This week, a rulemaking committee is meeting for the first time to discuss potential changes to federal student loan policy.
The meeting could start a process that delivers massive relief to student loan borrowers. A committee meeting might not sound like a big deal, but the negotiated rulemaking process created the new SAVE plan.
This time around, the Department of Education has some specific goals, and there is an opportunity for clever borrowers to influence student loan policy. Partial loan forgiveness appears to be a realistic goal for borrowers in this session.
Student Loan Rulemaking 101
The federal rulemaking process is a critical component of student loan policy.
Put simply, Congress creates legislation that addresses the big picture items. Laws passed in Congress established federal loans and created the Public Service Loan Forgiveness Program. Within those laws, the executive branch is charged with oversight and implementation.
Federal agencies use rulemaking to iron out the policy details. Recent rulemaking efforts created the SAVE plan and the new SAVE subsidy to help borrowers with interest.
Partial Forgiveness is the Big Ticket Relief to Watch
For the latest round of rulemaking, the Department of Education posed some very specific questions to the committee.
These questions give us a good idea of the goals of this round of negotiations.
Notably, the Department of Education asked the following questions:
- Many borrowers have seen their balances grow due to the accrual of unpaid interest such that many borrowers now have overall balances higher than what they originally borrowed. Are there ways to help borrowers who are in this situation that could put them on a better path for successful repayment?
- Congress and the Department have provided borrowers with many additional benefits for their student loans over time. There are many borrowers, however, who borrowed or entered repayment before the creation of those various benefits. Since those benefits were not available when those borrowers took out their loans, those borrowers may have struggled to repay their loans in ways that those taking on debts today may not. How should the Department treat loans that first entered repayment many years ago, including well before creating additional benefits? How should the Department apply the FCCS compromise principle to loans that the borrower is unable to repay in a reasonable amount of time?
Sherpa Thought: These requests from the Department of Education seem to be inviting a partial forgiveness solution.
Because the Supreme Court stopped forgiveness for all, the next round of student loan relief appears to be focused on borrowers with large balances and little chance of repaying the debt.
Retroactive SAVE and Other Partial Forgiveness Options
One answer to the Department of Education questions would be applying the SAVE subsidy retroactively.
Before this year, many borrowers on IDR plans saw their balances grow each month. This happened when the monthly IDR payment was smaller than the interest charges on the loan. Many borrowers saw loan balances grow far beyond what they had already borrowed.
As balances have grown, it has made repayment difficult or nearly impossible for some. Retroactively awarding a SAVE subsidy could lower balances to make repayment more reasonable.
However, the committee could choose to go in any direction. They may decide that the current SAVE program is sufficient. They may determine that a retroactive subsidy is insufficient and provide borrowers with more relief.
We are very early in the process.
The Big Challenge for Policymakers
Another item of interest is the Department of Education’s apparent recognition that student loan policy is too complicated.
The issue paper notes that “complex individualized reviews of borrowers’ circumstances that rely on extensive information not easily accessible from administrative data will not be feasible.” They want to create something straightforward and unlikely to cause further delays or confusion.
Forgiving some debt for every borrower is unlikely to survive in the courts. Partial forgiveness or targeted relief could quickly get complicated to the point where few borrowers actually benefit.
Time for Borrowers to Step Up
This is a tricky situation, begging for a clever idea.
The Department of Education has already outlined very specific goals, but the idea doesn’t have to come from the rulemaking committee.
Now is the time for creativity. If you come up with a solution to the questions posed to the committee, you could help yourself and millions of other borrowers.
Please share your thoughts in the comments of this article or send me an email. If we get some good ideas going, I’ll do everything I can to get them in front of the eyes of committee members.
