The Department of Education is preparing a series of new federal student loan rules that will aim to expand access to various emergency programs and reverse changes made during the Trump administration.
The most far-reaching move would affect nearly all tens of millions of people with federal student loans by capping interest capitalization — adding unpaid interest to the borrower’s principal, increasing the total amount owed. Under the Biden administration’s proposal, interest would no longer be capitalized when a borrower begins to repay or default on a loan, as well as in certain other situations.
The Department of Education is also planning changes to aid programs that will benefit employees who work for the government and many nonprofit organizations; disabled borrowers; and people who went to schools that closed abruptly or defrauded their students. For defrauded students in particular, the changes would undo restrictions imposed by Betsy DeVos, who tried to undermine the aid program when she was the secretary of education under President Donald J. Trump.
“We are committed to fixing a broken system,” said Education Secretary Miguel A. Cardona. “If a borrower qualifies for student loan deductions, it wouldn’t take mountains of paperwork or a law degree to obtain it.”
The proposed changes will be open to public comment for 30 days, after which the department plans to finalize them so they can take effect in July 2023. The proposals include:
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More generous standards for borrowers seeking relief from fraud claims;
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A ban on mandatory arbitration agreements that prevent borrowers from suing schools that misled them;
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Expanded eligibility requirements and streamlined loan forgiveness requirements for people with permanent disabilities;
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A provision that would allow public service employees to receive credit for loan forgiveness for months when their loans were deferred due to cancer treatment, economic hardship, or service in AmeriCorps, the National Guard or the Peace Corps.
President Biden is under heavy pressure from borrowers and progressive Democrats to reform the $1.6 trillion federal student loan system.
He has said he is considering using executive action to fulfill his campaign promise to eliminate $10,000 per borrower in debt, but high inflation and political concerns have made him suspicious of doing so. Mr Biden has promised to make a decision before the end of the loan payment pause imposed to provide relief during the pandemic. The break ends next month.
