Student Debt Relief: Nonbankruptcy Hardship Relief for Student Loans under the Higher Education Act

Available at: https://www.regulations.gov/document/ED-2023-OPE-0123-32489

Executive Summary:

These proposed regulations would clarify the use of the Secretary's long standing authority to grant a waiver of some or all of the outstanding balance on a Federal student loan. (1) Under this proposed rule, the Department would specify how the Secretary would exercise discretionary authority to grant waivers using the following standard: the Secretary would determine that a borrower is experiencing or has experienced hardship related to the loan: (1) that is likely to impair the borrower's ability to fully repay the Federal government, or (2) that renders the costs of enforcing the full amount of the debt not justified by the expected benefits of continued collection of the entire debt (proposed § 30.91(a)).

The proposed regulations would then provide a non-exhaustive list of factors the Secretary may consider in deciding whether to grant relief (proposed § 30.91(b)). Then, proposed § 30.91(c) would provide a process by which the Secretary may grant individualized automatic relief through a predictive assessment based on the factors in proposed § 30.91(b). Should the Secretary choose to exercise such discretion, proposed § 30.91(c) would provide immediate, one-time relief as soon as practicable. And, proposed § 30.91(d) would provide a primarily application-based process by which the Secretary may provide additional relief on an on-going basis.

The proposed regulations describe two different pathways that the Secretary could take to exercise discretion to grant a waiver in instances where the borrower meets the hardship standard in proposed § 30.91(a). We describe those pathways in greater detail in the preamble below to assist the public in understanding how the proposed regulations would operate and to clarify terminology to guide such a discussion.

The first pathway would be a “predictive assessment,” pursuant to proposed § 30.91(c), under which the Secretary would consider information in the Department's possession to determine whether the borrower meets the proposed standard for hardship in § 30.91(a) such that their loans are at least 80 percent likely to be in default within the next two years. The Department would make a predictive assessment that considers factors indicating hardship (described in proposed § 30.91(b)) and may, in the Secretary's discretion, then provide immediate relief by granting waivers to eligible borrowers, without requiring any action by those borrowers to seek that relief.

The second pathway, which is under proposed § 30.91(d), would be a determination based on a “holistic assessment” of the borrower's circumstances (based on the factors in proposed § 30.91(b)) that meets the proposed hardship standard for waiver specified in proposed § 30.91(a). This assessment would focus on borrowers who are not otherwise eligible for the immediate relief under proposed § 30.91(c) and who are not eligible for relief sufficient to redress their hardships through other Department programs supporting student loan borrowers. Under this pathway for relief, the Department would conduct a holistic assessment of the borrower's hardship based on information about the borrower's experience with the factors in proposed § 30.91(b) obtained through an application or based on information already within the Department's possession, or a combination of the above. A borrower would be eligible for relief if, based on the Department's holistic assessment, the Department determines that the borrower is highly likely to be in default or experience similarly severe negative and persistent circumstances, and other options for payment relief would not sufficiently address the borrower's persistent hardship.

The two pathways for relief described above, namely the immediate relief in proposed § 30.91(c) and the additional relief in proposed § 30.91(d), would operate separately and distinctly from each other and would therefore be fully severable. Because these proposed regulations only concern waivers due to hardship, these proposed hardship waivers would therefore also be separate and distinct from other proposed rules related to waivers of Federal student loan debt. (2)
 

Commentary:

The non-exhaustive list of factors related to the borrower that the Secretary may consider  under Proposed § 30.91(b)  in determining whether a borrower meets the hardship standard for relief under these regulations include:

• Household income;
• Assets;
• Type of loans and total debt balances owed for loans described in proposed 30.91(a), including those not owed to the Department;
• Current repayment status and other repayment history information;
• Student loan total debt balances and required payments, relative to household income;
• Total debt balances and required payments, relative to household income;
• Receipt of a Pell Grant and other information from the Free Application for Federal Student Aid (FAFSA) form;
• Type and level of institution attended;
• Typical student outcomes associated with a program or programs attended;
• Whether the borrower has completed any postsecondary certificate or degree program for which the borrower received title IV, HEA financial assistance;
• Age;
• Disability;
• Age of the borrower's loan based upon first disbursement, or the disbursement of loans repaid by a consolidation loan;
• Receipt of means-tested public benefits;
• High-cost burdens for essential expenses, such as healthcare, caretaking, and housing;
• The extent to which hardship is likely to persist; and
• Any other indicators of hardship identified by the Secretary.

While this does not explicitly recognize the filing of a bankruptcy or the likelihood of a bankruptcy as a factor in this nonbankruptcy hardship relief,  § 30.91(c)  would evaluate for nonbankruptcy hardship  relief if the debtor is "at least 80 percent likely to be in default in the two years after these proposed regulations are published."  Unless a Chapter 13 plan, which under the Bankruptcy Code must last at least 36 or 60 months,  provides for substantial  and regular payments of student loans during this period, the likelihood of their default is well above 80%, if not virtually certain, arguably qualifying for non-bankruptcy hardship relief.

Of course,  all of this depends on the results of  the 2024 presidential election.

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