intention to challenge the SAVE repayment plan. He argues that the SAVE plan exceeds the administration’s legal authority to forgive student loans at the cost of taxpayers. Once “Plan B” is finalized, it is expected to face legal challenges as well.
If you are eligible for student loan forgiveness, it would be silly to not take advantage of the opportunity. However, borrowers should not rely on the expectation of forgiveness.
What’s the Cost of Student Loan Debt Forgiveness?
While certain taxpayers may find relief through student loan forgiveness, the relief isn’t free—the costs of forgiveness are covered by all taxpayers. Depending on your dinner table, this conversation may be for or against mass student loan forgiveness.
Many student loan borrowers are open about their struggles with student loan repayment. This relief may allow these borrowers to move forward financially in their lives—buy homes, have children, etc. And for others who managed to move forward in life, with or without college, or with or without student debt, it may seem a bit unfair.
President Biden has been proud of the relief he has offered to million of borrowers. Ultimately, in an election year, where do you stand?