Achieving forgiveness has always become a tough challenge, but it becomes harder during the Trump administration. Programs like Borrower’s Defense rule lost their attractiveness when thousands of applications were delayed or rejected. Even the most preferred opportunities like Public Service Loan Forgiveness had only a 1% success rate. Students had little hope that the government-assisted programs can help them to deal with student loan debt.
Luckily, with the presidency of Joe Biden, things changed in favor of students. Sure, there are still discussions on direct forgiveness options for borrowers, which seems not likely in the short run. However, Biden and his Secretary of Education Department, Miguel Cardona, bring fresh beginnings to student loan borrowers.
It has been only a few months since Biden started his presidency, but changes are already visible. This guide will present two new improvements which assist more than 300,000 borrowers in total.
Benefit for Misled Students under Borrower’s Defense
Borrower’s Defense to Repayment program was once attractive when the Obama administration developed it. This program helps borrowers to eliminate their student loan debt if for-profit schools defrauded them. During the Trump administration, previous Education Department Secretary DeVos did not believe in this program’s effectiveness and mentioned a “free money” opportunity that is unfair to taxpayers. Hence, the Education Department delayed application reviews, rejected them, or granted only a partial discharge.
In March 2021, Education Department Secretary Miguel Cardona changed the partial discharge rule.
Prior and Upcoming Calculation Method
The student loan debt discharge method was changed by Betsy DeVos, which granted a partial or full discharge. The methodology compared the median earnings of borrowers with graduates without debt. If the difference was high, the relief amount was also big. However, Cardona mentioned that this method was unfair and did not lead to proper student loan debt discharge calculation. Besides, this method made it almost impossible to achieve forgiveness for many borrowers.
Under the new rules, the ED will grant the full discharge together with reimbursement. Besides, it will inform the credit agencies to dismiss any credit history related to the forgiven debt from the credit reports.
Whom This Change will Benefit?
Some for-profit schools misled students by attracting them with false promises. They lied about job replacement rates, true costs of education, transferability of credits, or education quality to convince students to enroll. As a result, students enrolled in programs that were not worth the costs.
In 2014, Corinthian Colleges declared bankruptcy as a result of several lawsuits against them. It was alleged that the school distributed costly student loans, which the officials knew that students would not be able to repay. Therefore, Corinthian Colleges were fined $30 million. Soon after, ITT Tech closed its campuses due to the lawsuits that claimed the school lied about job replacement rates and engaged in fraudulent activities in loan distribution.
In turn, Senate Durbin suggested a plan to eliminate the student loan debt of such students studying in Corinthian College and ITT Tech as a part of the pandemic economy stimulus package. Although his suggestions were not added to the relief package, he still lauded Cardona’s efforts to eliminate such debt.
The full cancellation of student loan debt will benefit around 72,000 students, and eligible borrowers will get a notice from the Education Department about the forgiveness.
Relief News for Borrowers with Total and Permanent Disability Discharge
Total and permanent disability discharge allow such borrowers to eliminate their debt. In turn, the borrowers should prove their disability conditions. There exist three ways to prove- documentation from Veteran Affairs, Social Security Administration, and a physician. Except for the first method, the next two bring an additional requirement. If a borrower uses Social Security Administration or physician’s certificate to prove disability, he/she will be subject to a three-year monitoring period. If the borrower starts to earn more income in this period, the ED can eliminate his/her discharge and reinstate student loans. Hence, the borrowers are required to provide income documents during this period.
About the Relief
It was found out that 98% of borrowers again were responsible for repaying the debt not because their income was high but because they could not provide the necessary documentation. COVID-19 emergency and its effect on procedures made the situation even worse. Hence, the Education Department announced that 190,000 borrowers in a three-year monitoring period are not required to provide earning documentation as long as the COVID-19 emergency continues. Besides, 41,000 borrowers who got loans reinstated due to inability to submit earning documents will again get the discharge which means $1.3 billion student debt will be forgiven again.
The Education Department also added that they are developing new plans to monitor earning information for disabled people. Borrowers eligible for these changes will receive notices in a few weeks.
What Further Benefits Could be Expected?
Currently, one of the major topics of discussion is the direct forgiveness benefit. A year ago, Biden expressed his support for $10,000 forgiveness per borrower. Meanwhile, top Democrats pressured Joe Biden to grant $50,000 forgiveness, even without Congress’s approval, through executive action. However, Biden already noted that he is not going to take any action without Congress’s approval. Yet, the Press Secretary’s tweet indicated that the president still supports the forgiveness idea.
Changes to Public Service Loan Forgiveness
Direct forgiveness can be hard to achieve, but changes to Public Service Loan Forgiveness can be expected. During the elections, Biden presented his “Plan for Education beyond High School.” In this plan, he said that the current Public Service Loan Forgiveness program is very complex. He suggested changing the process to benefit more public employees.
The current PSLF program grants forgiveness after the borrower makes 120 qualifying payments. In other words, it takes a minimum of 10 years to qualify. In some cases, there happens to miscount during a ten-year period, and many of the borrower’s payments do not qualify for the program. However, it becomes too late to solve the problem.
Biden proposed granting $10,000 student loan forgiveness per service year. Borrowers can apply for this program five times which means they will get a $50,000 benefit in five years.
This change might be a proposal for now. However, considering how far the government went in student loan debt forgiveness in less than three months, it is reasonable to think that it will not take much time to observe the change.
