Explainer: Biden's New Policies and Updates on Student Loan Forgiveness

Jul 17

President Joe Biden is pursuing a new multi-pronged backup plan to forgive federal student loan debt, relying on the Higher Education Act (HEA) of 1965. The HEA grants the US Education Department the authority to compromise, waive, or release loans. The new plan includes a 12-month repayment “on-ramp” starting October 1, an income-based repayment plan called the Saving on a Valuable Education (SAVE) plan, and a renewed effort for broad student loan forgiveness under the Higher Education Act.

The backup on-ramp plan serves as a transitional phase and aims to provide relief to borrowers who may struggle when federal student loan payment resumes in the fall. During the 12-month period, borrowers won’t face default or credit score damage if they miss payments. The SAVE plan reduces monthly payments for undergraduate loans to 5% of discretionary income and forgives loans of $12,000 or less after 10 years of payments.

Biden’s initial proposal for loan forgiveness, which the Supreme Court struck down on June 30th, was based on the Higher Education Relief Opportunities for Students (HEROES) Act. Progressive lawmakers have advocated for using the HEA instead because the HEA provides a broader and more flexible authority to address student loan debt. Unlike the HEROES Act, which is tied to national emergencies such as military operations or wars, the HEA is not limited to specific emergency situations, which allows for a potentially larger scope of debt forgiveness. However, the process is time-consuming, and any potential forgiveness will likely take at least a year to be implemented. Legal experts believe that utilizing the HEA’s settlement authorities to forgive student debt is legally defensible, but the plan will likely face legal challenges.

Activists are hopeful that the HEA can lead to broader debt forgiveness since it is not tied to a national emergency like the HEROES Act. However, others caution against a broad proposal and suggest focusing on individual cases of fraud or setting income thresholds for debt relief. The administration’s ability to convince a skeptical court or avoid legal challenges will determine the plan's viability. The Supreme Court has shown skepticism towards broad interpretations of administrative authorities and fiscal decisions that improve the lives of working-class individuals. While the path forward remains uncertain, the Biden administration remains committed to providing relief to student loan borrowers.

Borrowers will be able to apply for the SAVE plan later this summer, and the Education Department will notify eligible borrowers when the application process launches. Loan servicers can also assist borrowers in signing up. For those who missed out on earlier programs, the administration has announced fixes to correct mistakes in tracking payments for forgiveness under income-driven repayment plans. Eligible borrowers will be informed and qualified for forgiveness without further action.

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