The Clock Is Running Out for Student Loan Forgiveness

With only months left in his term, Biden wants to forgive the loans of nearly eight million borrowers experiencing "hardship."

Since Kamala Harris' defeat in the 2024 Presidential election, the Biden Administration's student loan forgiveness agenda seems in greater peril than ever. Placing student loan forgiveness at the center of a Democratic Party increasingly dominated by the college-educated didn't result in the electoral gains politicians like Harris and Biden hoped it would, adding insult to the injury of consistent legal setbacks.

But these defeats haven't prevented the Biden Administration from continuing to attempt to enact far-reaching student loan forgiveness policy.

Late last month, perhaps as a last-ditch effort to tempt indebted voters, the Biden Administration unveiled a set of proposed rules that would give the Education Department broad leeway to cancel student debt in cases where the borrower is facing financial "hardship." Nearly eight million borrowers are estimated to be eligible.

"If these rules are finalized as proposed," reads an October 25 press release, "the Secretary of Education could waive up to the entire outstanding balance of a student loan when the Department determines a hardship is likely to impair the borrower's ability to fully repay the loan or render the costs of continued collection of the loan unjustified."

The rules provide two main pathways to receiving student loan forgiveness. The first would not require borrowers to apply for forgiveness, and would instead be based on predictive data analysis. If this analysis predicts that a borrower has an 80 percent chance of defaulting on their loans within two years, the Department of Education could then provide one-time forgiveness of up to their entire loan balance. 

According to the proposed rules, this analysis would be structured to prevent borrowers from deliberately going into default to receive forgiveness. The Department of Education "would address the risk of strategic behavior with a two-fold requirement that the borrower must be highly likely to be in default, or experience similarly severe negative and persistent circumstances," read the draft rules, "and that other options for payment relief would not sufficiently address the borrower's persistent hardship, including [income-driven repayment] plans, for those eligible." 

The second pathway would allow borrowers to apply for a "holistic assessment of the borrower's hardship." According to the Department of Education, factors like "unexpected medical bills, high child care costs, significant expenses related to caring for loved ones with chronic illnesses, or devastating economic circumstances from the impacts of a natural disaster," would be considered when determining whether a borrower is facing financial hardship that places them at high risk of default or other negative consequences of nonpayment.

While Biden has managed to forgive massive amounts of student loans through smaller-scale programs, he's faced continual legal defeats of his major loan forgiveness efforts. With this and the recent election in mind, how is this latest effort expected to fare? Not well, according to economist Adam Looney, the Executive Director of the Marriner S. Eccles Institute at the University of Utah and a visiting fellow at Brookings.

The main roadblock is the comment period required for proposed federal rule making. In this case, the Education Department is undertaking a 30-day comment period, after which the department hopes to finalize the rules in 2025. With Trump's inauguration set for January 20th, 2025, even starting to provide forgiveness could be mathematically impossible.

"It seems like it's hard to imagine that there is enough time," says Looney. "And even if it did go into effect…I assume the Trump administration could stop it very quickly."

While these latest proposed rules could theoretically enact wide-ranging student loan forgiveness, the clock has simply run out on any hope of enforcing it. Combined with the legal setbacks faced by some of Biden's other regulations, it looks like student loan forgiveness is going to be put on the backburner for the next four years.

"Borrowers will have to start repaying their loans under the standard plan or another plan that the Trump administration proposes," says Looney. "The Department of Education has a long regulatory agenda. And I assume that a lot of those regulations will now no longer be implemented or will be reversed."