Biden administration plans to make sweeping changes to ‘broken’ student loan system

Changes to the federal student loan system will be made by the Biden administration, including making it easier for public servants to get debt forgiveness.

In a statement, the U.S. Secretary of Education promised to fix a broken system.

The proposal includes a number of key elements.

• Protections for defrauded borrowers: Under the proposed regulations, students who attended for-profit schools that lied or took advantage of them could be considered for debt cancellation as a group, meaning individuals wouldn’t be burdened to make their case alone. Defrauded borrowers would also be given more leeway around when they could file a claim for loan cancellation, and the definition of misconduct by schools would be expanded to include aggressive and deceptive recruitment practices. Many colleges could also be prohibited from requiring borrowers to sign mandatory pre-dispute arbitration agreements or class action waivers.

• An overhaul of the public service loan forgiveness program: The program allows for debt cancellation after 10 years for those who work for the government or specific non-profits. Borrowers who were in certain types of forbearances or deferments could get those months counted toward their timeline to relief. Currently, these periods don’t qualify. Late payments would also no longer be excluded from a borrowers’ total qualifying payments.

• Changes to how interest accrues: The practice of interest capitalization on federal student loans, in which accrued interest is added to the principal balance, would also be eliminated in cases when a borrow exits a forbearance or defaults on their loan.

The public has 30 days to comment on the proposed regulations, and the final rules will take effect on July 1, 2023.

Forty million Americans could be affected by the changes.

Personal finance has more on how to prepare your portfolio as recession looms.

The Biden administration has been under increasing pressure to respond in a deeper way to the student loan crisis by forgiving a large amount or all of the debt.

More than 10 million borrowers were behind on their payments before the public learned about it.

Biden said on the campaign trail that he was in favor of clearing loans. It would cost $321 billion to forgive all of the student loan debt.

One of the biggest sticking points is the amount the White House should cancel.

$10,000 isn't enough for Black student loan borrowers, says the NAACP Wisdom Cole is the national director of the association's youth and college division.

Chuck Schumer, the Senate's top Democrat, is pushing the president to cancel at least $50,000 for everyone.

All borrowers wouldn't be happy if there was a lot of forgiveness. More than 3 million people have student loans.

Many Americans are opposed to the idea of student debt forgiveness, including those who never borrowed for their education.

These are some of the important considerations for Biden in the upcoming elections.