Student loan handouts get easier to obtain under Biden admin rule

Debt handouts will be available to borrowers who were 'cheated' by their colleges after Education Dept. rule goes into effect next year

The Department of Education released final regulations on Monday that will make it easier for people to get student loan debt handouts if a college misrepresents their program or otherwise "deceives" a student borrower, or if a borrower’s school closes down.

The final rule provides a range of other relief for borrowers, including by limiting the extent to which interest on student debt can be added to borrowers’ principal, and by fulling discharging loans for people with a total and permanent disability. The rule builds on the Biden administration’s controversial effort to relieve millions of borrowers from portions of the estimated $1.5 trillion in total student debt.

"Today is a monumental step forward in the Biden-Harris team’s efforts to fix a broken student loan system and build one that’s simpler, fairer and more accountable to borrowers," said Education Secretary Miguel Cardona. "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."

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Education Secretary Miguel Cardona Biden student loan debt

Secretary of Education Miguel Cardona released a new rule on Monday that will make it even easier for borrowers to be discharged from their student loans. (AP Photo/Seth Wenig, File / AP Newsroom)

Under the new rule that takes effect July 1, 2023, borrowers will be able to raise specific claims about the quality of their school that could result in a decision to be fully relieved from their loan obligations and to receive refunds of any loan amounts managed by the Department of Education. Claims that can be raised include substantial misrepresentation of an academic program, substantial omission of fact, breach of contract, and aggressive and deceptive recruitment.

To win relief, the Department of Education "must conclude, based upon a preponderance of the evidence, that the act or omission occurred and that it caused detriment to the borrower that warrants relief."

An earlier draft of the rule envisioned only partial debt relief, but the final "includes only the provision of full relief."

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President Biden student loan Cardona

President Biden has faced mounting criticism for his plans to cancel billions of dollars in student loan debt and put that burden on taxpayers. (AP Photo/Carolyn Kaster / AP Newsroom)

In cases where an educational institution has closed, borrowers will be automatically discharged from any further payments. The department said "too many borrowers" have not taken advantage of this benefit when schools close, which is why it moved to make this happen automatically.

The rule shuts down several existing ways in which interest on student loan debt can be added onto the loan balance, a process known as interest capitalization. Additionally, the rule provides new and streamlined ways for people with a total and permanent disability to be discharged from their loan. 

The department provided no cost estimate for the changes it announced on Monday. President Biden’s larger student loan handout, which will forgive up to $20,000 for borrowers, is expected to cost over $500 billion and add to the budget deficit in fiscal year 2022 that ended on Sept. 30.

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Student loan forgiveness Biden Cardona

Activists continue to pressure President Biden for more relief from the $1.5 trillion in U.S. student loan debt. (Anna Moneymaker/Getty Images / Getty Images)

Opponents of Biden’s decision said putting private student loan decisions on the backs of taxpayers would only encourage colleges to keep raising prices and add to the already high inflationary pressure in the U.S.

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In late October, the 8th Circuit Court of Appeals agreed to temporarily block Biden’s student loan handout, just days after the Department of Education launched an online loan forgiveness application form for borrowers to fill out.