The Department of Education is reviewing the federal student loan system

The Department of Education is reviewing the federal student loan system

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The US Department of Education on Monday announced sweeping changes to the federal student loan system, including additional consumer protections for borrowers and limits on the amount of interest that can be charged on debt.

“Today is 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 accountable for borrowers,” said the secretary of the Education of the United States Miguel Cardona, in a statement.

The new regulations should make it easier for students who have been defrauded by their schools to cancel their student loans from the government through the defense process of the borrowerand allows the Department of Education to come to a determination on these requests for relief as a group, instead of asking each borrower to prove individually that they have been sufficiently damaged or deceived by their school.

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Under the rules, institutions of higher education that accept federal student aid would be prohibited from requiring borrowers to sign mandatory pre-dispute arbitration agreements or to waive their ability to participate in a lawsuit of class-action for his defense claim of the borrower.

The Biden administration will also curb the practice of interest capitalization — in which unpaid interest is added to the principal of the loan.

U Public Service Loan Forgiveness Program, which allows public servants and those who work for certain nonprofits to cancel their debt after a decade, will also get a review. The months that previously did not qualify for a debt relief of the borrowers, including those when they were in a deferral of economic hardship, will be counted. Previously ineligible late payments will also now qualify.

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These changes will take effect on July 1, 2023.

Biden administration officials have described these improvements as necessary and urgent to fix a system plagued by problems.

At first the coronavirus pandemic, when the US economy was enjoying one of its healthiest periods in history, only about half of the loans were in repayment. A quarter – or more than 10 million people – were in delinquency or default, and the rest had requested temporary relief for troubled borrowers, including deferrals or forbearance. These somber figures have led to comparisons with the mortgage crisis of 2008.

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