Student Loan Trend Watch: New Relief for ‘Runaway Interest’

A new forgiveness proposal from the White House and looming deadlines for existing plans are top of mind when it comes to the latest in the world of student loans. We dive into what’s new in this edition of the Student Loan Trend Watch.

A new White House proposal for federal student loan forgiveness is focusing on those whose student debt has ballooned larger than their initial loan principal because of how much interest the debt has accrued. The initiative promises debt relief for as many as 25 million people, per the Department of Education .

Relying on the rules of the Higher Education Act from 1965, the new debt relief program could become available to loan holders by the fall of 2024 if approved. The first draft was released for public review in early April.

Who Would Qualify?

President Joe Biden’s plan to provide widespread debt relief based on household income was struck down by the U.S. Supreme Court in 2023. Shortly after the court’s decision, the White House announced this new proposal.

If approved, the plan would permit automatic relief of “up to $20,000 of the amount by which a borrower’s loans currently exceed what they owed upon starting their repayment,” per the EoD .

Other loan holder categories are also being targeted. The total number of borrowers who could gain relief is estimated to reach 25 million, although there could be some double counting due to overlapping categories:

•   Borrowers who entered repayment at least 20 years ago.

•   Borrowers who are otherwise eligible for loan forgiveness under SAVE, closed school discharge, Public Service Loan Forgiveness (PSLF), or other forgiveness programs, but not enrolled.

•   Borrowers who enrolled in low-financial-value programs or institutions.

•   Borrowers who have experienced financial hardship due to their student loans and who continue to experience hardship — despite the available options — because their needs aren’t addressed by the current system.

Deadlines Loom for Existing Programs

Borrowers paying down older federal student loans have until April 30 to consolidate their loans into a newer one and thereby qualify for payment count adjustments that could put them closer to income-driven forgiveness.

If you have one of the following loans, you may consider consolidating into a Direct Loan before April 30, 2024:

•   Commercially or privately held loans under the Federal Family Education Loan (FFEL) program

•   Parent PLUS loans

•   Perkins loans

•   Health Education Assistance Loans

There’s also an important deadline looming for those seeking PSLF, which provides loan relief for teachers, nurses, firefighters, and others who qualify. It is about to suspend applications while its processing system is overhauled. Borrowers are encouraged to submit PSLF forms and take other important steps before April 30.

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