Students whose colleges misled them would find it easier to seek loan forgiveness from the federal government under a series of regulatory proposals released by the U.S. Department of Education on Wednesday.
One long-awaited rule would apply to protect borrowers in the repayment process who write loans to defrauded students. The proposed changes also address loopholes in the Public Service Loan Forgiveness Program, which cleans up the debt of borrowers who work in fields such as teaching or government jobs and make matching payments over ten years. PSLF suffers from notorious administrative problems that have resulted in a small fraction of eligible borrowers receiving loan relief.
The Biden administration strives for new rules to enter into force by July 1 of the following year. They will streamline the loan forgiveness procedures, covering all pending and future claims as of that date.
The process of obtaining assistance for the borrower is currently determined by the date of payment of the loan. That’s because two previous presidential administrations issued orders that extended to a specific period of the loans. The new proposal will “remove the taint attached to the loan’s payoff date,” an Ed Department spokesman said in a call with reporters Wednesday.
The agency also said the borrower protection rule would clarify what would be considered a violation by the college and what would potentially be subject to the rule. The Ed Department’s proposal introduces a new category of such fraud—aggressive and deceptive recruitment.
Students who attended institutions that materially misrepresented or omitted facts about themselves may also be eligible for loan forgiveness.
Colleges will be on the hook for the cost of such transcripts, the Ed Dept. said.
The department also tried to protect borrowers during legal proceedings. Colleges will not be allowed to require students to sign arbitration agreements that prevent them from participating in a class action lawsuit if they are defrauded. In addition, institutions will be required to inform the department when they use arbitration.
And colleges won’t be able to force students to participate in an internal grievance process before going to an accreditor or government agency.
“We are committed to fixing a broken system. If a borrower is eligible for student loan relief, obtaining it will not require mountains of documents or a law degree,” said Education Minister Miguel Cardona. “Nor should student loan benefits be so onerous that borrowers never take advantage of them.”
Proposed changes to the PSLF program include allowing more payments to reach the forgiveness threshold. About 127 thousand borrowers with debts of more than 7 billion dollars their debts were removed under PSLF, mainly because the Ed Department has provided flexibility regarding program requirements during the coronavirus pandemic. This program waiver expires at the end of October.
Just a couple of years ago, almost 99% of applicants PSLF relief was denied despite the first cohort of borrowers becoming eligible in 2007.
Other proposals released Wednesday would eliminate interest compounding — where accrued interest is added to the principal balance of a loan — unless required by law. They would also expand discharge eligibility for borrowers with disabilities, use the closed-school discharge program to automatically forgive the debt of many borrowers after the institution closes, and improve rules that allow discharge of students whose colleges have determined they are eligible for loans. even if they weren’t.
Proposals are now open for a 30-day comment period. The department intends to publish the final iteration of the rules in the fall.
Justin Dreger, president of the National Association of Student Financial Aid Administrators, in the statement praised the policy proposals, noting a provision that basically ends capitalization of interest.
“However, some of the proposed rules require closer examination, and as we examine them, we hope to see the department’s proposals make permanent changes to the Public Service Loan Forgiveness program that will ultimately make it easier for borrowers to receive the benefits they’ve been promised,” Dreger said. .
Career Education Colleges and Universities, an organization representing nonprofit colleges, opposed the proposals. For-profit institutions have come under fire for misrepresenting information, and much of the recent loan forgiveness has focused on students who attended them. Jason Altmire, the group’s president, said in a statement that the draft rules lack due process protections.
He said the department wants “to pay off federal loans en masse to the detriment of underprivileged institutions and their students.”
“This is an unprecedented expansion of the department’s authority that has never been considered by Congress and will have significant negative economic consequences for institutions and taxpayers,” Altmayr said.
The Biden administration has pushed hard for targeted loan forgiveness and has so far erased about $26 billion in debt for about 1.3 million borrowers. Ed Dept. very recently agreed to a class action with defrauded students who claimed the agency had delayed their loan payments. The department is automatically forgiving $6 billion to roughly 200,000 borrowers under the deal.
Editor’s note: This story has been updated with additional information and comments since it was first published as breaking news.