Biden tries again at student loan cancellation, this time for those with financial hardships

WASHINGTON (AP) — The Biden administration is moving ahead with a new path to student loan cancellation for Americans who face steep medical bills, child care costs and other types of financial hardship that prevent them from repaying their loans.

Announced Friday, the proposed rule is President Joe Biden's third attempt at student loan cancellation as he faces repeated legal challenges from Republican states. His first plan was rejected by the Supreme Court last year, and his second plan has been temporarily halted by a federal judge in Missouri.

The new rule would have to clear a number of hurdles before it becomes official, and it's unclear if it could be realized before Biden leaves office in three months. Like Biden's other loan forgiveness proposals, it could face court challenges from conservatives who say it's unconstitutional and unfair.

If finalized, the new rule would allow the Education Department to proactively cancel loans for borrowers if the agency determines they have an 80% chance of being in default on their loans within two years. Others could apply for a review to determine if they meet the criteria for cancellation.

It's meant to help borrowers who are unlikely to ever be able to repay their loans. The Education Department estimates about 8 million Americans would qualify for cancellation.

“For far too long, our broken student loan system has made it too hard for borrowers experiencing heartbreaking and financially devastating hardships to access relief, and it’s not right,” said Education Secretary Miguel Cardona.

Those who could be eligible include people with unexpected medical bills, high child care costs, heavy costs related to caring for relatives with chronic illnesses, and those struggling financially in the wake of natural disasters, the Education Department said.

Under the proposal, the department could use a range of factors to judge whether someone is likely to fall into default on their loans. It includes household income, age, whether they receive public benefits, and their overall debt — not just from student loans.

It also allows consideration of “any other indicators of hardship identified by the Secretary.” A loan is usually considered in default if no payment has been made in about nine months.

With about 1 million borrowers in default every year, Cardona said the new rule would prevent his agency from trying to collect money it's unlikely to recoup.

“Servicing and collecting on defaulted loans is not free, it costs taxpayer dollars,” Cardona said in a call with reporters. “And there’s a point when the cost of trying to collect on a defaulted loan just is not worth it.”

The proposal will enter a 30-day public comment period before it could become official. The administration said it plans to finalize the rule in 2025. It faces an uncertain future arriving less than two weeks before the Nov. 5 presidential election.

Vice President Kamala Harris, the Democratic nominee, has not detailed her plans for student debt cancellation if she wins the presidency. Republican nominee Donald Trump has called Biden's cancellation proposals unfair and illegal.

Biden's latest proposal is the result of a federal rules process that included experts from across higher education. Advocates pushed hard for the hardship provision, saying too many borrowers get trapped with debt they’ll never be able to repay.

The Biden administration said it has authority under the Higher Education Act, which allows the education secretary to waive debt in certain cases. It also noted that other federal agencies routinely waive debts owed to them, considering factors like “good conscience” and equity.

It's a similar legal argument used to justify Biden's second attempt at student loan forgiveness, which proposes relief for groups of borrowers including those with large sums of interest and those with older loans. A federal judge in Missouri blocked that plan amid a legal challenge from Republican states.

Biden campaigned for the White House on a promise of new student loan cancellation, but his biggest plans have been halted by Republican opponents. Last year, the Supreme Court rejected a plan to forgive up to $20,000 for millions of Americans after several Republican states sued to block it.

Amid its legal battles, the administration has increasingly shifted attention to its work canceling student loans using existing programs, including one for public service workers. In total, the administration says it has now canceled $175 billion for about 5 million borrowers.

The hardship provision was originally discussed as part of the second-attempt plan that's now on hold in Missouri, but the Education Department broke it off into its own proposal to spend more time on the details.

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