Up to 26M Americans could get student debt relief under new plan

President Joe Biden’s alternative student-debt relief plan could forgive loans for as many as 26 million Americans, a far-reaching initiative that will be tested by the same challenges that beset his original program struck down by the Supreme Court. 

The proposal, outlined by the White House Monday, must withstand expected lawsuits that could stretch into next year, placing the issue of rising student debt squarely in the crosshairs of November’s presidential election. A lengthy regulatory process also threatens to prevent relief if a new administration scraps the plan. 

The measures would apply to borrowers who meet certain criteria, including people whose debt exceeds their original principal amount and those who qualify for federal programs but have not been enrolled. Other categories include individuals who have made payments for more than 20 years, students who attended “low-financial-value” programs and those experiencing financial hardship.

An estimated 25 million borrowers would have their accrued interest fully or partially eliminated, more than 10 million borrowers would see at least $5,000 in debt cancelled, and 4 million borrowers would have their balances cleared, according to a White House fact sheet. Around 2 million people who are eligible for government programs, such as public service loan forgiveness or closed-school discharge for institutions that shuttered during enrollment, could have their loans automatically forgiven.

Senior administration officials, who previewed the details of the plan, said relief for borrowers with accrued interest could occur as soon as this fall. However, the timeline is unclear for when all potential beneficiaries could see cancellation. 

Biden, who faces tough re-election prospects against former President Donald Trump, will outline his latest plan on Monday to tackle the skyrocketing costs of college in Madison, Wisconsin, which is home to thousands of college students. Young voters were crucial to Biden’s victory in 2020, when he vowed to cancel student loans as a candidate.

While in Wisconsin, Biden will meet with borrowers who have received relief through his previous initiatives, according to White House press secretary Karine Jean-Pierre.

The Higher Education Action — the law the president is using to pursue relief — requires that actions take effect in July of the following year after a final rule is introduced, unless there are special circumstances. The administration has pursued other measures on a fast-tracked basis, including the so-called “SAVE” repayment program.

So far under Biden, the White House has incrementally forgiven $146 billion in loans for 4 million people. The majority of that relief came in the months following the Supreme Court’s decision to throw out the president’s 2022 attempt to pursue up to $20,000 in debt cancellation for an estimated 40 million borrowers. 

The court’s conservative majority ruled that such widespread relief could only be authorized by Congress. The president vowed to pursue a “Plan B” the same day it was struck down in court. 

The final rule must first go through a comment period, which could last anywhere from 30 to 60 days. Some lawyers have challenged a 30-day comment period for previous actions, arguing such a timeframe is too short for major regulations.

If implemented, Biden could potentially cancel loans for more than 30 million people coupled with actions already taken by the administration.

Biden’s cabinet members will be in different states on Monday to promote the administration’s efforts, including Vice President Kamala Harris who will be in Philadelphia and Education Secretary Miguel Cardona, who will be in New York City.

Copyright Bloomberg News