Student-Loan Forgiveness Is Dead. Borrowers May Still Get Some Relief.

This effort will ultimately fail to survive legal challenges for the same reasons the prior plan was blocked. This effort may be motivated more by politics than policy, in an effort to hold out hope for forgiveness during the upcoming elections. Nevertheless, a pending regulatory change will provide struggling borrowers with meaningful financial relief.

In Biden v. Nebraska, the Biden administration argued that it had the authority to implement the president’s plan under the waiver and modification authority of the Heroes Act of 2003. The U.S. Supreme Court, however, disagreed. The court said that the executive branch can make modest adjustments and incremental additions to existing statutory or regulatory provisions, but the Heroes Act of 2003 does not allow the Biden administration to make dramatic transformative changes to the Higher Education Act of 1965. 

President Biden’s new debt-relief plan proposes to use the waiver authority under the Higher Education Act of 1965 which is different from the waiver authority under the Heroes Act of 2003, to implement the president’s student loan forgiveness plan. But the waiver authority under the Higher Education Act is taken out of context and does not apply to the Direct Loan program.

In addition, the waiver authority in the Higher Education Act is subject to the regulations at 31 CFR 902.2, which apply only when a borrower is unable to repay their debt, the federal government is unable to collect the debt through wage garnishment or Treasury offset of Social Security benefit payments and income tax refunds, the cost of collection exceeds the amount to be recovered, or there is doubt as to whether the government could win a lawsuit against the borrower. 

An attempt to modify these regulations to permit broad student loan forgiveness would conflict with the plain language of the Debt Collection Improvement Act of 1996 and the General Accounting Office Act of 1996. Such changes would likely be found to be arbitrary and capricious and an abuse of discretion under the Administrative Procedures Act. 

So much for a major new forgiveness plan. But borrowers in need should focus on another repayment policy Biden discussed on Friday. These are new regulations to modify the REPAYE income-driven repayment plan. They received 13,635 public comments as of Feb. 10.

The new repayment plan will be called the Saving on a Valuable Education, or SAVE plan. It will make the following changes:

• Cut the loan payments on undergraduate debt in half, from 10% of discretionary income to 5% of discretionary income.

• Change the definition of discretionary income from the amount by which adjusted gross income exceeds 150% of poverty line to the excess over 225% of poverty line.  

• Reduce the time period until the remaining debt is forgiven from 20 or 25 years to as little as 10 years for borrowers who start off with less debt. For example, borrowers who enter repayment with $12,000 in debt will have the remaining debt forgiven after 10 years, with an additional year for each additional $1,000 in debt.

• Accrued but unpaid interest will no longer be charged on the SAVE plan, so there will be no negative amortization when a borrower’s income is insufficient to repay the debt.

These changes will go into effect on July 1, 2024, if the final rule is published in the Federal Register by Nov. 1, 2023. The U.S. Department of Education may be able to implement the new regulations sooner. 

Biden also said that the U.S. Department of Education will not report delinquencies to credit reporting agencies or place delinquent borrowers in default through Sept. 30, 2024.

Although these changes might not sound as dramatic as all-out forgiveness, they are more narrowly targeted, and could still have a significant impact on borrowers’ finances. 

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