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- The Department of Education sends emails to borrowers with information about possible debt forgiveness.
- Borrowers have until August 30 to decline the relief if needed.
- The proposed rules could provide relief to over 30 million borrowers.
The Biden administration today announced another step in its effort to help tens of millions of borrowers receive student loan forgiveness this fall. Starting tomorrow, the U.S. Department of Education (ED) will begin emailing all borrowers with at least one outstanding federally funded student loan about potential relief options and informing them of the option to opt out of the program by August 30 if they do not wish to take advantage of this relief.
The proposed rules, which have not yet been finalized, could allow student loan forgiveness for up to 30 million borrowers, including those who have already been approved for debt forgiveness.
“Today, the Biden-Harris administration is taking another step forward in our effort to provide student loan debt relief to borrowers who have been failed by a broken system,” said U.S. Secretary of Education Miguel Cardona. “These latest steps mark the next milestone in our efforts to help millions of borrowers buried under a mountain of student loan interest or who took on debt to pay for programs that left them financially worse off, those who have been paying off their loans for twenty or more years, and many others. The Biden-Harris administration is committed to providing student loan debt relief to as many borrowers as possible as quickly as possible, and today, as we near the end of a lengthy legislative process, we are one step closer to fulfilling that promise.”
What options are available for debt relief?
In April, the administration released its first draft rule proposing to authorize the Secretary of Education to provide student debt forgiveness to millions of borrowers across the country. These proposed rules aim to provide partial or full debt forgiveness to several groups of borrowers, including:
- Borrowers who now owe more than when they began repaying: This group includes nearly 23 million borrowers whose loan balances have increased due to interest expenses. Most of them are Pell Grant recipients.
- Borrowers who have been in the repayment phase for decades: Borrowers whose student loans have been repaid for more than 20 years (since before July 1, 2005) and those whose student loans have been repaid for more than 25 years (since before July 1, 2000) would be eligible.
- Borrowers who are eligible for forgiveness but do not participate in income-driven repayment plans (IDR): This includes those who are eligible for immediate debt relief under IDR plans or other debt relief programs but have not yet applied for it.
- Borrowers who participated in programs with low financial value: Assistance would also extend to those who attended institutions that did not provide adequate financial value or accountability.
The Department anticipates that these reliefs will be automatically granted to eligible borrowers without any action on their part. However, borrowers who do not wish to take advantage of these reliefs must contact their servicer by August 30, 2024. The decision to forgo these reliefs is final and temporarily disqualifies borrowers from other forgiveness benefits until their eligibility can be reassessed.
Complications
These proposals are not guaranteed. While the Department of Education will send out an email with opt-out instructions in August, it is likely that these new programs will face legal challenges. The end result may be even greater confusion among borrowers due to conflicting messages.
Currently, the Biden administration's SAVE plan is on hold due to litigation, which has caused some chaos for borrowers.
If the proposals are passed, some borrowers will likely have to pay taxes at the state level. This could also affect state benefits, since the tax liability of debt forgiveness increases income. Read this guide to state taxes and debt forgiveness.
Next Steps
The Biden administration will begin informing borrowers about possible debt relief proposals and options for exiting debt repayment as early as August 1, 2024.
Borrowers are asked NOT to contact their loan servicer unless they choose not to. Loan servicers like Aidvantage cannot tell you what the final rules will be or when and how they will be available.
When borrowers decide to exit, it is important to remember that this is a final decision and that doing so may result in the loss of the opportunity for debt relief.
Don’t miss these other stories:
Average student loan debt by state in 2024. Student loan management mistakes embarrass borrowers. What is the SAVE repayment plan?
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