The Education Department finalized a flurry of new rules on Monday for its student loan programs, rolling back changes made during the Trump administration and making adjustments that will reduce the total sums owed by many borrowers.
Education Secretary Miguel Cardona called the new rules “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.”
The changes come as President Biden’s broader student debt relief plan — which would cancel up to $20,000 in debt for tens of millions of borrowers — remains tied up in legal challenges. More than 20 million people have already applied on the government’s website, and are waiting to find out if federal courts will let the government eliminate their debts.
Here’s what the new changes announced Monday, which are scheduled to take effect in July 2023, will do.
Lower Borrowing Costs
The most far-reaching change will eliminate most cases of interest capitalization, a financial move that adds unpaid interest to the borrower’s principal. Borrowers often had their interest capitalized — ballooning their loan balance — when they did things like enter repayment or take their loans out of forbearance.
“Interest on top of interest can result in borrowers owing more than they borrowed for college in the first place, even when they’re following the rules and making all the payments they owe,” said James Kvaal, the department’s under secretary. “That’s not fair. That’s why we’re ending this practice, except in cases where Congress specifically requires it.”
Ease Loan Forgiveness for Public Servants
The department said last week that it would make permanent some of the past year’s temporary changes to eliminate rules that had long hobbled the Public Service Loan Forgiveness program, which lets government and nonprofit workers have their remaining federal student loan balance eliminated after they’ve made a decade of payments.
The new rules will let borrowers receive credit for late, piecemeal and lump sum payments. It will also allow them to count certain periods of deferment or forbearance as payments, including for cancer treatment and service in the military, AmeriCorps, National Guard or Peace Corps.
Simplify ‘Borrower Defense’ Rules
A relief program known as Borrower Defense to Repayment lets borrowers who were substantially misled by their schools seek to have their debts forgiven. It has been used by hundreds of thousands of borrowers who attended for-profit schools that committed fraud and broke consumer protection laws.
Betsy DeVos, the education secretary under former President Donald J. Trump, made complex rule changes that crippled the program. The Biden administration’s changes will essentially unwind her actions and set a new standard for adjudicating any claims still pending on, or submitted after, July 1, 2023.
The new policy also clarifies some of the rules for when and how the department will seek to recoup from schools the cost of paying borrower defense claims for their students. In most cases, the claims are made after schools have collapsed. Now-shuttered college chains like Corinthian Colleges and ITT Technical Institute have led to billions in approved claims, but the Education Department this year approved its first set of cases from a still-operating school, DeVry University.
Speed Up Disability Discharges
Borrowers who become totally and permanently disabled are eligible to have their federal loans eliminated, but the program is a bureaucratic obstacle course. The changes simplify the paperwork and allow borrowers in a broader range of circumstances to qualify for relief.