Plan for cancellation of student loans moves forward

President Joe Biden's latest plan for student loan cancellation is moving forward as a proposed regulation, offering him a fresh chance to deliver on a campaign promise and energize young voters ahead of the November election.

The Education Department on Tuesday filed paperwork for a new regulation that would deliver the cancellation that Biden announced last week. It still has to go through a 30day public comment period and another review before it can be finalized.

It's a more targeted proposal than the one the U.S. Supreme Court struck down last year. The new plan uses a different legal basis and seeks to cancel or reduce loans for more than 25 million Americans.

Conservative opponents, who see it as an unfair burden for taxpayers who didn't attend college, have threatened to challenge it in court.

The Democratic president highlighted the the plan during a trip to Wisconsin last week, saying it would provide “lifechanging” relief. He laid out five categories of people who would be eligible for help.

The new paperwork filed by the Education Department includes four of those categories, while a separate proposal will be filed later addressing how people facing various kinds of hardship can get relief.

The broadest forgiveness category would help borrowers who owe more than they originally borrowed because of runaway interest. It would eliminate up to $20,000 in interest for anyone in that situation, while those with annual incomes below $120,000 and enrolled in income-driven repayment plans would get all their interest erased with no maximum limit. It would be done automatically.

Another category would cancel loans for people who have been paying back their undergraduate student loans for at least 20 years, and those who have been paying graduate loans at last 25 years.

It would automatically cancel loans for those who went to colleges or programs considered to have low financial value. Borrowers would be eligible for cancellation if they attended a program that leave graduates with earnings no better than those with a high school diploma, for example, or programs that leave graduates with large shares of debt compared with their incomes.

Borrowers who are eligible for other federal forgiveness programs but haven't applied would also get loans erased. Federal education officials would use existing data to identify those people and offer relief. It's intended to reach those who don't know about other programs or have been deterred by complicated application processes.

The proposal was hashed out over the course of several hearings as part of a federal rules process that gathers advice from outside experts. The plan was drafted with the help of students, college officials, state officials, borrower advocates and loan servicers.

During that process, advocates pushed for a fifth category of forgiveness for people who have different kinds of hardship that prevent them from being able to repay their loans. The Education Department said it's still working on the details of that rule, with a separate proposal to come “in the coming months.”

The department said the hardship proposal will offer cancellation to borrowers who are at high risk of defaulting on their loans along with those who face other hardships, including high medical and caregiving expenses. That proposal will mirror one agreed upon by outside experts during the rulemaking process, the agency said.