There have been several significant new developments for student loan borrowers this week as the Biden administration begins rolling out various new student loan forgiveness initiatives. Here’s what you need to know.
Biden Administration Updates Guidance on Applying for Student Loan Forgiveness Under Temporary Waiver
The Education Department recently updated formal guidance regarding the Limited PSLF Waiver initiative, a temporary program that relaxes rules governing the Public Service Loan Forgiveness program. The waiver initiative can allow borrowers working in public service careers to get significant retroactive credit towards loan forgiveness for periods that may otherwise have not counted towards the required 10 years of service.
The Limited PSLF Waiver program expires on October 31, 2022, and advocates have increasingly been concerned about the looming deadline. Many borrowers will have to submit applications or paperwork to qualify for the waiver. For instance, borrowers with FFEL loans must consolidate those loans into a Direct consolidation loan to qualify — a process that can take 30 to 60 days. And borrowers who have not certified their employment by submitting completed PSLF employment certification forms would need to do so before the deadline, as well.
The Education Department has since clarified, however, that it’s the submission of these application materials by the deadline that is critical — not the processing of those materials by Federal Student Aid officials.
“If you have FFEL, Perkins, or other loan types that are not Direct Loans, your consolidation application must be submitted online through StudentAid.gov by 11:59 p.m., Eastern time on Oct. 31, 2022, in order for you to receive the benefits of the limited PSLF waiver,” says the Education Department in updated guidance.
The guidance also suggests that borrowers “use the [online] PSLF Help Tool by Oct. 31, 2022, to generate a PSLF form that is eventually approved” to get credit for meeting the deadline. “[We] will maintain a record if you complete all the steps of the [online] PSLF Help Tool on or before Oct. 31, 2022, but you must still print, sign, have your employer(s) sign, and submit the PSLF form to MOHELA, the PSLF servicer.” Borrowers should submit all required documents by the deadline.
Congress Passes Legislation To Split Joint Spousal Consolidation Loans
Yesterday, the House passed the Joint Consolidation Loan Separation Act of 2021, which will allow borrowers who have spousal consolidation loans to separate them.
Joint spousal consolidation loans were offered until 2006. They allowed married borrowers who both had federal student loans to combined their loans into a single consolidated loan. Both spouses were then fully legally responsible for the entire balance.
Spousal consolidation loans turned out to be very problematic, however. Married borrowers who eventually divorced were still responsible for each other’s federal student loan debt, because the joint loan could not be split under federal law. And spousal consolidation loans issued through the FFEL program could not be reconsolidated into a Direct consolidation loan, blocking access to key student loan relief programs including Public Service Loan Forgiveness (PSLF).
The bill, which was already passed by the Senate last summer, will allow borrowers with these kinds of loans to sever them, paving the way for Direct loan re-consolidation and access to federal student loan forgiveness programs that were previously unavailable. The bill now heads to President Biden’s desk for his signature.
The next step is implementation by the Education Department, which must set up a procedure for borrowers to apply to split these spousal loans. Time is short, as borrowers looking to apply for the Limited PSLF Waiver must do so prior to October 31, 2022.
Republicans Are Looking To Sue The Biden Administration Over Student Loan Forgiveness
The Biden administration is frantically working to roll out the new one-time student loan forgiveness initiative that will cancel up to $20,000 in federal student loan debt. The Education Department estimates that 40 million borrowers across all 50 states will receive student loan forgiveness under the initiative, with up to 20 million becoming completely debt-free.
But Republican lawmakers, right-leaning think tanks, and state attorneys general in red states are actively taking steps to file a lawsuit against the administration to try to stop the loan forgiveness initiative before it even gets off the ground.
Earlier this month, a group of Republican governors wrote to President Biden, urging him to reverse course on enacting wide-scale student loan forgiveness. “At a time when inflation is sky high… your plan will encourage more student borrowing, incentivize higher tuition rates, and drive-up inflation even further, negatively impacting every American,” they wrote, arguing that Biden “lacks the authority” to broadly cancel student debt.
But finding a Plaintiff who has standing to bring such a lawsuit — meaning an individual or entity who would sustain a cognizable injury as a result of Biden’s new student loan forgiveness plan — could prove to be challenging. And advocacy groups for borrowers maintain that Biden’s plan is on firm legal footing.
The Biden administration criticized the developments. “Let’s be clear about what they would be trying to do here,” a White House official told Axios. “The same folks who voted for a $2 trillion tax giveaway for the rich and had hundreds of thousands of dollars of their own small business loan debt forgiven would be trying to keep millions of working middle-class Americans in mountains of debt.”
Still, a lawsuit — which could be filed within weeks if Republicans secure a viable Plaintiff — could disrupt Biden’s plans. If a federal court issues a national injunction that pauses implementation of the initiative while the legal process plays out, millions of borrowers could be left in limbo.