President Joe Biden unveiled his third attempt at student loan cancellation with a new rule that would help borrowers who are unlikely ever to be able to repay their loans.
The proposed measure, which was announced Friday, would allow the U.S. Department of Education (DOE) to proactively cancel loans for borrowers if the department determines that the borrowers have an 80 percent chance of being in default on their loans within two years. A loan is typically considered in default if a payment hasn't been made in roughly nine months.
Other borrowers could apply for a review to determine if they meet the criteria for loan forgiveness. The DOE estimates roughly 8 million Americans would qualify for this new rule.
The measure will enter a 30-day public comment period before it could become official. Biden's administration said it plans to finalize the new rule in 2025.
The administration said it has the authority to implement this new rule under the Higher Education Act, which allows the education secretary to waive debt in certain cases. It also mentioned that other federal agencies often waive debts owed to them when considering factors like "good conscience" and equity.
Who Could Qualify for Cancellation?
People with unexpected medical bills, high costs for child care or care for relatives with chronic illnesses and those who took a financial hit after a natural disaster could be included in those eligible for cancellation, according to the DOE.
The department could use several factors to determine whether someone is likely to default on their loans, such as household income, age, whether they receive public benefits and their overall debt, which can include other debt besides student loans.
The new rule also allows for the consideration of "any other indicators of hardship identified by the Secretary."
'Broken Student Loan System'
Education Secretary Miguel Cardona said, "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."
With roughly 1 million borrowers in default every year, Cardona said the new rule would prevent the DOE from trying to collect money it's unlikely to get back.
"Servicing and collecting on defaulted loans is not free, it costs taxpayer dollars," Cardona said in a call with reporters. "And there's a point when the cost of trying to collect on a defaulted loan just is not worth it."
Student Loan Forgiveness Faces Backlash
U.S. Representative Virginia Foxx, a North Carolina Republican who chairs the House Education and the Workforce Committee, called the new rule a "sham plan."
"The latest blatant attempt to bribe voters is the hallmark of a desperate administration that's squandered the chance to make meaningful, lasting reform when it comes to college costs," Foxx said in a statement.
Biden ran for president in 2020 on a promise to forgive student loan debt. He has endorsed Vice President Kamala Harris for president this election cycle. Harris, the Democratic presidential nominee, has not detailed her plans for student debt cancellation if she wins the presidency during the November 5 election. Meanwhile, former President Donald Trump, the Republican presidential nominee, has called Biden's student debt cancellation proposals unfair and illegal.
Legal Challenges Against Biden's Past Cancellation Plans
Last year, the U.S. Supreme Court rejected Biden's plan to forgive up to $20,000 for millions of Americans following a lawsuit from Republican states aimed at blocking it.
Biden's second attempt at student loan forgiveness would give relief to groups of borrowers such as those with large sums of interest and those with older loans. His proposal has been temporarily blocked by a federal judge in Missouri pending a legal challenge from Republican states.
Despite legal challenges, the Biden administration said it has canceled $175 billion in student loan debt for about 5 million borrowers.
This article includes reporting from The Associated Press.
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