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Biden releases rule proposal to expand student loan forgiveness

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The Biden administration issued a series of new proposed regulations Wednesday in an effort to expand programs offering student loan forgiveness for Americans who borrowed from the federal government.

If adopted, the new rules would enable or expand debt forgiveness for borrowers whose schools closed or lied to them, or who are permanently disabled and for borrowers who are working in public service.

“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 U.S. Secretary of Education Miguel Cardona said in a press release. “Student loan benefits also should not be so hard to get that borrowers never actually benefit from them.”

The changes would make it easier for borrowers who attended schools that lied or took advantage of them to discharge their loans and would create a “clear expectation” that the Department of Education will hold those schools accountable for the cost of debt forgiveness.

They would also bar schools from requiring that borrowers sign agreements that require disputes be adjudicated through arbitration rather than class action lawsuits.

The Education Department is also seeking to make it easier for borrowers working in public service to qualify for accelerated loan forgiveness after 10 years of payments, rather than the 20 or 25 years granted to borrowers working in other sectors.

The rule changes would allow more payments to qualify toward forgiveness, including partial, lump sum and late payments, while allowing certain types of deferment programs, like those offered to borrowers in the Peace Corps, military or national guard, to count toward the 10-year milestone.

The Biden administration is also looking to keep total loan balances from rising through interest capitalization for borrowers who are unable to make monthly payments. Interest capitalization occurs when unpaid interest is added to the total loan balance, so that future interest payments are calculated on a higher loan balance.

The new regulations would eliminate the practice of interest capitalization wherever it isn’t required by the law, including when a borrower enters repayment, exits forbearance, defaults on a student loan or exists from most income-driven repayment plans.

The reforms would also help borrowers who are unable to work because of disability, by expanding the types of disability recognized by the Social Security Administration to qualify for discharge and to expand the type of proof necessary to document the disability.

The proposals come amid the Biden administration’s review of using executive authority to grant a one-time forgiveness of student loan debt to all borrowers of federally backed student loans.

President Biden has repeatedly extended a pause in student loan collections begun under President Trump as a measure to combat the economic impact of the COVID-19 pandemic.

While some Democrats in Congress have called on Biden to use executive authority to cancel $50,000 in student debt for every borrower, the president said in April that he decides to forgive any debt, it will be less than that figure.

“I am not considering $50,000 debt reduction, but I’m in the process of taking a hard look at whether or not there will be additional debt forgiveness, and I’ll have an answer on that in the next couple of weeks,” Biden told reporters at the White House at that time, though no further announcement has been made.

The current pause on student loan collections will end on Aug. 31, and Biden is expected to announce a decision on blanket forgiveness before that date.

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