Biden’s ‘Plan B’ For Student Loan Debt Forgiveness Fails Big Test

• The Department of Education met one final time with stakeholders negotiating a potential student loan debt forgiveness program.
• Negotiators were on board with some aspects of the plan, but opposed to others.
• Some cited arbitrary caps and cutoff dates as the reasons for their disapproval.
• Without consensus, the department can propose any plan going forward.

President Joe Biden’s “plan B” student debt forgiveness plan failed a big test this week when a handful of student, borrower, and consumer advocates voted against key components of the proposal.

The Department of Education (ED) met with higher education stakeholders one final time on Tuesday to vote on the department’s proposed debt forgiveness plan in a process known as negotiated rulemaking.

But consensus was hard to come by, with several stakeholders saying they voted against parts of the proposal because it doesn’t do enough to meet the needs of federal student loan borrowers sinking further into debt.

"This just doesn't go far enough,” Kyra Taylor, an attorney at the National Consumer Law Center representing legal assistance organizations, said on Tuesday.

Two major sticking points emerged throughout the final days of discussion:

• A “cliff” that would cut off forgiveness for long-term borrowers who began repaying their loans after July 1, 2005
• A $10,000 forgiveness limit for most borrowers who owe more than their original loan balance

Many negotiators were also frustrated by ED’s lack of draft regulations to address borrowers "experiencing hardship.”

As the session wrapped Tuesday, it remained unclear whether ED would forgo issuing regulations to aid such borrowers or if it would reconvene negotiators sometime in 2024.

Without consensus, the department can amend its proposed plan as it sees fit. The department is expected to release a final proposal for public comment in May.

These Were the Roadblocks Preventing Consensus

ED and negotiators failed to reach consensus - meaning at least one person disapproved - on six of the 10 proposals directed at different groups of Direct Loan borrowers.

The groups where consensus was not reached include:

• Low-income borrowers on an income-driven repayment (IDR) plan whose current loan balance exceeds the original loan
• Low-income borrowers not on an IDR plan whose current loan balance exceeds the original plan
• Borrowers on the Saving on a Valuable Education (SAVE) plan whose current loan balance exceeds the original loan
• All other borrowers whose current loan balance exceeds the original loan
• Borrowers who first entered repayment 20 or 25 years ago
• Borrowers eligible for a targeted forgiveness opportunity, but haven’t applied

Not Enough Relief for Ballooning Debt

Proposals impacting borrowers whose loan balances have ballooned due to accrued interest failed consensus checks due to a cap on how much debt could be forgiven through ED’s proposal.

Most borrowers would only qualify for up to $10,000 in total debt forgiveness, no matter how much interest their loans accumulated. Low-income borrowers, defined as those making 225% or less of the federal poverty guideline, can qualify for up to $20,000, according to the proposal.

Many negotiators said this would do little to address borrowers in the most debt.

Richard Haase, the representative for student loan borrowers who attended graduate programs, cited the example of a person he has worked with who originally borrowed $90,000 to attend school. That borrower paid back over $150,000 to ED over 20 years but, due to accrued interest, still owes $70,000.

"I just feel like we missed the mark in helping these people,” Haase said.

Other negotiators shared similar stories of borrowers for whom $10,000 in forgiveness would be “a drop in the bucket.”

Lead ED negotiator Tamy Abernathy said the department would not entertain pleas to change the language regarding a cap on forgiveness.

"We are not able to agree to remove the cap,” she said.

Cutoffs Frustrate Negotiations

Many negotiators likewise repeatedly asked ED not to include one-time cutoff dates for borrowers who have been in repayment for 20 or 25 years.

ED’s proposal would see a borrower’s debt erased for all loans used to attend undergraduate school after 20 years of repayment, similar to many IDR plans. Any loans to attend graduate programs would be forgiven after 25 years.

However, this would be a one-time cancellation.

That means it would only apply to undergraduate loans that entered repayment on or before July 1, 2005. It would apply to graduate loans that entered repayment on or before July 1, 2000.

Negotiators said this unfairly leaves out all borrowers who may have begun repayment in September 2005. Many negotiators urged ED to amend its proposal to provide a rolling relief plan, meaning future borrowers would qualify for forgiveness after 20 or 25 years moving forward.

ED did not seem amenable to adopting this rolling forgiveness plan.

Relief Approved for Borrowers Who Attended Low-Value Programs

ED and negotiators did agree on language to provide relief to four groups of borrowers, including:

• Borrowers eligible for forgiveness through a repayment plan, but haven’t enrolled
• Borrowers who attended an institution that lost the ability to distribute federal financial aid
• Borrowers who attended an institution that closed before it could lose the ability to distribute federal financial aid
• Borrowers who attended a program that later closed due to not passing the gainful employment (GE) threshold

Relief proposals for these borrowers don't include a cap on how much debt can be forgiven. Most also aid borrowers who attended a program that may not have provided financial value.

FFEL Borrowers Qualify for Forgiveness

ED distributed a separate set of proposals that impact borrowers with commercially held Federal Family Education Loan (FFEL) program loans.

Some borrowers from the now-defunct FFEL program still have loans held by commercial entities. ED proposed regulations to forgive these loans and pay back the balance of the loan to the entities that hold the loans.

ED’s proposal included three groups of FFEL borrowers:

• Borrowers who first entered repayment 25 years ago
• Borrowers who qualify for, but never applied for, closed school discharge
• Borrowers who attended a program that later lost its ability to distribute federal financial aid due to failing the cohort default rate test

Unsurprisingly, negotiators did not reach consensus on the provision centered on borrowers who entered repayment 25 years ago. Similarly to past concerns, three negotiators felt the “arbitrary” July 1, 2000 cutoff date unfairly excludes too many borrowers.