On April 8, President Biden released the details of his new student loan debt forgiveness plan. The plan would reduce payments for 26 million borrowers and erase all debt for four million more. Ten million of these borrowers will receive debt relief of over $5,000 according to the U.S. Department of Education (ED). Among other goals, the plan aims to relieve the disproportionate debt burden on Black and Latino borrowers.

The new plan still needs to be published in the Federal Register, which starts a months-long public comment period. Although the new regulations aren’t expected to fully take effect until July, 2025, the ED is considering taking action to expedite parts of the plan. This could bring relief to some borrowers as soon as this fall. The loan cancellations will occur automatically without requiring borrowers to submit an application.

The plan, if finalized as proposed, would deliver relief to these categories of borrowers:

  • Borrowers eligible for loan forgiveness who have not applied: Many borrowers face challenges in completing loan forgiveness applications. These borrowers would receive automatic debt relief for loan forgiveness programs for which they are eligible but have not successfully applied, such as the Public Service Loan Forgiveness Program, the Total and Permanent Disability Program, and the loan forgiveness provisions of the SAVE Income-Driven Repayment Plan.
  • Borrowers who owe more than they did when repayments began: Millions of borrowers across the country owe more than they did when they started paying back their loans because of accrued and capitalized interest. Four years after graduation, the average minority student loan borrower owes more than he or she did at the outset of the repayment period.
  • Borrowers experiencing hardship paying off their loans: Millions of borrowers may be eligible for relief if they are experiencing hardships that prevent them from paying back their loans. These borrowers have a high debt burden that undermines their ability to improve their living standards.
  • Borrowers who started repayments many years ago: Many borrowers are still repaying their loans decades after leaving school. The Administration’s new plan cancels loans for all borrowers with only undergraduate debt who began repaying their loans 20 or more years ago. Loans will be cancelled for borrowers with graduate school debt, but they must have begun repayments 25 or more years ago.
  • Borrowers who enrolled in low-value programs: Borrowers who attended institutions that failed ED accountability standards or didn’t provide students with sufficient academic value would be eligible for relief, including those whose institutions closed prior to the finalization of such determinations.

Overview of Eligibility

Loans originated and held by banks and other private entities are not eligible for the new forgiveness plan, but Federal loans held by private companies are eligible. The majority of Americans with Federally-held student loans will qualify for some level of forgiveness under the new plan. People with privately-held Federal loans originated through the defunct Federal Family Education Loan (FFEL) program may also benefit from certain aspects of the plan.

Privately-held FFEL borrowers will receive forgiveness if they began repayments on or before July 1, 2000, or are eligible but have not yet applied for a “closed school discharge”, which is a form of debt cancellation for borrowers whose schools closed abruptly. Such borrowers would also be eligible for debt relief if they took out loans to attend a college that subsequently had their access to Federal student aid revoked.

What About the Supreme Court?

Last year, the Court struck down Biden’s $400 million loan cancellation plan because it was too large. Many are concerned that the new plan may suffer the same fate, but this time the Administration is relying for its authority on a different law.

The Biden Administration’s previous forgiveness plan based its authority on the Higher Education Relief Opportunities for Students Act of 2003 (the Act), which lets the ED Secretary relieve hardship that Federal student loan recipients may suffer due to a national emergency. The Administration maintained that the COVID pandemic created economic hardship for borrowers that entitled them to government intervention under the Act.

In what came as a surprise and disappointment to millions of student debt-holders, the Supreme Court sank Biden’s loan cancellation plan in 2023. A majority of justices held that the Heroes Act was not intended for executive action with such sweeping economic impact. The Court could only identify one precedent  — a case that the same Court had decided under the same de novo rationale only the year before when it struck down the EPA’s new rules on national air quality standards.

This time around, the Biden Administration grounded its plan on a different law; the Higher Education Act of 1965 (HEA), which allows the ED Secretary to compromise, waive, or release loans under a wide range of circumstances. The Biden Administration said the new plan consists of provisions that remedy circumstances that are covered under HEA.

Can Cancelled Loans be Reinstated?

What happens if the ED starts canceling loans under Biden’s plan and then the Supreme Court nullifies it? This would create a serious new problem since forgiven student loans have never before been unforgiven and reinstated.

Technically, there are ways that canceled student debt can be reinstated. But on a massive scale, this would prove complicated and expensive, primarily burdening the Federal loan servicers who work under contract to the ED. The process would also suffer due to its highly political nature.

Criticisms of the Plan

Like many of his Republican colleagues, Rep. Bryan Steil (R-Wis.) said of Biden that “He’s trying to buy votes.” Steil’s position is based on two facts, 1.) Borrowers who now owe more than they did at the start of repayment could receive up to $20,000 in canceled interest, and 2.) Borrowers making less than $120,000 per year would have all interest forgiven.

Rep. Derrick Van Orden (R-Wis.) said, “We cannot expect our hardworking blue-collar men and women who decide to go to trade school to pay off the bill of people that have decided to get a four-year degree.” This opinion is shared by many of his Party’s House members, even though students who attend any accredited postsecondary institution, including trade schools, are eligible for Federal student aid on the same basis as college students.

Critics of Biden’s plan question whether the HEA will permit the expansive debt relief envisioned by the Administration. They note that Chief Justice John G. Roberts Jr. said in his opinion last year in reference to the Heroes Act that it can be used only to cancel debt in “certain limited circumstances”. The circumstances were not defined.

Two groups of Republican attorneys general have filed lawsuits to block the plan, arguing that it’s illegal and will harm their states in a variety of ways. This is the same legal path to the Supreme Court taken by case that struck down the last major loan cancellation plan.