As you've probably heard by now, the Supreme Court rejected the Biden Administration's attempt to forgive as much as $20,000 in federal student loan debt per borrower. Not only did the administration roll out several new initiatives designed to provide relief, but it also is attempting to forgive large quantities of student loan debt through other avenues.
The Department of Education recently released a paper that provides some early details about the upcoming student loan relief efforts. While we're very early in the process, the efforts appear to be targeted at some specific groups of borrowers.
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Who is the new loan forgiveness program targeting?
The paper released by the Department of Education targets five specific groups of borrowers for student loan forgiveness. Some of these are very vague -- and that's on purpose. After all, the Student Loan Relief Committee that will fine-tune the forgiveness plan had not even met yet, as of the paper's release. But here are the five groups:
1. Borrowers with a ton of added interest
First are borrowers whose student loan balances have grown over time due to unpaid interest -- and quite a few student loan horror stories are in this category. For example, let's say that someone borrowed $50,000 to get a teaching degree. Because of their family size and income level, they enrolled in an income-driven repayment plan and only need to make $100 monthly loan payments.
However, if they have an average interest rate of 6%, interest will accumulate at a rate of $250 per month ($150 more than they're paying). After 10 years of this, they'll owe nearly $70,000.
2. Borrowers who should already be eligible for forgiveness
Under most income-driven repayment plans, borrowers are eligible for forgiveness of any remaining balance after making 20 or 25 years of required payments. But some borrowers have been paying that long (or longer) but aren't enrolled in one of these.
3. Students who didn't get enough bang for their bucks
Most people can agree that there are relatively low-paying jobs that are vitally important to society. Teachers, police officers, social workers, and various nonprofit leaders are examples, and nobody wants to discourage people from pursuing them simply for financial reasons.
After all, this is essentially the reason why the Public Service Loan Forgiveness program exists. So another group being targeted includes those with degrees that didn't provide enough "financial value" to justify such a large amount of debt.
4. Borrowers who missed out on top relief programs
When I took out my first student loan more than 20 years ago, the best income-driven repayment plans didn't exist. Public Service Loan Forgiveness was still about five years away from being created, and other relief efforts hadn't been implemented. So the fourth group being targeted includes people who either entered repayment or obtained student loans before certain programs were created.
5. Borrowers whose issues aren't being addressed
The final (and perhaps the vaguest) group includes borrowers whose hardships aren't being adequately addressed by the current system. This could take a number of different directions. For example, the current income-driven repayment system doesn't do much to consider the cost of living in different areas of the U.S.
A long road ahead
Even if you're fairly sure that you would fit into one or more of the groups mentioned, it's unclear how much of your student debt could ultimately be forgiven. There is also no current timetable for forgiveness.
The newly formed Student Loan Relief Committee is scheduled to meet several times in the coming months. Even after specific details are hammered out, however, there's a good chance that the proposal will have to survive significant legal challenges before any borrower's loans could be forgiven.
