Education Department releases new rules to 'improve' student debt relief programs

Oct. 31 (UPI) -- The U.S. Department of Education on Monday released regulations that officials said will "streamline and improve" rules for major targeted student debt relief programs while eliminating red tape for borrowers.

The new regulations make transformations in a range of student loan relief programs authorized by the Higher Education Act and will take effect on July 1, 2023, the Education Department said in a news release.

U.S. Secretary of Education Miguel Cardona heralded the regulations as a "monumental step forward" in efforts by the administration of President Joe Biden "to fix a broken student loan system."

"These transformational changes will protect students who've been cheated by their colleges from the bureaucratic nightmares of the past and ensure that all our targeted debt relief programs live up to the promises made by Congress in the Higher Education Act," Cardona said.

"We're also protecting borrowers from higher costs by limiting the practice of tacking unpaid student loan interest onto their principal balances."

Under Secretary James Kvaal said that borrowers should be able to receive debt relief they are entitled to "without wading through red tape and confusing tricks and traps."

"The regulations announced today will streamline a needlessly complicated system and give borrowers a simpler and more often automatic path to the discharges they deserve," he said.

"They also stop shady schools from forcing students to sign their rights away as part of the price for admission and give the Department critical tools for holding colleges that take advantage of borrowers accountable."

Major provisions of the regulations include establishing fair requirements for what borrowers must show to get loans discharged and standards of approval for the discharge to be granted by the Education Department.

Borrowers can make claims based on what the Education Department defined as substantial misrepresentation, substantial omission of fact, breach of contract, aggressive and deceptive recruitment and judgment and secretarial final actions.

"These elements ensure that there is a connection between institutional acts or omissions and the borrower's claim, as well as a negative effect on the borrower, without imposing unreasonable requirements that a borrower applying for relief would be unlikely to meet," the Education Department said in a fact sheet.

Those approved will receive a full discharge and refund of all amounts paid on their loans, as well as restore students' financial aid eligibility and changes to their credit reporting. Borrowers can also have their claims reconsidered if they have been denied.

"The Department has tried for years to construct a workable process for determining partial discharge amounts and has concluded there is not a consistent way to achieve that goal," the Education Department said in the fact sheet.

"Instead, to approve a claim, the final rule will require the Department to conclude that the act or omission caused detriment that warrants a full discharge and refund."

The regulations also set rules that will allow the Education Department to automatically discharge loans for students whose colleges closed and they were unable to complete their program. If such a student does not enroll in another school after a year, they will now receive an automatic discharge of their loan.

"In the past, too many borrowers who were eligible for a discharge failed to receive one, with significant numbers of these borrowers ending up delinquent or in default," the fact sheet reads.

The regulations further increase pathways for borrowers who have total or permanent disabilities to receive a discharge, including those who receive disability from the Social Security Administration or have aged into retirement.

The Education Department has also reduced barriers that made it harder for borrowers eligible for public service loan forgiveness to make progress toward forgiveness.

Previously, payments that counted as progress toward forgiveness were only counted if made within 15 days of the due date but will not allow certain periods of forbearance and deferment to count toward the PSLF program.

Those periods include deferment for cancer treatment, economic hardship and service in the military, Peace Corps, AmeriCorps or National Guard.

"Under current rules, borrowers lose all progress toward forgiveness when they consolidate," the Education Department fact sheet reads.

"Under the new regulations, for example, a borrower with 60 qualifying payments on $30,000 in debt who forms a consolidation loan with another $30,000 in loans will have a new payment count of 30 payments."

The announcement comes after a federal appeals court earlier this month temporarily blocked Biden's one-time student debt relief plan from taking effect.

That program planned to forgive $10,000 in student loan debt for those making less than $125,000 annually and $20,000 for recipients of Pell grants, which assist students from lower-income families.