WASHINGTON — The Biden administration on Wednesday proposed new steps to alleviate student loans, including a rule that would curb interest rates for nearly all of the more than 40 million borrowers in the U.S.
In a statement, the Department of Education said it was proposing to remove interest capitalization where it isn’t required by law, meaning that unpaid interest would not be added to the balance of the borrower’s total debt.
The proposal seeks to make it easier for students who were defrauded by for-profit colleges to get their debt forgiven, reversing a Trump administration restriction.
Additionally, the proposal attempts to improve the troubled Public Service Loan Forgiveness Program by allowing more types of payments to count toward debt forgiveness, including partial or late payments. Under the new proposal, public service workers would also get credit for the months that their loans were deferred for service in the Peace Corps, AmeriCorps and National Guard.
“We are committed to fixing a broken system. If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to obtain it,” Secretary of Education Miguel Cardona said in a statement.
The proposed changes would also make it easier for people with disabilities to apply for debt relief by streamlining the process and expanding the range of disabilities that qualify. The new plan would also provide automatic debt relief to borrowers who attend colleges that close while they are enrolled.
The Department of Education said it hoped to finalize the rules by Nov. 1 so the rule could go into effect by July 2023.
President Joe Biden continues to grapple with how to address widespread student debt cancellation amid pressure from progressive Democrats to take more aggressive action. The White House has indicated that Biden is open to canceling $10,000 of student debt for borrowers under a certain income, but the country’s high inflation rate has complicated the issue.
The payment pause on federal student loans — which has been in place since the start of the pandemic — is set to expire at the end of August. The White House has said Biden will make a decision before then on how to address student debt forgiveness.The Federal Reserve estimated that in the first quarter of 2022, Americans owed more than $1.7 trillion in student loans. Studies show that students of color are more likely to take on student debt and struggle disproportionately to pay it back. The highest default rates are among students who attended for-profit institutions.
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