The U.S. Education Department on Monday unveiled a series of final regulations governing student loan relief programs, Inside Higher Ed reported. The new rules cover a range of programs, expanding eligibility, removing barriers, and providing for automatic discharges in some cases.
More specifically, the regulations set borrower defense to repayment standards for students who were misled or manipulated by an institution of higher education, expand debt relief qualifications for permanently disabled borrowers, and allow more borrowers to receive credits for the Public Service Loan Forgiveness Program (PSLF). They also prohibit mandatory arbitration agreements and limit the practice of student loan interest capitalization, reported Politico.
"Today is a monumental step forward in the Biden-Harris team's efforts to fix a broken student loan system and build one that's simpler, fairer, and more accountable to borrowers," U.S. Secretary of Education Miguel Cardona said in a statement. "These transformational changes will protect students who've been cheated by their colleges from the bureaucratic nightmares of the past and ensure that all our targeted debt relief programs live up to the promises made by Congress in the Higher Education Act. We're also protecting borrowers from higher costs by limiting the practice of tacking unpaid student loan interest onto their principal balances."
The regulations will go into effect on July 1, 2023, and build out on proposals issued this summer that garnered more than 5,000 public comments, including from AACRAO and other higher education groups.
- Borrower defense to repayment — The regulations simplify and expand the types of college misconduct that triggers loan forgiveness for students under the borrower defense rule. The plan creates a new path for borrowers to obtain relief if their college engages in "aggressive and deceptive recruitment." It also streamlines the process for borrowers to apply for borrower defense and makes it more likely that defrauded borrowers will receive a full discharge of their loans.
- Arbitration and class-action lawsuits — The rules revive an Obama-era ban on mandatory pre-dispute arbitration agreements and prohibit institutions from requiring students to waive their participation in borrower defense class-action lawsuits.
- Total and permanent disability loan discharge — The final regulation broadens the types of disability statuses that count for loan relief, including allowing borrowers who receive additional types of disability review codes from the Social Security Administration (SSA) to qualify for a discharge, as well as borrowers who later aged into retirement benefits and are no longer classified by one of these codes. The rule also expands these categories to include borrowers whose first continuing disability review is scheduled at three years, a change from the draft rule, which required such a status to have been continued once. Additionally, the regulations permanently eliminate the three-year monitoring period for borrowers who receive loan forgiveness based on their permanent or severe disability, a practice that often caused borrowers to lose their discharges solely because they failed to respond to paperwork requests.
- Closed school loan discharge — The final rules will provide an automatic discharge one year after a college's closure date for borrowers who were enrolled at the time of closure or left 180 days before closure and who do not accept an approved teach-out agreement or a continuation of the program at another location of the school. Those who accept but do not complete a teach-out agreement or program continuation will receive a discharge one year after their last date of attendance.
- False certification loan discharge — The regulation streamlines the process for when a college falsely certifies a borrower's eligibility for student loans when, in fact, the student was ineligible. The rule expands the types of allowable documentation, clarifies the applicable dates for a discharge, and allows for the consideration of group discharges to similarly affected borrowers.
- Student loan interest capitalization — The final rule eliminates a practice where borrowers have outstanding unpaid interest added to their principal student loan balance, unless it is required by statute. Once effective, interest will no longer be added to a borrower's principal balance when entering repayment, exiting a forbearance, and leaving any income-driven repayment plan besides Income-Based Repayment. This includes the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) plans.
- Public Service Loan Forgiveness — While Monday marked the temporary waiver deadline for the program, the Biden administration announced new PSLF rules last week with finalized changes detailed in this week's regulatory package. The final rules make it easier for public service workers to count payments toward the 10 years of credit they need to have their debt forgiven under the program, including partial or late payments, installments, or lump sum payments. Borrowers will also receive credit for specific periods in deferment and forbearance. Such periods can include cancer treatment and military service deferments. In addition, the adjustments give borrowers who consolidated their direct loans a weighted average of PSLF payments.
Related Links
U.S. Education Department Press Release
https://www.ed.gov/news/press-releases/education-department-releases-final-regulations-expand-and-improve-targeted-debt-relief-programs
Inside Higher Ed
https://www.insidehighered.com/news/2022/11/01/education-department-finalizes-targeted-debt-relief-regulations
Politico Pro (subscription required)
https://subscriber.politicopro.com/article/2022/10/education-department-unveils-final-borrower-defense-rule-00064210