Biden's Education Department just proposed a student-loan forgiveness revamp so borrowers 'don't have to jump through hoops' for debt relief

• The Education Department released a list of proposals to improve student-loan programs.
• Included are improvements to targeted loan forgiveness programs, like PSLF and borrower defense.

President Joe Biden's Education Department has a list of ways it wants to help millions of student-loan borrowers.

On Wednesday, the department released a list of proposed regulations to improve targeted student-loan forgiveness programs, along with taking on the issue of surging interest that can accompany student debt. The programs in question are the Public Service Loan Forgiveness (PSLF) program, the borrower defense to repayment, and total permanent and disability (TPD) discharges, which the department has started to reform but borrowers are continuing to see issues accessing relief.

"Borrowers should not have to jump through hoops to get the relief they deserve," Under Secretary of Education James Kvaal said in a statement. "The regulations we've proposed today would remove many of those barriers and help create a federal student loan system that works better for borrowers."

Here are the major provisions the department is proposing according to the press release, and will soon be published for public comment for 30 days.

Borrower defense to repayment

If borrowers believe they were defrauded by a for-profit school, they can file a borrower defense claim that will forgive the student debt they acquired from attending that school. The proposed regulation to improve those claims include getting rid of "overly strict limits" on when a claim can be filed, expanding the type of misconduct by a school that warrants an approved claim, and ensuring borrowers are notified of relief in a timely manner.

The department also wants to ensure borrowers who went to schools that close and leave them with debt but no degree will receive an automatic debt discharge if they were enrolled within 180 days prior to the closure.

Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness (PSLF) program is intended to forgiveness student debt for public servants, like government and nonprofit workers, after ten years of qualifying payments. Proposed improvements to the program include allowing more payments to qualify for the program, along with making the rules work better for non-tenured teachers that need full-time employment to qualify. This builds on the limited-time waiver expanding qualifying payments for the program that's expiring on October, 31 2022.

Total and permanent disability discharges

Total and permanent disability discharges grant student-loan relief to borrowers who are determined permanently disabled by a physician, the Social Security Administration, or the Department of Veteran Affairs. The proposed improvements would allow a broader set of disabilities to qualify for relief, eliminate the three-year income-monitoring period for borrowers who receive discharges, and widen the types of documentation borrowers can submit to prove they're eligible for relief.

Interest capitalization

The department wants to "protect borrowers from seeing their balances balloon" by eliminating interest capitalization — which is when accrued interest is added to the original loan balance and future interest will grow on a higher amount — when a borrower enters repayment, exits forbearance, defaults on a loan, and leaves most of the income-driven repayment plans.

"The Biden-Harris Administration is determined to build a more accessible, affordable, and accountable student loan system," Education Secretary Miguel Cardona said in a statement. "These proposed regulations will protect borrowers and save them time, money, and frustration, and will hold their colleges responsible for wrongdoing."

Following the public comment period, the Education Department will aim to finalize the rules by November 1, 2022 to ensure they go into effect no later than July 1, 2023. The department will also likely be working with Biden on implementing broad student-loan relief for federal borrowers, with the president reportedly planning to announce a decision on relief in July or August, closer to when student-loan payments are set to resume.