‘Financial Hardship’ Student Loan Forgiveness: New Details Revealed

Eight million borrowers who face “permanent financial burdens,” such as those caused by unexpected medical bills, natural disasters or high child or family care costs, may qualify for federal student loan forgiveness, but it’s not over yet.

On Friday, October 25, the Department for Education released new details of the financial hardship proposal, including eligibility criteria and how borrowers can apply for help.

“For too long, our broken student loan system has made it harder for borrowers who have faced dire and financially devastating hardships to access help, and that’s wrong,” said U.S. Education Secretary Miguel Cardona. statement.

The hardship proposition is part of President Joe Biden’s Student Loan Forgiveness “Plan B”. which is now facing legal challenges. The president unveiled a “Plan B” in June 2023 after the Supreme Court blocked his original plan to forgive up to $20,000 in student loans. The Department of Education began the rulemaking process in October 2023.

The Department of Education plans to complete the plan in 2025, but lawsuits could affect that implementation. The department will formally release the proposed rules in the coming weeks. After publication, the public will have 30 days to comment regulations.gov.

“While this is another legal way to cancel student debt, rejection is expected, so it’s imperative that we move quickly to provide this much-needed relief,” said Christine McGuire, executive director of Young Invincibles, a policy organization specializing in issues relating to youth, in the statement.

If the hardship proposal goes into effect, borrowers will have two main ways to get that student loan forgiven:

• Automatic forgiveness. If the Department of Education determines that you have at least an 80% chance of defaulting on your student debt within two years, it can automatically forgive your loans one-time. Determining hardship factors may include your income, assets, type and amount of student debt, and whether you received need-based aid Pell Grant pay for school

• Pardon based on application. If you are not eligible for automatic one-time forgiveness, you can submit an application that comprehensively assesses the likelihood that you will be unable to meet your obligations or will experience severe, ongoing financial hardship.

“I have so little faith in the forgiveness program,” says Stanley Tate, a student loan lawyer. “Even if you have a president who you think is pro-pardon, they’re still going to face challenges from groups that have the right to challenge these things.”

On October 3, a federal judge in Missouri temporarily blocked Biden’s “Plan B” for student loan forgiveness, which includes this hardship proposal. A group of Republican-led states, including Missouri, Georgia and Alabama, filed suit in September.

“Our latest lawsuit challenges (the Biden-Harris administration’s) third and weakest attempt to cancel student loans en masse in the dark of night without informing Congress — or the public,” Missouri Attorney General Andrew Bailey said in a September statement. .

If you’re currently struggling with student debt, consider these existing relief and forgiveness options instead:

• Income Driven Repayment (IDR) Plans. IDR plans limit your monthly federal student loan bill based on your income and family size to $0. After 20 or 25 years, your remaining debt will be forgiven.

• KEEP suing patience. The most recent federal IDR plan, SAVE is now in legal trouble. As a result, borrowers enrolled in SAVE have their interest-free payments suspended until at least April. If you don’t use SAVE, you can get interest-free compensation if you apply for a plan now. You always have the option to change your plans.

• Delay or patience. You can temporarily defer your federal student loan payments by asking your servicer about delay or patience. Deferral is usually the better option because interest is usually not charged, but you must meet certain eligibility criteria. If you have private student loans, ask your lender about ways to temporarily reduce or suspend your payments.

• Refinancing if you have private student loans. If you have private student loans, your help options are limited and you don’t have access to federal student loan forgiveness. Refinancing your private student loans getting a lower interest rate can lower your monthly payments and the total amount you pay. However, you can only qualify for the lowest advertised rates if you have strong credit and finances.