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It’s not certain yet, but there are signs from the US Department of Education and other programs that aim to help the same group of borrowers.
After the Supreme Court struck down President Joe Biden’s original plan to cancel up to $400 billion in student loans, his administration tried to rework the relief package to make it legally feasible. To do this, it seeks to find help by focusing on certain groups, including those with balances greater than they originally borrowed and students from schools of questionable quality.
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The US Department of Education today said it will hold an additional “Plan B” rulemaking session for student loan forgiveness on February 22 and 23, where negotiators will focus only on financial borrowers. .
Defining that category can be challenging.
But the department is looking for a way for people to have their debt forgiven based on hardship that remains after other benefits are exhausted, said a source familiar with its plans.
Here’s who might be eligible.
The Department of Education has signaled that it may turn to the precedent for discharging student loans in bankruptcy for guidance on how to define those eligible for forgiveness under the hardship provision.
To be discharged from their student loan debt in bankruptcy, borrowers usually have to prove “undue hardship,” which has three factors: 1) an inability to maintain a minimum standard of living; living, 2) an impossibility of seeing a change in their financial situation and, 3 ) a record of good faith efforts to pay their debts.
“These standards may be informative in the considerations other policymakers use to determine hardship,” the department wrote in a recent paper issue.
Few borrowers are likely to meet these requirements, said higher education expert Mark Kantrowitz: “The bankruptcy discharge of student loans requires a harsh standard.”
Committee negotiators for Biden’s revised aid program identified several categories that could signal difficulty. Those include borrowers who receive a Pell Grant or qualify for a health insurance subsidy in the Affordable Care Act marketplace.
Lawmakers also pushed the department to consider the debt-to-income ratio of student borrowers, as well as borrowers of a certain age with limited income.
One wrinkle: The Department of Education has suggested it wants to identify eligible borrowers through easily accessible administrative records. As a result, some struggles, including significant medical or childcare expenses, may make it difficult to obtain.
“They choose options that can be implemented with the data they already have,” Kantrowitz said.
Currently, the department can access records from the US Department of Veterans Affairs and the Social Security Administration. These agencies may help it find some borrowers with disabilities and or those living in poverty. Personal data can be used to identify borrowers who received a Pell Grant.
More than 90% of Pell Grant recipients in 2015-2016 came from families with a household income of less than $60,000, according to Kantrowitz. More than 6 million undergraduate students received grants in 2020.
The Department of Education can obtain data from the US Department of Health and Human Services to identify recipients of a health care subsidy, Kantrowitz said.
Meanwhile, the government’s collection methods of student loan borrowers, including the garnishment of wages and Social Security benefits, is another area under scrutiny, according to a source familiar with its plans. Consumer advocates say these measures are harsh and punish people who are already struggling.
The Department of Education also recently made it easier for struggling borrowers to discharge their student loans in bankruptcy court. In the past, it was difficult, if not impossible, for people to separate their education debt in a normal bankruptcy proceeding.
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