Student loan borrowers are getting a new round of debt relief
Federal courts are still looking to block the debt relief though.
The U.S. Department of Education announced a new set of eligibility rules that could open the gates for millions of student loan borrowers to receive loan forgiveness this fall.
Starting Aug. 1, every student loan borrower with an outstanding federal loan will begin receiving emails about their student debt relief options and have the opportunity to opt out of relief coming in the fall.
The upcoming debt relief will target four types of student loan borrowers: those who owe more than they did at the start of repayment, those who have been in repayment for more than 20 years, those eligible for loan forgiveness but haven’t applied yet, and those who enrolled in low-financial-value programs.
However, the rules that provide this new relief have not been finalized yet, and receiving an email from the Education Department does not guarantee the borrower is eligible for the upcoming relief. The finalized rules will be announced later this fall, according to the department.
These new debt relief options follow the Biden administration’s previous forgiveness programs, which relieved nearly 4.8 million borrowers of $168 billion in student loan debt already.
Previously, the Supreme Court blocked Biden’s original one-time debt forgiveness plan, forcing the administration to provide relief through bolstering existing income-driven repayment and forgiveness programs. However, two weeks ago, a federal court blocked Biden’s Saving on a Valuable Education (SAVE) plan, temporarily preventing the education department from offering this forgiveness program to borrowers.
According to the Dept. of Education, “further developments are possible while the SAVE Plan remains under litigation.” Borrowers are still encouraged to apply for debt relief in the meantime.
There are 43 million federal student loan borrowers in the U.S. Depending on the finalization of these debt relief rules, the total number of borrowers eligible for relief will exceed 30 million, according to the Dept. of Education.
While the rules aren’t finalized, there are still ways to begin debt relief. This article will break down the proposed debt relief options in the fall and existing programs borrowers can apply for today.
New student debt relief proposal for Fall 2024
The Biden administration’s next round of debt relief is targeted at four groups of borrowers.
Borrowers who owe more now than they did at the start of repayment. Many student loan balances are greater than when borrowers started repaying them due to accumulating loan interest. The education department estimates that 23 million borrowers, the majority being Pell Grant recipients, have a higher loan balance than when they started repaying it.
Borrowers who have been in repayment for decades. Many federal repayment plans grant debt relief after 20 to 25 years of repayment. Borrowers with an undergraduate loan can be eligible for relief if they’ve been paying since July 1, 2005, or earlier. Graduate loan borrowers can receive debt relief if they’ve been paying their loan since July 1, 2000, or earlier.
Borrowers who haven’t applied for loan forgiveness yet. Many borrowers have already been paying their loans for decades or have a small amount of debt left to pay. If these borrowers apply for income-driven repayment programs, they may be eligible for immediate debt forgiveness. Additionally, borrowers whose school closed while enrolled or soon after withdrawing from the school may be eligible for relief, among other types of forgiveness opportunities.
Borrowers who enrolled in low-financial value programs. Colleges and schools that cost more to attend than the financial benefits received by students, the federal government would consider these programs “low-financial value programs.” Borrowers who attended one of these institutions that failed to provide “sufficient financial value,” or failed one of the Dept. of Education’s accountability standards, could be eligible for debt relief.
These rules are not finalized but give an idea of what the proposal is focusing on. Borrowers will receive emails with debt forgiveness options, including income-driven repayment plans, in the coming weeks.
Student loan forgiveness programs available today
Multiple existing programs can put borrowers on the track to forgiveness, including income-driven repayment plans (IDR) and Public Service Loan Forgiveness (PLSF).
The Saving on a Valuable Education (SAVE) plan already grants full loan forgiveness after 20 to 25 years of repayments. Last year, the Biden administration amended the program to provide full debt relief in as little as 10 years for borrowers who originally took out a loan for $12,000 or less. For each additional $1,000 borrowed, another year will be tacked on to the repayment period.
For example, under the SAVE plan, if your original principal balance is $15,000, you will see forgiveness after 13 years of making regular payments. If you owe a lot more than that, loans will still be forgiven in 20 to 25 years under the original rules of IDR plans.
Additionally, the SAVE plan freezes ballooning interest. As long as borrowers make the required payment each month, any remaining interest is covered by the federal government. For example, if a student loan accumulates $50 in interest each month, and the SAVE plan lowers the monthly payment to $30, the SAVE plan will forgive the remaining $20 of accrued interest, according to the U.S. Department of Education.
Apple for the SAVE program at studentaid.gov/idr.
Public Service Loan Forgiveness is a debt relief program that grants full loan forgiveness to borrowers working full-time for the government, the military, or a qualifying non-profit and have been repaying their loans for 10 years, or 120 payments.
Apply for PSLF at studentaid.gov/pslf.