Round Three: New Effort Under Way To Reduce Student Debt

For the third time since last summer, a new battle is underway in Washington to expand student debt relief. If successful – if the third time really is the charm – almost 30 million borrowers could benefit.

This is now the third time a debt relief program has been started, but the results so far have been mixed.

First, the Biden Administration tried the big swing approach. It sought to cancel $430 billion in student debt under its reading of the Higher Education Relief Opportunities for Students Act of 2003 (HEROES Act).

The typical student debt under the proposal was expected to fall from $29,400 to $13,600, and for many students remaining debt would be canceled entirely.

But, last summer, the Supreme Court ruled that the Administration did not have the authority to make such a massive financial decision without congressional approval. The result was that required monthly payments for federal student debt – which had been stopped during the pandemic — were restarted in October 2023.

The result was renewed monthly costs for 28 million borrowers.

Second, with the Supreme Court stopping the big swing strategy, the administration turned to gradualism, chipping away at the student debt bit by bit. As of mid-April 2024, the Administration has been able to reduce student debt by $153 billion through various executive orders and helped more than four million borrowers.

As an example, it announced in April a new $7.4 billion debt reduction plan that will help 277,000 borrowers.

Third – and where we are about to go – is a new Administration effort to automatically cancel eligible student debt for borrowers who are entitled to such relief but have not been able to wade through the paperwork.

The New Student Debt Relief Approach

Under the new plan, student debts will be reviewed to see if borrowers qualify for assistance. If yes, the program will “cancel up to $20,000 of the amount a borrower’s balance has grown due to unpaid interest on their loans after entering repayment, regardless of their income,” according to the White House.

For many borrowers, such a benefit will end student debt obligations entirely.

In addition to a general effort to reduce loan balances, the program has several specifics that could impact millions of student loan borrowers.

Borrowers with 10 years of public service employment and who have made 120 months of qualifying payments can get their remaining student debt canceled. As many as two million borrowers could benefit from this program.

Many borrowers will be debt-free in roughly ten years. Under the SAVE plan, said the White House, “borrowers who originally took out $12,000 or less in loans and have been in repayment for 10 years are eligible to get their remaining debt canceled. For every additional $1,000 in loans they took out (up to $21,000 total for undergraduate loans and $26,000 total for graduate loans), a borrower is eligible for relief after an additional year of repayment. For example, if a borrower took out $13,000 in loans, they would be eligible for debt cancellation after 11 years in repayment.”

Older borrowers will also be helped. Under another part of the Administration plan, if you’ve been repaying undergraduate student debt for 20 years, or graduate debt for 25 years, you may qualify for relief.

The government has established a “Gainful Employment” (GE) standard for student loans, meaning for-profit schools must show their programs produce an educational benefit within certain cost guidelines or else they cannot be financed with federal loans.

Students who enrolled in “low-financial-value programs” – the programs that do not pass the GE standard — may be able to qualify for student debt relief under the new program.

Lastly, the rules allow debt relief in cases where borrowers are facing financial hardship.

Will Student Debt Relief Be Blocked?

If all the programs get up and running, then an estimated 30 million student borrowers will be helped. However — just as earlier relief efforts were successfully challenged in court — the new programs are likely to be tested by opponents before they become effective.

The opposition might come in several forms.

There could be another Supreme Court challenge to the entire effort on the grounds that such spending was not first authorized by Congress. This was the central reason the HEROES Act was not expanded. The Administration will argue that it has authorization this time from other laws.

Another approach might be to ban debt relief within a must-pass spending bill on Capitol Hill, something the President must sign to keep the government open.

This is tricky because which politician wants to publicly oppose student debt relief, especially in an election year? After the election, opposition on Capitol Hill might suddenly emerge. 

So far, at least, there has been a meaningful reduction in federal student debt, that $153 billion and assistance to millions of borrowers. Can more be done? Keep your eye on Washington to find out.