6 Crucial Details You Can’t Miss About Biden’s Newest Student Loan Forgiveness Plan

The Biden administration is moving forward with a brand new student loan forgiveness plan. If implemented, millions of borrowers could receive partial or complete debt relief.

Biden’s latest plan is the culmination of a year-long effort to establish a “Plan B” for mass debt cancellation after the Supreme Court nixed Biden’s first broad-based loan forgiveness initiative last summer. After multiple public hearings that were part of a complex negotiated rulemaking process, the Education Department is now finalizing the regulations governing the new program. Relief could begin in only a matter of weeks.

Here's what borrowers need to know.

New legal foundation for Biden's student loan forgiveness plan

Biden’s first attempt at mass student loan forgiveness was based on the HEROES Act of 2003. This statute, which Congress passed in the wake of the September 11th terrorist attacks, authorizes the Education Department to waive or modify elements of the federal student loan system in response to a national emergency. 

While the statute's language is quite broad, the Supreme Court’s conservative majority ruled that Congress never contemplated mass student loan forgiveness as part of that waiver authority. Therefore, the new plan was an overreach, the court said.

Shifting to the Higher Education Act

The newest loan forgiveness plan is tied to an entirely different legal authority. The Higher Education Act, a separate statute, allows the Education Department to “compromise” or “waive” federal student loan obligations. 

Unlike the HEROES Act, which was never used to enact any form of significant debt cancellation, multiple administrations have repeatedly used the compromise authority of the Higher Education Act to settle or even write off defaulted federal student loans or resolve litigation. 

However, the provision has never been used to enact broad-based student loan forgiveness.

The role of negotiated rulemaking in the new plan’s legal strategy

Officials hope that the Education Department’s use of negotiated rulemaking — a lengthy, formal process to create new regulations — will help place the new loan forgiveness initiative on firmer legal footing. The HEROES Act does not require the department to go through that process, and opponents of Biden’s first debt relief plan had argued that the administration should have initiated negotiated rulemaking.

Who qualifies for automatic forgiveness? Four borrower groups identified

Under the new student loan forgiveness plan, four separate groups of borrowers could qualify for partial or complete debt relief. This includes:

• Borrowers who owe more than they did at the start of repayment due to runaway interest accrual or capitalization.
• Borrowers who would otherwise qualify for loan forgiveness under other programs, like IDR plans or closed-school discharges but haven’t successfully enrolled or applied for that relief.
• Borrowers with only undergraduate debt who first entered repayment on or before July 1, 2005, and borrowers with graduate school debt or a mix undergraduate and graduate debt who first entered repayment on or before July 1, 2000.
• Borrowers who attended schools that lost eligibility, or closed while at risk of losing eligibility, to give out federal student loans, due to poor student outcomes or a school’s failure to meet federal standards.

In updated guidance released last week, the Education Department indicated that once the program launches, qualifying borrowers will receive partial or complete student loan forgiveness automatically without needing to submit an application. 

Hardship-based student loan forgiveness on the horizon

In addition to the four initial categories, the department plans to launch a related loan forgiveness plan for borrowers experiencing personal and financial hardships. 

Earlier this year, the Education Department held a public hearing to consider possible “indicators” of hardship. These include a borrower’s age, disability status, financial obligations, and eligibility for means-tested public benefits. However, the department made no final decisions about the parameters for hardship-based loan forgiveness.

This fifth pathway to loan forgiveness will be launched on a timeline different from the first four categories, likely sometime in 2025. If this element of the program gets implemented, borrowers will likely be required to submit a formal application for student loan forgiveness.

Related: Plan B for Student Loan Relief: Advocates Call on Biden to Expand Forgiveness Program

Notices sent to borrowers about new student loan forgiveness plan

Last week, the Biden administration sent mass emails to nearly 40 million borrowers, notifying them of the new student loan forgiveness plan.

“President Biden announced new plans to cancel student debt for various categories of student loan borrowers,” reads the email. The Education Department “is in the process of finalizing who will be eligible for student debt relief, but we want to make you aware of this potential relief.”

The notice also allows borrowers to opt out if they don’t want relief.

“If you WANT to be included in potential student debt relief, you don't need to take any action,” reads the email. “If you DON'T WANT to receive the debt relief the finalized regulations may provide, you need to contact your servicer(s) by Aug. 30, 2024 to opt out. If you opt out, you won't be able to opt back in.” Opting out may also temporarily remove the borrower from student loan forgiveness eligibility associated with IDR plans, warns the notice.

Student loan forgiveness implementation could begin this fall

The Biden administration has not provided a firm launch date for the new initiative. However, officials have indicated that the loan forgiveness plan is expected to go live sometime this fall.

“The U.S. Department of Education (ED) aims to provide debt relief to certain borrowers this fall,” says the email sent to borrowers last week. Given the upcoming national elections in early November, this likely means that the administration is looking to initiate the program in late September or sometime in October.

Anticipated legal hurdles: What could derail the plan?

Most people expect Biden’s new student loan forgiveness plan to be challenged in court. Officials hope that the new plan has a better chance of surviving a lawsuit than the last attempt, given that the program is based on an entirely different legal authority and the Education Department went through a formal negotiated rulemaking process.

But administration officials made the same arguments when they launched the Saving on a Valuable Education (SAVE) plan, a new income-driven repayment plan that lowers payments and can accelerate student loan forgiveness for certain borrowers. SAVE is rooted in a different provision of the Higher Education Act that provides broad authority to the Education Department to draft regulations governing IDR plans within certain parameters. 

The department went through the normal negotiated rulemaking process to establish new regulations that resulted in the creation of the SAVE plan. But last month, in response to legal challenges, a federal appeals court issued an order temporarily blocking the SAVE plan, and the program’s future is now uncertain as litigation continues.