Major Student Loan Relief Proposals from Department of Education 

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Dec 12, 2023

Since October, we’ve reported on the Negotiated Rulemaking (Neg Reg) process in the wake of the SCOTUS decision against the Biden administration. The committee has been discussing ideas to implement a “Plan B” to provide loan relief to borrowers. As we’ve noted, this second attempt is targeting specific groups (or demographics) of borrowers instead of mass loan forgiveness simply based on an income threshold. The Department of Education recently put several recommendations for full or partial loan cancellation in front of the Neg Reg committee for consideration and deliberation during their final meetings this week. We’ve grouped and summarized these for you below.  

Borrowers whose current balances exceed their original principal balances

This is typically due to participation in an Income-Driven Repayment (IDR) plan where monthly payments are less than monthly interest accrual. Non-payment, late payment, or partial payments can also cause borrowers to be in this situation. The “up to” phrasing means they will only cancel enough to get the loan back to the original amount borrowed or consolidated.  

  • Up to $10k loan cancellation for borrowers on IDR plans. 
  • Up to $10k loan cancellation for borrowers whose income is less than 225% of the Federal poverty level. 
  • Up to $20k loan cancellation for borrowers in the new SAVE plan who make less than $125k annually (or $250k for married borrowers filing jointly). 

Borrowers who have met the time or service requirement for an existing loan forgiveness program, but missed out for one reason or another

Borrowers facing these circumstances will be granted complete loan cancellation: 

  • Borrowers who entered repayment on Federal loans prior to July 2005. This waiver only applies to undergraduate loans. 
  • Borrowers who met the eligibility requirements of an IDR plan but were not enrolled in an IDR plan. 
  • Borrowers who met the eligibility for any loan discharge, cancellation, or forgiveness opportunity, but did not successfully apply for it. This refers to programs such as PSLF, teacher loan forgiveness, and dozens of others.  

Borrowers negatively impacted by their schools

Borrowers in each of these positions will also be granted complete loan cancellation: 

  • Borrowers who attended schools where Federal funding was taken away (usually for wrongdoing). 
  • Borrowers who attended schools that shut down. 
  • Borrowers from closed Gainful Employment programs with high debt-to-earnings rates or low median earnings. (Note: there is a ton of fine print with this one. We recommend waiting until the final rules come out before reading too far into it.)   

Since all of these suggestions are on the table for debate, with the final discussions happening today, we’ll stop here for now. Once the Neg Reg process wraps up, and the Department of Education provides some announcements or feedback, we’ll be able to provide greater detail and insight. If interested, check out the full proposal here. The cancellation (waiver) provisions begin on page nine.  

As always, our team of expert loan advisors is available to connect with you to review your account, weigh your repayment and forgiveness options, and help you formulate a strategy to maximize all available savings opportunities.  

Here are the targeted groups the committee was instructed to consider: 

  1. Those whose debt balances have grown higher than their original loans. 
  1. Those who have been in repayment for 20/25 years or more. 
  1. Those whose institutions or programs provided low financial value to their graduates. 
  1. Those who took out loans so long ago that the same federal benefits didn’t exist as they do now. 
  1. Those who have extreme financial hardships. 

As the committee prepares for their third and final meetings on December 11th and 12th, the Department of Education put a proposal in front of them with specific recommendations for the above-listed groups. As you can likely guess, they are recommending complete loan cancellation for groups two through five, albeit with certain caveats for those borrowers.  

With many of our readers working in the healthcare sector, however, the recommendation for group one is what really caught our attention. The Department of Education wants to provide up to $20k of loan cancellation for these borrowers if their annual income is less than $125k (and twice that for married borrowers filing jointly). If this sounds oddly familiar, it’s because those are generally the same conditions and relief amounts which the Biden administration originally proposed over a year ago. So, what’s different? Two things… 

First, only a fraction of borrowers fall into group one, which primarily refers to those who were on Income-Driven Repayment (IDR) plans and experienced something called negative amortization. This is a condition where your monthly loan interest is higher than your monthly IDR payment, and your debt level actually increases with each payment. In other words, you’re upside down on your loan. It’s difficult to know how many borrowers have experienced this, although we know many of our readers in the healthcare professions either were or still are in this situation. Medical residents, for instance, often rack up tens of thousands in negative amortization during training.  

Second, the proposal is for “up-to” $20k. If your debt level has only increased by $3k, that is all you’re getting. Basically, the scope and impact of this proposal is far smaller than the previous attempt.  

Now these details – while only proposed at this time – are important. You must be on the new SAVE plan in order to qualify for this relief with the $125k income threshold (and again, $250k for married filing jointly). What is interesting about this proposal is that the new SAVE plan doesn’t allow for any interest to accrue, and no Federal Direct loans accrued interest under the three-and-a-half-year span of the CARES Act either. In other words, this would primarily impact those who graduated prior to 2020. 

There are other proposals which would allow for complete cancellation for the other groups listed above, with some specific conditions met, of course. There is also a proposal for up to $10k cancellation at the secretary’s discretion. That certainly caught our attention. But without any context or commentary, it is difficult to know what the Department of Education’s intentions are with that one. 

With all of these suggestions on the table, and with two more days of discussion on the docket, we’ll stop here for now. Once the Neg Reg process wraps up, and the Department of Education provides some announcements or feedback, we’ll provide greater detail and insight. If interested, check out the full proposal here. The cancellation (waiver) provisions begin on page nine.  

Brandon Barfield
Brandon Barfield

Brandon Barfield is the President and Co-Founder of Student Loan Professor, and is nationally known as student loan expert for graduate health professions. Since 2011, Brandon has given hundreds of loan repayment presentations for schools, hospitals, and medical conferences across the country. With his diverse background in financial aid, financial planning and student loan advisory, Brandon has a broad understanding of the intricacies surrounding student loans, loan repayment strategies, and how they should be considered when graduates make other financial decisions.

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