Biden administration proposes new steps to alleviate student debt

WASHINGTON — The Biden administration proposed new steps to alleviate student loans, including a rule that would curb interest rates for nearly all of the more than 40 million borrowers in the U.S.

In a statement, the Department of Education said it was proposing to remove interest capitalization, where it isn't required by law, meaning that unpaid interest would not be added to the balance of the borrower's total debt.

The proposal aims to make it easier for students who were defrauded by for-profit colleges to get their debt forgiven, reversing a Trump administration restriction.

The proposal tries to improve the Public Service Loan Forgiveness Program by allowing more types of payments to count toward debt forgiveness, including partial or late payments. Under the new proposal, public service workers would get credit for the months that their loans were deferred for service in the Peace Corps, AmeriCorps and National Guard.

We're committed to fixing a broken system. If a borrower qualifies for student loan relief, it shouldn't take mountains of paperwork or a law degree to obtain it, Secretary of Education Miguel Cardona said in a statement.

The proposed changes would make it easier for people with disabilities to apply for debt relief by streamlining the process and expanding the range of disabilities that qualify. The new plan would provide automatic debt relief for borrowers who don't attend colleges that close while they're enrolled.

The Department of Education hopes to finalize the rules by Nov. 1 so that the rule could go into effect by July 2023, according to the Department of Education.

President Joe Biden is struggling with how to address widespread student debt cancellation, despite the pressure from progressive Democrats to take more aggressive action. The White House has indicated that Biden is open to cancelling $10,000 of student debt for borrowers under a certain income, but the country's high inflation rate has complicated the issue.

The payment pause on federal student loans, which has been in place since the start of the Covid epidemic, is due to expire at the end of August. The White House said that Biden will make a decision on how to address student debt forgiveness. The Federal Reserve estimated that Americans owed more than 1.7 trillion in student loans in the first quarter of 2022. Students of color are more likely to take on student debt and struggle to pay it back, according to studies. The highest default rates are among students who attended for-profit institutions.