Department of Education Expands Student Loan Relief Programs

The Education Department on Monday finalized a flurry of new rules for its student loan programs, reversing changes made during the Trump administration and making adjustments that will reduce the total amounts owed by many borrowers.

Education Secretary Miguel Cardona called the new rules “a monumental step forward in the efforts of the Biden-Harris team to fix a broken student loan system and build one that is simpler, fairer and more responsible for the loans”.

The changes come as President Biden’s broader debt relief plan — which would cancel up to $20,000 in debt for tens of millions of borrowers — remains. linked to legal challenges. More than 20 million people already have applied on the government websiteand they are waiting to find out if the federal courts will allow the government to eliminate its debts.

Here’s what the new changes announced Monday, which are expected to come into effect in July 2023, will do.

Lower borrowing costs

The most extensive change will be eliminate most cases of interest capitalization, a financial move that adds unpaid interest to the principal of the loan. Borrowers often capitalize their interest — which increases their loan balance — when they do things like go into repayment or take their loans out of forbearance.

“The interest on top of the interest can result in borrowers owing more than they borrowed for college in the first place, even when they follow the rules and make all the payments they owe,” he said. said James Kvaal, undersecretary of the department. “It’s not fair. That’s why we’re ending this practice, except in cases where Congress specifically requires it.”

Facilitate loan forgiveness for public servants

The department said last week that it would make permanent some of last year’s temporary changes to eliminate long-standing rules for the Public Service Loan Forgiveness program, which allows government and nonprofit workers to eliminate their remaining federal student loan balances after making a decade of payments.

The new rules will allow borrowers to receive credit for late, piecemeal and lump-sum payments. It will also allow them to count certain periods of deferment or forbearance as payments, including for cancer treatment and service in the military, AmeriCorps, National Guard or Peace Corps.

Simplify the “Lender Defense” rules.

A relief program known as Protection of the Borrower to Repayment allows borrowers who have been substantially cheated by their schools trying to be forgiven their debts. It has been used by hundreds of thousands of borrowers who attended for-profit schools that committed fraud and violated consumer protection laws.

Betsy DeVos, the education secretary under former President Donald J. Trump, did complex changes of rules that crippled the program. The Biden administration’s changes would essentially undo their actions and set a new standard for judging any claims still pending, or filed after, July 1, 2023.

The new policy also clarifies some of the rules for when and how the department will seek to recover from schools the cost of paying loan defense fees for their students. In most cases, claims are made after schools have collapsed. The now closed university chains like Corinthian Colleges and ITT Technical Institute led to billion in approved claimsbut the Department of Education this year approved its first set of cases from a school that is still operatingDeVry University.

Expediting Disability Discharges

Borrowers who become fully and permanently disabled are eligible to have their federal loans eliminated, but the program is a bureaucratic obstacle course. The changes simplify documentation and allow borrowers in a wider range of circumstances to qualify for relief.