“Plan B” Student Loan Forgiveness Advances to Next Phase: 6 Critical Points to Note

The Biden administration has completed a key step in the creation of a new student loan forgiveness plan, capping off a months-long administrative process called negotiated rulemaking. 

President Biden has dubbed the new plan as “Plan B” in the wake of the Supreme Court’s ruling overturning his initial debt relief initiative in June 2023. 

Established under the “compromise” authority of the Higher Education Act, this plan uses a different statutory authority from the one used to create Biden’s first loan forgiveness plan (which would have wiped out $10,000 or more in federal student debt for many borrowers). 

The new authority allows the Education Department to waive, settle or compromise federal student loan debt under specific circumstances.

Here are the key takeaways. 

Negotiated rulemaking to build legal armor for the plan

To buttress the new plan against anticipated legal challenges, the Biden administration has been going through a meticulous negotiated rulemaking process (envisioned by the Higher Education Act itself) to create new regulations governing the program. This process involves a committee of individuals and advocates representing critical stakeholders, such as:

• Borrowers.
• Servicers.
• Veterans.
• Individuals with disabilities.

In a series of public hearings moderated by the Department of Education, the committee works towards a consensus on the department’s draft regulatory text. If consensus is reached, the department adopts the agreed-upon language in final regulations. If not, department officials have a freer hand in shaping the rules for the program. 

Negotiated rulemaking sessions are already on the books

In the fall of 2023, the department held three negotiated rulemaking sessions to discuss which borrowers would qualify for student loan forgiveness under Biden’s new plan, and how to implement the relief. 

Following pressure by advocacy groups, a fourth and final rulemaking session was convened in February 2024, focusing specifically on the issue of hardship-based loan forgiveness. With these rulemaking sessions now over, the Education Department is moving on to the next step.

Who’s most likely to benefit from Biden’s new plan?

Biden’s original student loan forgiveness plan aimed to cancel $10,000 or more in federal student loan debt for around 30 million borrowers, as long as their income was below certain thresholds. 

The Supreme Court, however, struck down this plan in 2023, ruling that such a massive debt relief program exceeded the scope of what Congress had in mind when it passed the HEROES Act, 2003 legislation authorizing the Education Department to waive federal student loan regulations in response to national emergencies.

The new approach, anticipating further legal scrutiny, narrows the scope of relief to specific borrower groups. Following the conclusion of the previous negotiated rulemaking sessions, it appears that these cohorts of student loan borrowers remain the likely beneficiaries of the new plan:

• Borrowers in repayment for longer than 20 or 25 years.
• Borrowers who attended predatory schools or institutions.
• Borrowers eligible for existing student loan forgiveness plans but haven’t applied.
• Borrowers who owe more than their original loan amounts, often due to interest or fees from default periods (which can be substantial).

Consensus paves the way for hardship-based loan forgiveness

Initially, the Education Department declined to release draft regulations for a fifth borrower category under Biden’s new plan: those facing persistent financial hardship. But after pushback from several members of the negotiated rulemaking committee — backed by student loan borrower advocacy groups — the department drafted hardship regulations and held a fourth rulemaking session.

A consensus was achieved, paving the way for borrowers to seek student loan forgiveness on hardship grounds. The approved draft regulations consider over a dozen so-called hardship “indicators,” such as the borrower’s age, educational attainment level, income and expenses, debt load, disability status, and loan repayment history.

Type of student loans that eligible for forgiveness under Biden’s plan

Despite its targeted nature, the new student loan forgiveness plan puts few restrictions on eligible federal student loans. Direct loans, government-held FFELP loans, and Parent PLUS loans could all qualify. 

Unlike other programs, such as Public Service Loan Forgiveness (PSLF) and the new Saving on a Valuable Education (SAVE) plan, the type of federal student loan is less of a limitation here. 

Private student loans, however, fall outside the scope of forgiveness under the new plan. This is because the Higher Education Act governs only federal student loans, not private loans.

Related: 4 Alternatives to Private Student Loan Forgiveness (For Sallie Mae, Discover, and Other Lenders)

Some student loan forgiveness will be automatic, but not all

During negotiated rulemaking, Education Department officials largely agreed on the need to automate student loan forgiveness wherever possible. The department and its contracted loan servicers are already buckling under the weight of implementing several other student loan programs. Receiving millions of new applications for relief may just be too much for the system to handle. 

The department could potentially automate student loan forgiveness depending on the category of relief that applies. 

For instance, the department may already have income data on file for a borrower based on a FAFSA or income-driven repayment plan submission. Additionally, existing loan data already includes the school a borrower attended, when their loans were first disbursed, and the date they entered repayment.

But borrowers seeking hardship-based loan forgiveness may ultimately need to submit some sort of application. The Education Department declined to commit to including cross-agency data-sharing requirements in the hardship regulations for the new plan.

Although some committee members argue the necessity for automatic hardship determinations, such as for those already receiving public benefits or enrolled in programs like Medicaid.

Loan servicer errors will not be basis for student loan forgiveness

Some negotiated rulemaking committee members pushed the Education Department to allow relief due to errors made by loan servicers. Millions of borrowers have been impacted by loan servicing problems over the years:

• Payment processing errors.
• Confusing or misleading correspondence.
• Costly delays.

The Biden administration imposed financial penalties on several of its contracted loan servicers in response to widespread problems associated with the end of the COVID-19 payment pause and the return to repayment.

Ultimately, the department declined to include student loan servicing problems as a basis for loan forgiveness under the new Higher Education Act plan. The department noted that initiatives such as the IDR Account Adjustment and Limited PSLF Waiver are already addressing the historic loan servicing problems. These initiatives allow borrowers to receive retroactive credit toward loan forgiveness that otherwise would not have counted, in many cases due to poor recordkeeping, forbearance steering and misinformation. 

Implementation timeline: Will the new plan offer early access to relief?

With the completion of negotiated rulemaking sessions, Biden’s new student loan forgiveness plan moves to the next phase: draft regulations to govern the program put together by the Education Department. These final regulations are expected to be published in May 2024 and should mirror areas of consensus reached by the rulemaking committee. 

Following a period of public comment, the department will implement the final regulations likely during the summer of 2024. However, borrowers may not be able to apply for relief under the plan until later in 2025. 

But in theory, the Biden administration could exercise early implementation authority to allow borrowers to apply for loan forgiveness sooner than that. Given the administration’s history of utilizing early implementation in other contexts (such as with the new SAVE plan), coupled with the upcoming presidential election, early implementation is very possible, if not likely.