What are the new student loan regulations to alleviate debt burdens for borrowers?
President Biden has been under pressure to pass student loan forgiveness and his Education Department has proposed new policies to ease borrowers’ burdens.
The Education Department announced new proposals on Wednesday to reduce the financial burden placed on students and graduates. For some time President Joe Biden has been under pressure to approve widespread loan forgiveness, a principle that he campaigned on in 2020.
Currently more than 43.4 million Americans are saddled with student debt. The new programs, and loosening of eligibility for existing ones, is designed to ease the loan burden for disabled students, public service workers, and borrowers who were misled by their schools.
There are 46 million Americans struggling with student loan debt that need relief. It’s time for @POTUS to #CancelStudentDebt!
— Rep. Frederica Wilson (@RepWilson) July 7, 2022
Last week, I sent a letter to the @WhiteHouse urging further action on the student debt crisis.
Here’s why 🧵
It is hoped that the new measures will make it easier for borrowers to get their debt discharged and will prevent them from racking up huge interest charges.
“We are committed to fixing a broken system. If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it,” said Secretary of Education Miguel Cardona. “The Biden-Harris Administration is determined to build a more accessible, affordable, and accountable student loan system.
“These proposed regulations will protect borrowers and save them time, money, and frustration, and will hold their colleges responsible for wrongdoing,” he added.
The Department is aiming to finalise these programs by November, so they can be introduced no later than 1 July, 2023.
What are the new proposals to help student loan borrowers?
The proposals forwarded by the Department of Education are varied but there are a few key programs that, Biden hopes, will help to satisfy the calls for greater action on student loan forgiveness.
The first is a limit on interest capitalisation which would prevent borrowers’ outstanding balance from ballooning. In the current system, when interest is accrued that is added to the principle balance of their outstanding debt. This means that when interest is next applied, the starting figure is larger and their debt grows at a compound rate.
There will be greater protections offered to borrowers who are misled by their schools, or whose schools close before they have been able to complete their degree. The proposals will also remove the three-year income-monitoring period for borrowers who have claimed a reduction due to disability, something which is currently a requirement for borrowers to have loans discharged under existing programs.
The Biden administration proposed several sweeping changes to the federal student loan system, including measures to help forgive loans for physically & mentally disabled borrowers, and help those working as public service employees earn loan forgiveness. https://t.co/OmcUMVOECy
— Jon Cooper (@joncoopertweets) July 7, 2022
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There are also new initiatives that will provide financial incentives for those who enter public service after graduating. This would mean that more borrowers can qualify for deferments and forbearance for Peace Corps and AmeriCorps service, National Guard duty, and military service.
“Whether it is for closed school discharges, borrower defense claims, PSLF, or relief after a total and permanent disability, borrowers have had to navigate narrow rules and a needlessly complicated system,” said James Kvaal, Under Secretary of Education. “The regulations we’ve proposed today would remove many of those barriers and help create a federal student loan system that works better for borrowers.”