Proposed Rule2024-25067
Student Debt Relief Based on Hardship for the William D. Ford Federal Direct Loan Program (Direct Loans), the Federal Family Education Loan (FFEL) Program, the Federal Perkins Loan (Perkins) Program, and the Health Education Assistance Loan (HEAL) Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 31, 2024
Issuing agencies
Education Department
Abstract
The Secretary proposes to amend the regulations related to the Higher Education Act of 1965, as amended (HEA), to provide for the waiver of certain student loan debts. The proposed regulations would specify the Secretary's authority to waive all or part of any student loan debts owed to the Department based on the Secretary's determination that a borrower has experienced or is experiencing hardship related to such a loan.
Full Text
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[Federal Register Volume 89, Number 211 (Thursday, October 31, 2024)]
[Proposed Rules]
[Pages 87130-87163]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-25067]
[[Page 87129]]
Vol. 89
Thursday,
No. 211
October 31, 2024
Part III
Department of Education
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34 CFR Part 30
Student Debt Relief Based on Hardship for the William D. Ford Federal
Direct Loan Program (Direct Loans), the Federal Family Education Loan
(FFEL) Program, the Federal Perkins Loan (Perkins) Program, and the
Health Education Assistance Loan (HEAL) Program; Proposed Rule
Federal Register / Vol. 89 , No. 211 / Thursday, October 31, 2024 /
Proposed Rules
[[Page 87130]]
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DEPARTMENT OF EDUCATION
34 CFR Part 30
[Docket ID ED-2023-OPE-0123]
RIN 1840-AD95
Student Debt Relief Based on Hardship for the William D. Ford
Federal Direct Loan Program (Direct Loans), the Federal Family
Education Loan (FFEL) Program, the Federal Perkins Loan (Perkins)
Program, and the Health Education Assistance Loan (HEAL) Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Secretary proposes to amend the regulations related to the
Higher Education Act of 1965, as amended (HEA), to provide for the
waiver of certain student loan debts. The proposed regulations would
specify the Secretary's authority to waive all or part of any student
loan debts owed to the Department based on the Secretary's
determination that a borrower has experienced or is experiencing
hardship related to such a loan.
DATES: We must receive your comments on or before December 2, 2024.
ADDRESSES: Comments must be submitted via the Federal eRulemaking
Portal at <a href="http://Regulations.gov">Regulations.gov</a>. Information on using <a href="http://Regulations.gov">Regulations.gov</a>,
including instructions for finding a rule on the site and submitting
comments, is available on the site under ``FAQ.'' If you require an
accommodation or cannot otherwise submit your comments via
<a href="http://Regulations.gov">Regulations.gov</a>, please contact <a href="/cdn-cgi/l/email-protection#beccdbd9cbd2dfcad7d1d0cdd6dbd2cedadbcdd5fed9cddf90d9d1c8"><span class="__cf_email__" data-cfemail="27554240524b46534e4849544f424b574342544c6740544609404851">[email protected]</span></a> or by phone
at 1-866-498-2945. The Department will not accept comments submitted by
fax or by email or comments submitted after the comment period closes.
Please submit your comment only once so that we do not receive
duplicate copies. Additionally, please include the Docket ID at the top
of your comments.
Privacy Note: The Department's policy is to generally make comments
received from members of the public available for public viewing on the
Federal eRulemaking Portal at <a href="http://Regulations.gov">Regulations.gov</a>. Therefore, commenters
should include in their comments only information about themselves that
they wish to make publicly available. Commenters should not include in
their comments any information that identifies other individuals or
that permits readers to identify other individuals. If, for example,
your comment describes an experience of someone other than yourself,
please do not identify that individual or include information that
would allow readers to identify that individual. The Department may not
make comments that contain personally identifiable information (PII)
about someone other than the commenter publicly available on
<a href="http://Regulations.gov">Regulations.gov</a> for privacy reasons. This may include comments where
the commenter refers to a third-party individual without using their
name if the Department determines that the comment provides enough
detail that could allow one or more readers to link the information to
the third party. For example, ``a former student with a graduate level
degree'' does not provide information that identifies a third-party
individual as opposed to ``my sister, Jane Doe, had this experience
while attending University X,'' which does provide enough information
to identify a specific third-party individual. For privacy reasons, the
Department reserves the right to not make available on <a href="http://Regulations.gov">Regulations.gov</a>
any information in comments that identifies other individuals, includes
information that would allow readers to identify other individuals, or
includes threats of harm to another person or to oneself.
FOR FURTHER INFORMATION CONTACT: Tamy Abernathy, U.S. Department of
Education, Office of Postsecondary Education, 400 Maryland Avenue SW,
5th floor, Washington, DC 20202. Telephone: (202) 245-4595. Email:
<a href="/cdn-cgi/l/email-protection#8bc5eeecd9eeecc5dbd9c6c3eee7fbcbeeefa5ece4fd"><span class="__cf_email__" data-cfemail="0a446f6d586f6d445a5847426f667a4a6f6e246d657c">[email protected]</span></a>.
If you are deaf, hard of hearing, or have a speech disability and
wish to access telecommunications relay services, please dial 7-1-1.
SUPPLEMENTARY INFORMATION:
Executive Summary
A brief summary of these proposed regulations is available at
<a href="https://www.regulations.gov/docket/ED-2023-OPE-0123">https://www.regulations.gov/docket/ED-2023-OPE-0123</a>. These proposed
regulations would clarify the use of the Secretary's longstanding
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
Sec. 30.91(a)).
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\1\ As discussed more fully below, these proposed regulations
focus on the Secretary's waiver authority under sections 432(a)(6)
and 468(2) of the HEA. Section 432(a)(6) provides that, ``in the
performance of, and with respect to, the functions, powers and
duties, vested in him by this part, the Secretary may . . . waive,
or release any right, title, claim, lien, or demand, however
acquired, including any equity or any right of redemption.'' 20
U.S.C. 1082(a)(6). Section 468(2), the Perkins Loan Program's
authorizing statute, features a similar waiver provision. 20 U.S.C.
1087hh(2). The Department views sections 432(a)(6) and 468(2) as
permitting the Secretary to waive the Department's right to require
repayment of a debt when there are circumstances that warrant such
relief, such as the circumstances specified in these proposed
regulations. The Department acknowledges that several states have
challenged the Department's authority to waive loans under sections
432(a)(6) and 468(2) through litigation focused on separate proposed
rules issued by the Department on April 17, 2024 (89 FR 27564) that
also rely on the Department's waiver authority under the HEA. See
Missouri v. Biden, No. 24-cv-1316 (E.D. Mo.). In that separate
litigation, a Federal district court has preliminarily enjoined the
Department ``from implementing the Third Mass Cancellation Rule,'' a
term that the plaintiffs used to refer to the April 2024 NPRM, and
``from mass canceling student loans, forgiving any principal or
interest, not charging borrowers accrued interest, or further
implementing any other actions under the Rule or instructing federal
contractors to take such actions.'' Memorandum and Order, Doc. 57 at
3, Missouri v. Biden, No. 24-cv-1316 (E.D. Mo. Oct. 3, 2024). As of
the publication of this NPRM, this litigation remains pending with
no final decision on the merits, including no final decision
pertaining to the Secretary's authority under sections 432(a)(6) and
468(2) of the HEA.
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The proposed regulations would then provide a non-exhaustive list
of factors the Secretary may consider in deciding whether to grant
relief (proposed Sec. 30.91(b)). Then, proposed Sec. 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 Sec. 30.91(b). Should the Secretary choose to exercise
such discretion, proposed Sec. 30.91(c) would provide immediate, one-
time relief as soon as practicable. And, proposed Sec. 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
Sec. 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 Sec. 30.91(c), under which the Secretary would consider
information in
[[Page 87131]]
the Department's possession to determine whether the borrower meets the
proposed standard for hardship in Sec. 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 Sec. 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 Sec. 30.91(d), would
be a determination based on a ``holistic assessment'' of the borrower's
circumstances (based on the factors in proposed Sec. 30.91(b)) that
meets the proposed hardship standard for waiver specified in proposed
Sec. 30.91(a). This assessment would focus on borrowers who are not
otherwise eligible for the immediate relief under proposed Sec.
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 Sec. 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 Sec. 30.91(c) and the additional relief in proposed
Sec. 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\
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\2\ See 89 FR 27564 (April 17, 2024). As described above, see
n.1, supra, a Federal district court has issued an injunction
focused on these separate proposed rules published on April 17,
2024. See Missouri v. Biden, No. 24-cv-1316 (E.D. Mo.). As of the
date of publishing this NPRM, that separate litigation focused on
the April 2024 NPRM remains pending with no final decision on the
merits. These regulations differ from the waivers proposed in the
April 2024 NPRM along various dimensions, including that the
provisions in these final regulations apply distinct and different
eligibility criteria, and these provisions address different
challenges with student loan repayment faced by borrowers and the
Department. As further described throughout these proposed
regulations, these provisions specify relief for borrowers that are
experiencing or have experienced hardship that meet certain
criteria. Specifically, under proposed Sec. 30.91(c), the Secretary
could provide individualized automatic relief through a predictive
assessment based on certain factors. Under proposed Sec. 30.91(d),
the Secretary could provide relief based on a holistic assessment of
the borrower's specific circumstances using the standard specified
in these proposed regulations. Accordingly, the waivers in these
proposed regulations would operate separately and distinctly from
the waivers proposed in the April 2024 NPRM.
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Summary of This Regulatory Action
These proposed regulations would add a new Sec. 30.91, which would
reflect in regulations the Secretary's existing discretionary authority
under section 432(a)(6) of the HEA to waive some or all of the
outstanding balance of a loan owed to the Department when the Secretary
determines that a borrower has experienced or is experiencing hardship
related to the loan such that the hardship is likely to impair the
borrower's ability to fully repay the Federal government, or the costs
of enforcing the full amount of the debt are not justified by the
expected benefits of continued collection of the entire debt. In
addition to establishing this standard, the proposed provision would
also specify the factors that the Secretary would consider in
evaluating hardship and the particular processes by which the Secretary
may provide relief under the standard for determining hardship.
We note that the Department published a Notice of Proposed
Rulemaking in the Federal Register on April 17, 2024 (April 2024 NPRM)
(89 FR 27564) but explained at that time that the April 2024 NPRM did
not include proposed regulations for waivers related to hardship.\3\ As
discussed in greater detail in the Negotiated Rulemaking section of
this NPRM, hardship waivers were discussed at a fourth session of the
negotiating committee on February 22 and 23, 2024. The Committee
reached consensus on proposed language, which is included in this NPRM.
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\3\ As described above, see n.1, supra, a Federal district court
has issued an injunction focused on these separate proposed rules
published on April 17, 2024. See Missouri v. Biden, No. 24-cv-1316
(E.D. Mo.). As of the date of publishing this NPRM, that separate
litigation focused on the April 2024 NPRM remains pending with no
final decision on the merits.
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Costs and Benefits: As further detailed in the Regulatory Impact
Analysis (RIA), the proposed regulations would have significant impacts
on borrowers, taxpayers, and the Department. Instances in which the
Secretary decides to waive all or part of a borrower's outstanding loan
balance would result in transfers between the Federal government and
borrowers. This would create benefits for borrowers by eliminating the
hardship they are facing with respect to their loans, allowing them to
better afford necessities like food or housing, afford retirement,
cover childcare or caretaking expenses, or otherwise improve their
financial circumstances. In the case of a waiver of the full
outstanding balance of the loan, a borrower would no longer have a
repayment obligation and also no longer face the risk of delinquency or
default. A borrower who receives a partial waiver would have a more
affordable repayment obligation that could be repaid in full over time.
The transfers resulting from the proposed regulations would be
mitigated to the extent that the Secretary would exercise discretion to
waive loans in whole or part where the borrower is unlikely to have the
ability to repay, or where the costs of continued collection outweigh
the benefits, allowing the Department to prioritize collection of loans
that are most likely to be repaid.
Beyond transfers, these regulations would create administrative
costs for the Department to process and implement relief based upon
information in the Department's possession or based upon applications
filed by borrowers.
Invitation to Comment: We invite you to submit comments regarding
these proposed regulations. For your comments to have maximum effect in
developing the final regulations, we urge you to clearly identify the
specific section or sections of the proposed regulations that each of
your comments addresses and to arrange your comments in the same order
as the proposed regulations. The Department will not accept comments
submitted after the comment period closes. Please submit your comments
only once so that we do not receive duplicate copies.
The following tips are meant to help you prepare your comments and
provide a basis for the Department to respond to issues raised in your
comments in the notice of final regulations (NFR):
<bullet> Be concise but support your claims.
<bullet> Explain your views as clearly as possible and avoid using
profanity.
<bullet> Refer to specific sections and subsections of the proposed
regulations throughout your comments, particularly in any headings that
are used to organize your submission.
[[Page 87132]]
<bullet> Explain why you agree or disagree with the proposed
regulatory text and support these reasons with data-driven evidence,
including the depth and breadth of your personal or professional
experiences.
<bullet> Where you disagree with the proposed regulatory text,
suggest alternatives, including regulatory language, and your rationale
for the alternative suggestion.
<bullet> Do not include personally identifiable information (PII)
such as Social Security numbers or loan account numbers for yourself or
for others in your submission. Should you include any PII in your
comment, such information may be posted publicly.
<bullet> Do not include any information that directly identifies or
could identify other individuals or that permits readers to identify
other individuals. Your comment may not be posted publicly if it
includes PII about other individuals.
Mass Writing Campaigns: In instances where individual submissions
appear to be duplicates or near duplicates of comments prepared as part
of a writing campaign, the Department will post one representative
sample comment along with the total comment count for that campaign to
<a href="http://Regulations.gov">Regulations.gov</a>. The Department will consider these comments along with
all other comments received.
In instances where individual submissions are bundled together
(submitted as a single document or packaged together), the Department
will post all the substantive comments included in the submissions
along with the total comment count for that document or package to
<a href="http://Regulations.gov">Regulations.gov</a>. A well-supported comment is often more informative to
the agency than multiple form letters.
Public Comments: The Department invites you to submit comments on
all aspects of the proposed regulatory language specified in this NPRM
in Sec. 30.91, the Regulatory Impact Analysis, and Paperwork Reduction
Act sections.
The Department may, at its discretion, decide not to post or to
withdraw certain comments and other materials that are computer-
generated. Comments containing the promotion of commercial services or
products and spam will be removed.
We may not address comments outside of the scope of these proposed
regulations in the NFR. Generally, comments that are outside of the
scope of these proposed regulations are comments that do not discuss
the content or impact of the proposed regulations or the Department's
evidence or reasons for the proposed regulations.
Comments that are submitted after the comment period closes will
not be posted to <a href="http://Regulations.gov">Regulations.gov</a> or addressed in the NFR.
Comments containing personal threats will not be posted to
<a href="http://Regulations.gov">Regulations.gov</a> and may be referred to the appropriate authorities.
We invite you to assist us in complying with the specific
requirements of Executive Orders 12866, 13563, and 14094 and their
overall requirement of reducing regulatory burden that might result
from these proposed regulations. Please let us know of any further ways
we could reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the
Department's programs and activities.
During and after the comment period, you may inspect public
comments about these proposed regulations by accessing <a href="http://Regulations.gov">Regulations.gov</a>.
Assistance to Individuals with Disabilities in Reviewing the
Rulemaking Record: On request, we will provide an appropriate
accommodation or auxiliary aid to an individual with a disability who
needs assistance to review the comments or other documents in the
public rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of accommodation or auxiliary
aid, please contact one of the persons listed under FOR FURTHER
INFORMATION CONTACT.
Directed Questions
The Department is particularly interested in comments on the
following directed questions:
1. Is ``two years'' the appropriate measurement window for the
waivers specified in proposed Sec. 30.91(c) related to borrowers who
are likely to be in default, or should the Department use a different
time frame, and if so, what timeframe and why?
2. Is ``80 percent'' likelihood of being in default within the next
two years the appropriate eligibility threshold for immediate relief in
proposed Sec. 30.91(c), or should the Department consider a different
likelihood percentage, and if so, what should it be and why?
3. As described in this NPRM, eligibility for a hardship waiver
under proposed Sec. 30.91(d) would be relatively rare and limited to
circumstances where the Secretary finds: (i) the borrower is highly
likely to be in default, or experience similarly severe negative and
persistent circumstances, and (ii) other options for payment relief
would not sufficiently address the borrower's persistent hardship. The
Department invites feedback from the public on what circumstances
constitute similarly severe negative and persistent circumstances that
are comparable to default.
4. Under proposed Sec. 30.91(d), is ``highly likely'' to be in
default or to experience similarly severe negative and persistent
circumstances the appropriate eligibility threshold? If so, why? If
not, should the Department use a different likelihood threshold, and,
if so, what threshold and why?
5. How should the Department help make certain that borrowers have
the opportunity to enroll or apply for other programs administered by
the Department that may be advantageous to the borrower and
successfully demonstrate a hardship that qualifies for a waiver under
proposed Sec. 30.91(d)?
6. How can the Department improve or refine the estimates in the
RIA related to the anticipated volume of applications for the
application-based hardship waiver process, as well as the estimates
related to the approval rate for such applications?
7. As described in this NPRM, the Department believes a presumption
in favor of a full waiver is appropriate and would provide consistency
in decision-making, but that this presumption could be rebutted in
certain circumstances. For example, the Secretary may find the
presumption in favor of full waiver is rebutted if there is evidence
that a partial waiver would sufficiently reduce a borrower's monthly
payment in a manner that alleviates their hardship under these
regulations. The Department seeks input from the public on the types of
circumstances and evidence that the Department should consider to
determine when partial relief is more appropriate.
8. Under what circumstances, pursuant to proposed Sec. 30.91(d),
would a borrower who is eligible for a $0 monthly payment under an
income-driven repayment plan meet the standard for relief in proposed
Sec. 30.91(d) of being highly likely to be in default or experience
similarly severe and persistent negative circumstances, and other
options for payment relief would not sufficiently address the
borrower's persistent hardship?
9. Under what circumstances would a borrower be highly likely to be
in default, or experience similarly severe negative and persistent
circumstances, such that relief pursuant to proposed Sec. 30.91(d)
would be appropriate?
10. What type of data could the Department use to determine whether
a borrower who has not submitted an application qualifies for relief
under
[[Page 87133]]
proposed Sec. 30.91(d), and how could ED obtain those data?
11. If the Department were to establish a cap on the amount of
relief eligible borrowers could receive, what would be a reasonable cap
and what data, research, or other information would support the setting
of such a cap? The Department is particularly interested in different
approaches for formulating and justifying the amount of capped relief.
For example, the Department welcomes feedback on whether the Department
should apply any of the following approaches: a universal cap, a
progressive cap based on the extent of the hardship up to a maximum
possible limit, or a cap that provides proportional relief based on
other circumstances.
Background
Federal student loans provide an important resource for Americans
to enroll in postsecondary education programs if they do not have the
financial means to pay the total cost of attendance up front. Because
postsecondary education generally provides economic returns, the
increased financial benefits from greater education and training can be
used to repay the debts incurred to pay for those opportunities.
Unfortunately, over the decades since the HEA was enacted, the
increasing price of postsecondary education has exceeded the growth in
family incomes.\4\ For many students, available grant aid is not
sufficient to cover postsecondary expenses, leading Federal student
loans to fill a critical and inescapable gap in postsecondary education
financing for many families.
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\4\ For example, the published tuition and fees for public four-
year, public two-year, and private nonprofit four-year institutions
were, respectively, 209 percent, 151 percent, and 178 percent higher
than those costs in the early 1990s (inflation adjusted). Over a
similar time period, incomes rose by about 30 percent-40 percent
among families outside of the top quintile, and 65 percent for
families in the top quintile (inflation adjusted). See Ma, Jennifer
and Matea Pender. Trends in College Pricing and Student Aid 2023
(2023). New York: College Board.
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Generally, financing postsecondary education with loans yields
returns--such as increased income--that help borrowers afford their
debts.\5\ Increasing access to higher education through student loans
also provides well-documented benefits to communities and to the
national economy and society. These benefits extend even to individuals
who never attended college themselves. For example, college certificate
and degree attainment typically lead to higher earnings, increasing the
ability of individuals to spend money and invest in their local
community.\6\
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\5\ Avery, Christopher and Sarah Turner. ''Student loans: Do
college students borrow too much--or not enough?.'' Journal of
Economic Perspectives vol. 26, no. 1 (2012): 165-192. Lovenheim,
Michael, and Jonathan Smith. ``Returns to different postsecondary
investments: Institution type, academic programs, and credentials.''
Handbook of the Economics of Education vol. 6 (2023): 187-318.
Elsevier.
\6\ Matsudaira, Jordan. ``The Economic Returns to Postsecondary
Education: Public and Private Perspectives.'' Postsecondary Value
Commission (2021). Moretti, Enrico. Estimating the social return to
higher education: evidence from longitudinal and repeated cross-
sectional data. Journal of Econometrics 121, no. 1-2 (2004): 175-
212.
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The HEA contains many provisions intended to assist borrowers when
their investment in postsecondary education does not result in the
expected benefits. The Department offers several options for payment
relief and other forgiveness opportunities. For example, when an
educational institution misrepresents the value of an education
financed with a student loan, the HEA authorizes discharge of the
obligation through a borrower defense claim. The HEA also provides for
discharge when a school falsely certifies a borrower's eligibility for
a loan, or someone obtains a loan in the borrower's name through
identity theft. Other types of loan discharges are available if a
borrower is unable to complete a program because an institution closes,
or if the borrower becomes totally and permanently disabled.
The Department offers several different repayment options, some of
which base payments on a borrower's income and forgive any remaining
amounts after an extended period of payments, which is either 20 or 25
years for most plans.\7\
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\7\ See 20 U.S.C. 1087e(e) and 20 U.S.C. 1098e.
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While existing discharge and repayment programs provide critical
relief to borrowers, they do not capture the full set of circumstances
that may impair borrowers' ability to fully repay their loans. Many
situations unique to individual borrowers can cause borrowers to
experience significant hardship repaying student loans and may make the
cost of collecting the loan exceed the expected benefits of continued
collection. Such situations often are not covered by existing avenues
for relief. For example, older borrowers with high educational debt
burdens can be at increased risk of financial insecurity since they are
also more likely to be exposed to higher medical costs and declining
incomes.\8\ But these risks are not factored into the determination of
eligibility for relief under existing Department programs. Borrowers
with significant medical expenses, dependent care expenses, or other
extraordinary and necessary costs also may not qualify for other
discharge and repayment programs, which do not assess such expenses in
determining eligibility.
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\8\ See, for example, this US Government Accountability Office
(GAO) report that demonstrates higher rates of debt among older
Americans, <a href="https://www.gao.gov/products/gao-21-170">https://www.gao.gov/products/gao-21-170</a>. For a discussion
of how medical costs account for a larger share of expenditures
among older individuals also see, Banks, James, Richard Blundell,
Peter Levell, and James P. Smith. ``Life-cycle consumption patterns
at older ages in the United States and the United Kingdom: Can
medical expenditures explain the difference?.'' American Economic
Journal: Economic Policy 11, no. 3 (2019): 27-54.
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These proposed regulations would clarify how the Secretary would
exercise their authority to waive some or all outstanding loan debt in
certain situations where the Secretary determines that a borrower is
facing hardship that impairs their ability to fully repay the loan or
imposes unwarranted costs that exceed the benefits of continued
collection. The proposed regulations describe the transparent,
reasonable, and equitable factors the Secretary would use to determine
when such waivers could be granted.
Section 432(a) of the HEA outlines the Secretary's legal powers and
responsibilities relevant to this rulemaking. That section delegates to
the Secretary the discretion to exercise certain ``general powers.'' In
particular, section 432(a)(6) provides that, ``in the performance of,
and with respect to, the functions, powers and duties, vested in him by
this part, the Secretary may enforce, pay, compromise, waive, or
release any right, title, claim, lien, or demand, however acquired,
including any equity or any right of redemption.''
The provisions of section 432(a)(6) are in, and explicitly apply
to, title IV, part B, of the HEA, which establishes the FFEL program.
Section 432(a)(6), however, also applies to the Direct Loan program. In
creating the Direct Loan program, Congress established parity between
the FFEL and Direct Loan programs, providing in section 451(b)(2) of
the HEA that Federal Direct Loans ``have the same terms, conditions,
and benefits as loans made to borrowers'' under the FFEL program. 20
U.S.C. 1087a(b)(2).\9\ By its plain language, section 451(b)(2)
requires that the benefits of FFEL loans should be available under the
Direct Loan program, including the benefit to a borrower when the
Secretary exercises
[[Page 87134]]
discretionary authority under section 432(a)(6) to waive loan
obligations for those experiencing hardship. A benefit is ``something
that produces good or helpful results or effects,'' \10\ and
disallowing Direct Loan borrowers experiencing hardships the same
opportunity as FFEL borrowers to have all or part of the balance of
their loans eliminated plainly would afford different benefits between
the loan programs, the result section 451(b)(2) was created to avoid.
---------------------------------------------------------------------------
\9\ See Sweet v. Cardona, 641 F. Supp. 3d 814, 823-25 (N.D. Cal.
2022); Weingarten v. DOE, 468 F. Supp. 3d 322, 328 (D.D.C. 2020);
Chae v. SLM Corp., 593 F.3d 936, 945 (9th Cir. 2010).
\10\ <a href="https://www.merriam-webster.com/dictionary/benefit">https://www.merriam-webster.com/dictionary/benefit</a>.
---------------------------------------------------------------------------
The Secretary's waiver authority under section 432(a)(6) of the HEA
also extends to HEAL and Perkins loans. When transferring the HEAL loan
program to the Department, Congress explicitly stated that the
Secretary's powers with respect to collecting FFEL loans extend to HEAL
loans. See Division H, title V, section 525(d) of the Consolidated
Appropriations Act, 2014 (Pub. L. 113-76). Likewise, section 468(2) of
the HEA endows the Secretary with similarly broad and flexible powers
with respect to loans arising under the Perkins program.
The Department's statutory waiver authority dates to the enactment
of the Higher Education Act in 1965.\11\ The Department has viewed its
waiver authority as permitting the Secretary to waive the Department's
right to require repayment of a debt.\12\ Having such bounded
flexibility is critical for the Department's administration of the
comprehensive and complex student loan programs, where unforeseen
challenges could, absent waiver, interfere with the Secretary's ability
to administer the title IV programs effectively and efficiently.
---------------------------------------------------------------------------
\11\ See Public Law 89-329, 79 Stat. 1246 (Nov. 8, 1965).
\12\ The authority to waive loan balances is provided by the
statutory text of the HEA, such that the Secretary's exercise of
this authority in this proposed regulation is unaffected by the
Supreme Court's decision in Biden v. Nebraska, 600 U.S. 477 (2023).
In Nebraska, the Court interpreted a provision of the HEROES Act,
which authorizes waiver or modification of ``statutory or regulatory
provisions'' applicable to the Federal student loan programs under
certain circumstances. The Court found that the debt-relief program
at issue there exceeded the scope of the HEROES Act authority to
waive and modify rules. Here, unlike in Nebraska, the Secretary's
waiver authority derives from section 432(a)(6) of the HEA, which
broadly authorizes waiver of Department claims, and therefore
applies directly to ``waiving loan balances or waiving the
obligation to repay on the part of the borrower.'' Nebraska, 600
U.S. at 497 (internal citation omitted).
---------------------------------------------------------------------------
The Department's waiver authority operates within the context of
the HEA's text, structure, and goals, and the well-established
principles that govern debt collection and waiver more broadly. Some
agencies that exercise waiver authority consider whether collection of
debts would be against equity and good conscience or the best interest
of the United States. Agencies have also articulated numerous factors
that may weigh in favor of waiving an individual's debt, including when
collection would defeat the purpose of the benefit program or impose
financial hardship, among other considerations. We have taken such
factors into consideration here.
On June 30, 2023, the Department announced that it would conduct a
negotiated rulemaking process to specify the standard the Secretary
plans to use in exercising the Secretary's authority to waive loan
debts under section 432(a) of the HEA. On April 17, 2024, the
Department published the April 2024 NPRM, laying out some of the
proposals from the negotiated rulemaking process, including the waiver
of loans that have seen their balances grow far beyond what they were
upon entering repayment, loans that first entered repayment a long time
ago, loans held by borrowers that are otherwise eligible for certain
forgiveness opportunities, or debts taken out to attend programs or
institutions that failed to provide sufficient financial value.\13\
---------------------------------------------------------------------------
\13\ 89 FR 27564 (April 17, 2024). As described above, see n.1,
supra, a Federal district court has issued an injunction focused on
these separate proposed rules published on April 17, 2024. See
Missouri v. Biden, No. 24-cv-1316 (E.D. Mo.). As of the date of
publishing this NPRM, that separate litigation focused on the April
2024 NPRM remains pending with no final decision on the merits.
---------------------------------------------------------------------------
The waivers proposed in this NPRM are distinct from those in the
April 2024 NPRM and are specifically related to determinations about
whether borrowers are facing, or have faced, hardship. While it is
possible that a borrower could qualify for a waiver under these
proposed regulations as well as under other proposed and existing
regulations, this NPRM is fully separate from, and these proposed
regulations would operate independently of, such other regulations. In
addition, paragraphs (a) through (d) of proposed Sec. 30.91 would
operate independently of each other and therefore would be fully
severable, as more fully explained below.
Pathways to Relief
In this NPRM, the Department describes two pathways by which the
Secretary could exercise discretion to provide waivers of some or all
of the outstanding balance of a Federal student loan held by the
Department. Both of these proposed pathways would operate separately
and independently from each other and therefore would be fully
severable. As noted above, the regulations specify: (i) a pathway for
``immediate relief'' using a predictive assessment in proposed Sec.
30.91(c); (ii) a pathway for ``additional relief'' using a holistic
assessment in proposed Sec. 30.91(d) based on an application or data
already in the Secretary's possession, or a combination of both.
Under both pathways to relief, the Secretary proposes to analyze
each individual borrower's circumstances, as reflected in the factors
in proposed Sec. 30.91(b), to determine whether the borrower is
experiencing or has experienced hardship as defined by these
regulations.
Under the first pathway to relief, using a ``predictive
assessment'' as described in proposed Sec. 30.91(c), the Secretary
would use data already in the Department's possession (that is, not
acquired by application) to identify borrowers who meet the standard in
proposed Sec. 30.91(a) such that they are at least 80 percent likely
to be in default in the next two years after the proposed regulations'
publication date.\14\ The Secretary would conduct this analysis by
using a predictive model that considers the borrower's circumstances as
described by factors in proposed Sec. 30.91(b). The Secretary then
could choose to exercise discretion to grant ``immediate relief'' to
borrowers who qualify under proposed Sec. 30.91(c).
---------------------------------------------------------------------------
\14\ Borrowers who may be included in this model are those who
have at least one federally held loan that has entered repayment.
---------------------------------------------------------------------------
Under the second pathway for relief, described in proposed Sec.
30.91(d), the Secretary may exercise discretion to grant a waiver to a
borrower who meets the standard of hardship based on a holistic
assessment of the borrower's circumstances, based on the factors
described in proposed Sec. 30.91(b). The Department interprets the
hardship required for relief under proposed Sec. 30.91(d) as: the
borrower must be 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. This holistic assessment may rely on data already in the
Secretary's possession or acquired from a borrower through an
application process that would allow a borrower to provide additional
data relevant to the factors in proposed Sec. 30.91(b), or a
combination of both. The Department anticipates that the number of
borrowers for whom the Department possesses sufficient information to
conduct the
[[Page 87135]]
holistic assessment without data acquired from an application would be
small.
These proposed regulations account for challenges facing individual
borrowers, while also recognizing that many borrowers are similarly
situated. The Department has a longstanding practice of providing
appropriate relief when it identifies specific circumstances that
warrant relief and affect multiple borrowers. Such relief, regardless
of how data is collected to make a determination about relief, is
appropriate when individuals share relevant features. This approach
comports with the HEA's statutory requirements and can also help to
improve administrative efficiency and provide consistency across
borrowers.\15\
---------------------------------------------------------------------------
\15\ See HEA section 432(a)(6).
---------------------------------------------------------------------------
Overall, these proposed regulations would provide important
transparency and clarity about how the Secretary may exercise the
discretion to provide relief in situations where a borrower is facing,
or has faced, a hardship that might not be addressed through other
means. Providing relief in such situations would help alleviate the
challenge of repaying student loans for many individual borrowers and
better target the costs involved in the Department's efforts to enforce
collection and repayment.
Public Participation
The Department has significantly engaged the public in developing
this NPRM, as described here and below in the Negotiated Rulemaking
section.
On July 6, 2023, the Department published a document in the Federal
Register \16\ announcing our intent to establish a negotiated
rulemaking committee to prepare proposed regulations pertaining to the
Secretary's authority under section 432(a) of the HEA, which relates to
the modification, waiver, or compromise of loans.
---------------------------------------------------------------------------
\16\ 88 FR 43069 (July 6, 2023).
---------------------------------------------------------------------------
On July 18, 2023, the Department held a virtual public hearing at
which individuals and representatives of interested organizations
provided advice and recommendations relating to the topic of proposed
regulations on the modification, waiver, or compromise of loans. The
Department considered the oral comments made by the public during the
public hearing and written comments submitted between July 6, 2023, and
July 20, 2023. We also held four negotiated rulemaking sessions of two
days each. During each daily negotiated rulemaking session, we provided
an opportunity for public comment. The fourth two-day session in
February 2024 focused exclusively on the issue of hardship criteria for
discharge and the public had an opportunity to comment on the first day
of that session. Additionally, non-Federal negotiators shared feedback
from their stakeholders with the negotiating committee.
The Department accepted written comments on possible regulatory
provisions that were submitted directly to the Department by interested
parties and organizations. You may view the written comments submitted
in response to the July 6, 2023, Federal Register document on the
Federal eRulemaking Portal at <a href="http://Regulations.gov">Regulations.gov</a>, within docket ID ED-
2023-OPE-0123. Instructions for finding comments are also available on
the site under ``FAQ.''
Transcripts of the public hearings may be accessed at <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/index.html">https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/index.html</a>.
Negotiated Rulemaking
Section 492 of the HEA, 20 U.S.C. 1098a, requires the Secretary to
obtain public involvement in the development of proposed regulations
affecting programs authorized by title IV of the HEA. After obtaining
extensive input and recommendations from the public, including
individuals and representatives of groups involved in the title IV, HEA
programs, the Secretary, in most cases, must engage in the negotiated
rulemaking process before publishing proposed regulations in the
Federal Register. If negotiators reach consensus on the proposed
regulations, the Department agrees to publish without substantive
alteration a defined group of regulations on which the negotiators
reached consensus, unless the Secretary reopens the process or provides
a written explanation to the participants stating why the Secretary has
decided to depart from the agreement reached during negotiations.
Further information on the negotiated rulemaking process can be found
at:
<a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/index.html">https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/index.html</a>.
On August 31, 2023, the Department published a document in the
Federal Register \17\ announcing its intention to establish the
Committee to prepare proposed regulations for the title IV, HEA
programs. This document set forth a schedule for Committee meetings and
requested nominations for individual negotiators to serve on the
negotiating committee. In the document, we announced the topics that
the Committee would address.
---------------------------------------------------------------------------
\17\ 88 FR 60163 (August 31, 2023).
---------------------------------------------------------------------------
The Committee included the following members, representing their
respective constituencies:
<bullet> Civil Rights Organizations: Wisdom Cole, NAACP, and India
Heckstall (alternate), Center for Law and Social Policy.
<bullet> Legal Assistance Organizations that Represent Students or
Borrowers: Kyra Taylor, National Consumer Law Center, and Scott
Waterman (alternate), Student Loan Committee of the National
Association of Chapter 13 Trustees.
<bullet> State Officials, including State higher education
executive officers, State authorizing agencies, and State regulators of
institutions of higher education: Lane Thompson, Oregon DCBS--Division
of Financial Regulation, and Amber Gallup (alternate), New Mexico
Higher Education Department.
<bullet> State Attorneys General: Yael Shavit, Office of the
Massachusetts Attorney General, and Josh Divine (alternate), Missouri
Attorney General's Office who withdrew from the committee during the
third session.
<bullet> Public Institutions of Higher Education, Including Two-
Year and Four-Year Institutions: Melissa Kunes, The Pennsylvania State
University, and J.D. LaRock (alternate), North Shore Community College.
<bullet> Private Nonprofit Institutions of Higher Education:
Angelika Williams, University of San Francisco, and Susan Teerink
(alternate), Marquette University.
<bullet> Proprietary Institutions: Kathleen Dwyer, Galen College of
Nursing, and Belen Gonzalez (alternate), Mech-Tech College.
<bullet> Historically Black Colleges and Universities, Tribal
Colleges and Universities, and Minority Serving Institutions
(institutions of higher education eligible to receive Federal
assistance under title III, parts A and F, and title V of the HEA):
Sandra Boham, Salish Kootenai College, and Carol Peterson (alternate),
Langston University.
<bullet> Federal Family Education Loan (FFEL) Lenders, Servicers,
or Guaranty Agencies: Scott Buchanan, Student Loan Servicing Alliance,
and Benjamin Lee (alternate), Ascendium Education Solutions, Inc.
<bullet> Student Loan Borrowers Who Attended Programs of Two Years
or Less: Ashley Pizzuti, San Joaquin Delta College, and David Ramirez
(alternate), Pasadena City College.
<bullet> Student Loan Borrowers Who Attended Four-Year Programs:
Sherrie Gammage, The University of New Orleans, and Sarah Christa Butts
(alternate), University of Maryland.
[[Page 87136]]
<bullet> Student Loan Borrowers Who Attended Graduate Programs:
Richard Haase, State University of New York at Stony Brook, and Dr.
Jalil Bishop (alternate), University of California, Los Angeles.
<bullet> Currently Enrolled Postsecondary Education Students: Jada
Sanford, Stephen F. Austin University, and Jordan Nellums (alternate),
University of Texas.
<bullet> Consumer Advocacy Organizations: Jessica Ranucci, New York
Legal Assistance Group, and Ed Boltz (alternate), Law Offices of John
T. Orcutt, P.C.
<bullet> Individuals with Disabilities or Organizations
Representing Them: John Whitelaw, Community Legal Aid Society Inc., and
Waukecha Wilkerson (alternate), Sacramento State University.
<bullet> U.S. Military Service Members, Veterans, or Groups
Representing Them: Vincent Andrews, Veteran. Originally the alternate,
Mr. Andrews became the primary negotiator for this constituency group
after Michael Jones withdrew from the Committee.
<bullet> Federal Negotiator: Tamy Abernathy, U.S. Department of
Education.
At its first meeting, the Committee reached agreement on its
protocols and proposed agenda. The protocols provided, among other
things, that the Committee would operate by consensus. The protocols
defined consensus as no dissent by any negotiator of the Committee for
the Committee to be considered to have reached agreement and noted that
consensus votes would be taken on each separate part of the proposed
rules.
The Committee reviewed and discussed the Department's drafts of
regulatory language and alternative language and suggestions proposed
by negotiators.
At its third meeting in December 2023, the Committee reached
consensus on some proposed regulations that have since been published
in the April 2024 NPRM.\18\ That NPRM also included all other proposed
provisions from the third session on which consensus was not reached.
---------------------------------------------------------------------------
\18\ 89 FR 27564 (April 17, 2024). As described above, see n.1,
supra, a Federal district court has issued an injunction focused on
these separate proposed rules published on April 17, 2024. See
Missouri v. Biden, No. 24-cv-1316 (E.D. Mo.). As of the date of
publishing this NPRM, that separate litigation focused on the April
2024 NPRM remains pending with no final decision on the merits.
---------------------------------------------------------------------------
On February 2, 2024, the Department published a document in the
Federal Register \19\ announcing a fourth session of Committee
negotiations on February 22 and 23, 2024 to focus exclusively on the
issue of borrowers facing hardship. Some primary or alternate
negotiators were unable to attend the fourth session of Committee
negotiations in February 2024. Where the primary was unable to attend,
the alternate filled the role of primary. The following Committee
members participated in the fourth session, representing their
respective constituencies:
---------------------------------------------------------------------------
\19\ 89 FR 7317 (February 2, 2024).
---------------------------------------------------------------------------
<bullet> Civil Rights Organizations: Wisdom Cole, NAACP.
<bullet> Legal Assistance Organizations that Represent Students or
Borrowers: Scott Waterman (alternate who served as primary), Student
Loan Committee of the National Association of Chapter 13 Trustees.
<bullet> State Officials, including State higher education
executive officers, State authorizing agencies, and State regulators of
institutions of higher education: Lane Thompson, Oregon DCBS--Division
of Financial Regulation.
<bullet> State Attorneys General: Yael Shavit, Office of the
Massachusetts Attorney General.
<bullet> Public Institutions of Higher Education, Including Two-
Year and Four-Year Institutions: Melissa Kunes, The Pennsylvania State
University.
<bullet> Private Nonprofit Institutions of Higher Education:
Angelika Williams, University of San Francisco, and Susan Teerink
(alternate), Marquette University.
<bullet> Proprietary Institutions: Kathleen Dwyer, Galen College of
Nursing, and Belen Gonzalez (alternate), Mech-Tech College.
<bullet> Historically Black Colleges and Universities, Tribal
Colleges and Universities, and Minority Serving Institutions
(institutions of higher education eligible to receive Federal
assistance under title III, parts A and F, and title V of the HEA):
Carol Peterson (alternate who served as primary), Langston University.
<bullet> Federal Family Education Loan (FFEL) Lenders, Servicers,
or Guaranty Agencies: Scott Buchanan, Student Loan Servicing Alliance.
<bullet> Student Loan Borrowers Who Attended Programs of Two Years
or Less: Ashley Pizzuti, San Joaquin Delta College.
<bullet> Student Loan Borrowers Who Attended Four-Year Programs:
Sarah Christa Butts (alternate who served as primary), University of
Maryland.
<bullet> Student Loan Borrowers Who Attended Graduate Programs:
Richard Haase, State University of New York at Stony Brook, and Dr.
Jalil Bishop (alternate), University of California, Los Angeles.
<bullet> Currently Enrolled Postsecondary Education Students:
Jordan Nellums (alternate who served as primary), University of Texas.
<bullet> Consumer Advocacy Organizations: Jessica Ranucci, New York
Legal Assistance Group, and Ed Boltz (alternate), Law Offices of John
T. Orcutt, P.C.
<bullet> Individuals with Disabilities or Organizations
Representing Them: John Whitelaw, Community Legal Aid Society Inc.
<bullet> U.S. Military Service Members, Veterans, or Groups
Representing Them: Vincent Andrews, Veteran.
<bullet> Federal Negotiator: Tamy Abernathy, U.S. Department of
Education.
For more information about the Committee membership in the fourth
session, please visit our Session 4 Meeting Summary: <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/final-session-4-summary-2-27-24.pdf">https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/final-session-4-summary-2-27-24.pdf</a>.
During that fourth session, the Department presented regulatory
text for waivers that could assist borrowers who have experienced or
are experiencing hardship. The negotiators reached consensus on this
language.
This NPRM only includes proposed regulations on hardship. Because
the Committee reached consensus on the proposed regulations, the
proposed regulatory text in this NPRM is the same text on which
consensus was reached.
For more information on the negotiated rulemaking sessions, please
visit: <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/index.html">https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/index.html</a>.
Summary of Proposed Changes
These proposed regulations would add Sec. 30.91 specifying the
Secretary's authority to waive some or all of the outstanding balance
of a loan owed to the Department when the Secretary determines that a
borrower has experienced or is experiencing hardship related to the
loan such that the hardship is likely to impair the borrower's ability
to fully repay the Federal government or the costs of enforcing the
full amount of the debt are not justified by the expected benefits of
continued collection of the entire debt.
Significant Proposed Regulations
We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in
effect. For each section of the regulations discussed, we include the
statutory citation, the current regulations being revised (if
[[Page 87137]]
applicable), the new proposed regulatory text, and the reasons why we
proposed to add new regulatory text or revise the existing regulatory
text.
Sec. 30.91(a) Standard for Waiver Due to Hardship
Statute: Section 432(a) of the HEA (20 U.S.C. 1082(a)) provides
that in the performance of, and with respect to, the functions, powers,
and duties, vested in him by this part, the Secretary may enforce, pay,
compromise, waive, or release any right, title, claim, lien, or demand,
however acquired, including any equity or any right of redemption.
Section 468(2) of the HEA endows the Secretary with similarly broad and
flexible powers with respect to loans arising under the Perkins
program.\20\
---------------------------------------------------------------------------
\20\ See 20 U.S.C. 1087hh(2).
---------------------------------------------------------------------------
Current Regulations: None.
Proposed Regulations: Under proposed Sec. 30.91(a), the Secretary
may waive up to the outstanding balance of a Federal student loan owed
to the Department when the Secretary determines that the borrower has
experienced or is experiencing hardship related to that Federal student
loan such that the hardship is likely to impair the borrower's ability
to fully repay the Federal government, or the Secretary has determined
that the costs of enforcing the full amount of the debt are not
justified by the expected benefits of continued collection of the
entire debt.
Reasons: Proposed Sec. 30.91(a) sets forth the purpose of proposed
Sec. 30.91. It clarifies both the types of Federal loans that could be
considered for waiver under proposed Sec. 30.91 as well as the
proposed standard that the Department would apply to determine if a
borrower has faced, or is facing, hardship in a manner and extent that
makes the borrower eligible for relief.
The Department proposes to include all types of Federal student
loans held by the Department in Sec. 30.91 because, among loans held
by the Department, no programmatic differences exist between the loan
types that would justify waiver of some of a borrower's loans and not
others.
The Department proposes to consider waiver in situations in which a
borrower ``has experienced'' or ``is experiencing'' hardship, because,
in addition to current hardship that may raise immediate concerns,
there could be situations where the Department has clear indicators of
hardship, but such indicators may not be current. The Department
believes that in certain situations, it would be appropriate and
reasonable for the Department to infer that the past observed hardship
has continued. For example, if the Department has evidence from two
years ago that a borrower has an incurable and chronic condition, then
it would be reasonable to infer that situation has continued. It is
also likely that, because reviewing information submitted by a borrower
would involve significant Department staff time, the Department could
make reasonable assumptions and inferences about facts that might have
changed during the intervening time. The Department would retain the
ability to request updated information if necessary to reach a
determination.
Acknowledging past hardship also recognizes that previous periods
of hardship may have current and future consequences for a borrower.
For example, a borrower who struggled to repay their loans may have
seen their balance increase in size such that full repayment of that
greater amount is no longer feasible.
In all cases, the Secretary would only consider waiver of loans
that are outstanding. The Department would not consider waivers of
loans that are paid off or otherwise satisfied because, once repaid, a
borrower's debt no longer exists. Moreover, a borrower could not be
experiencing hardship that meets the proposed standard on a Federal
loan that has been repaid. For the same reason, the Department would
also not consider reimbursement of payments made on loans that are
outstanding.
As noted above, the Department's proposed standard for assessing
whether a borrower's hardship circumstances warrant relief involves
determining whether such circumstances are likely to impair the
borrower's ability to fully repay the Federal government or the costs
of enforcing the full amount of the debt are not justified by the
expected benefits of continued collection of the entire debt.
The Department proposes to evaluate whether a hardship is likely to
impair the borrower's ability to fully repay the Federal government for
several reasons. Whether a borrower can fully repay the debt aligns
with general Federal principles of debt collection that guide agencies
on the appropriateness of discharging all or part of a debt when the
borrower is unlikely to fully repay their debt within a reasonable
period or the agency is unlikely to collect the debt in full within a
reasonable period. See, e.g., 31 CFR 902.2(a)(1) and (2).
Considering situations where the borrower's hardship is ``likely''
to impair the ability to fully repay a loan allows the Department to
make a reasonable, informed predictive determination regarding the
impact of a borrower's hardship, based upon factors that, from the
Department's experience with student aid programs, are strongly
correlated with an inability to fully repay student loan obligations.
The Department would assess these factors to predict which borrowers
face or have faced hardship likely to cause continued impairment of
their ability to repay a loan without jeopardizing their financial
security. For example, lengthy time in repayment, in conjunction with
other factors such as repayment history, may predict that a borrower
may be unable to pay the loan without jeopardizing basic needs, such as
housing, food, medication, and other essentials. Use of predictive
measures would permit the Secretary to address hardships before
borrowers suffer the most significant consequences associated with
student loan struggles, such as delinquency and default and their
follow-on effects.
In addition to the impairment of a borrower's ability to repay, the
Department proposes an additional standard for evaluating eligibility
for relief where a borrower's hardship causes the cost of collection to
exceed the expected benefits to the Federal government of continued
collection. Such an approach acknowledges circumstances where it no
longer advances the financial, operational, or programmatic goals of
the Department to continue attempting to collect on a loan. In deciding
whether collection advances such goals, the Department would consider a
range of possible costs flowing from collection action. This might
include financial and non-financial costs to the Department directly
related to loan collection, such as compensating student loan servicers
or debt collectors, and, because the Department's resources are
limited, operational and administrative costs associated with outreach
to high-risk borrowers unlikely to repay loans, rather than more
beneficial outreach to other borrowers who may be more likely to be
able to fully repay.
In assessing the costs of collection, the Department may also
consider whether collection advances the principles of the title IV
programs. For example, a key purpose of the title IV programs is to
enable borrowers who pursue postsecondary education to improve their
future economic outcomes,\21\ and it may be contrary to
[[Page 87138]]
this purpose to seek collection from borrowers who, due to labor market
changes or family health challenges, are unable to participate fully in
the market and repay their loans.
---------------------------------------------------------------------------
\21\ In enacting the HEA, Congress emphasized a central purpose
was to ``extend the benefits of college education to increasing
numbers of students . . . drawing upon the unique and invaluable
resources of . . . universities to deal with national problems of
poverty and community development.'' H.R. Rep. 80-561 (1965) at 2-3.
Title IV was intended to increase student access to a ``highly
skilled professional [and] technical'' workplace evolving in the
United States. Id. at 20. Further, after signing the HEA into law,
President Lyndon Johnson remarked that, among other purposes, the
Act intended to provide ``a way to deeper personal fulfillment,
greater personal productivity, and increased personal reward.'' See
Public Papers of the Presidents, Johnson 1965 book 2, at 1103-04.
---------------------------------------------------------------------------
Proposed Sec. 30.91(a) would permit the Secretary to waive all or
part of an outstanding loan balance. Waiving part, but not all, of the
amount owed could alleviate a borrower's inability to repay the
remaining debt or alter the Department's cost-benefit equation
associated with collecting the loan. The proposed regulation would
preserve the Secretary's discretion to determine when it would be
appropriate to provide such a partial waiver.
The language in proposed Sec. 30.91(a) should be understood in the
context of the standards for relief described in the discussion of
proposed Sec. 30.91(c) and Sec. 30.91(d). If the Secretary determined
that a borrower is eligible for relief under proposed Sec. 30.91(a),
the Secretary would next need to determine the amount of the
outstanding balance to waive. To do so, the Secretary would assess the
borrower's hardship factors to determine whether it is likely that
those hardship issues could be addressed by only waiving part of the
balance rather than the full amount. Generally, the Department would
adopt a rebuttable presumption that the full amount would be eligible
for waiver where the borrower meets the criteria in this proposed
section. Such a presumption could, however, be rebutted if the
Secretary concludes that the effect of the hardship on the borrower
would be ameliorated by less than a full waiver.
The Department is proposing to use a presumption of a full waiver
because we believe that full relief would be warranted in the majority
of circumstances in which a waiver is granted under this standard, and
because doing so would produce the most consistent decision-making. We
reach this conclusion based upon past challenges in establishing
methodologies for partial relief in other types of student loan
forgiveness. For instance, the Department has struggled to address the
issue of partial relief for years in the context of approved borrower
defense to repayment discharges. Multiple borrower defense regulations
have contemplated the award of partial discharges for borrowers.\22\ In
those situations, the amount of relief was based upon the determined
amount of financial harm faced by the borrower. The Department
attempted to capture this through formulas that took into account
typical borrower earnings compared to earnings at other comparable
types of institutions and programs but encountered legal and
methodological challenges with such approaches. In using such
approaches, the Department struggled to make sure that the comparisons
being drawn included the earnings of the borrower whose relief was
being contemplated (for example, methodologies used the earnings of
borrowers who graduated but there could be approved claims from non-
graduates). The Department also could not determine that the
experiences of the typical borrower matched those of the borrower in
question. Ultimately, the Department adopted a rebuttable presumption
of full relief for these discharges.
---------------------------------------------------------------------------
\22\ See, e.g., 81 FR 75926 (Nov. 1, 2016) and 84 FR 49788
(Sept. 23, 2019).
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Though the Department has not previously implemented the hardship
waivers proposed in this NPRM, we believe such a process would result
in similar issues were we to not use a rebuttable presumption of a full
waiver. Similar to calculating financial harm for approved borrower
defense claims, we would need to calculate an amount that would allow
the borrower to repay the debt in full in a reasonable period or
justify the government's cost of collection based upon the expected
benefits. Although a de minimis amount of debt might be predictably
repaid, we have not been able to identify an implementable principle
that would lead to consistent results for partial relief.
Moreover, the Department would need to make these decisions
consistently. We do not anticipate that waivers would be granted across
a common group of borrowers who attended the same school and program
the way they typically are for borrower defense claims. That means the
approaches attempted in borrower defense, which draw comparisons to
similar educational programs, would not work here. The Department would
therefore need to use a fully individualized process to determine
relief. That has risks of inconsistency, especially in situations where
waivers are granted as part of an application approach in which there
is a holistic assessment of the factors. Borrowers approved under such
a process could have very different characteristics from each other,
making it challenging to determine how such characteristics should be
weighted for consistent waiver amount determinations.
Overall, then, we believe a rebuttable presumption of a full waiver
would facilitate the greatest consistency in decision-making. Here, a
rebuttable presumption means that if the presumption of full relief
were rebutted, only then would the Department conduct a more involved
determination. And doing so in more isolated cases would allow the
Department's determinations to be more consistent and accurate.
The committee reached consensus on this section.
Sec. 30.91(b) Factors That Substantiate Hardship
Statute: Section 432(a) of the HEA (20 U.S.C. 1082(a)) provides
that in the performance of, and with respect to, the functions, powers,
and duties, vested in him by this part, the Secretary may enforce, pay,
compromise, waive, or release any right, title, claim, lien, or demand,
however acquired, including any equity or any right of redemption.
Section 468(2) of the HEA endows the Secretary with similarly broad and
flexible powers with respect to loans arising under the Perkins
program.\23\
---------------------------------------------------------------------------
\23\ See 20 U.S.C. 1087hh(2).
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Current Regulations: None.
Proposed Regulations: Proposed Sec. 30.91(b) provides a non-
exhaustive list of factors related to the borrower that the Secretary
may consider in determining whether a borrower meets the hardship
standard for relief under these regulations. These factors are:
<bullet> Household income;
<bullet> Assets;
<bullet> Type of loans and total debt balances owed for loans
described in proposed 30.91(a), including those not owed to the
Department;
<bullet> Current repayment status and other repayment history
information;
<bullet> Student loan total debt balances and required payments,
relative to household income;
<bullet> Total debt balances and required payments, relative to
household income;
<bullet> Receipt of a Pell Grant and other information from the
Free Application for Federal Student Aid (FAFSA) form;
<bullet> Type and level of institution attended;
<bullet> Typical student outcomes associated with a program or
programs attended;
<bullet> Whether the borrower has completed any postsecondary
certificate or degree program for which the borrower received title IV,
HEA financial assistance;
[[Page 87139]]
<bullet> Age;
<bullet> Disability;
<bullet> Age of the borrower's loan based upon first disbursement,
or the disbursement of loans repaid by a consolidation loan;
<bullet> Receipt of means-tested public benefits;
<bullet> High-cost burdens for essential expenses, such as
healthcare, caretaking, and housing;
<bullet> The extent to which hardship is likely to persist; and
<bullet> Any other indicators of hardship identified by the
Secretary.
Reasons: The Department proposes this non-exhaustive list in
proposed Sec. 30.91(b)(1) through (16) to identify the data likely to
best substantiate whether a borrower would be eligible for relief. The
Department proposes that the list be non-exhaustive, and further
proposes a ``catch-all'' provision in Sec. 30.91(b)(17), to preserve
the Department's flexibility to address unanticipated factors that
affect specific borrowers. Although the list in proposed Sec. 30.91(b)
is not exhaustive, we believe that providing this extensive list of the
factors that would be most relevant to the Secretary's determination
provides appropriate notice and guidance as to what the Secretary would
consider.
We do not anticipate that the Secretary would need to evaluate
every factor in proposed Sec. 30.91(b) for a given borrower. Rather,
these factors identify different items that could be considered, either
individually or in concert with other factors in proposed Sec.
30.91(b), to make determinations of whether the borrower is eligible
for relief. There are some factors that, might be sufficient with only
limited additional evidence to determine a borrower is eligible for
relief. By contrast, there are other factors that are likely to serve
as contributing factors, but that would likely require several more
factors to sufficiently demonstrate that the borrower is eligible for
relief.
In an assessment of the borrower's factors indicating hardship,
whether under proposed Sec. 30.91(c) or Sec. 30.91(d), the Department
anticipates that determining that a borrower is eligible for relief
would be the result of considering multiple factors identified in
proposed Sec. 30.91(b) and the interplay between those factors,
including looking at a combination of the borrower's current financial
circumstances and the history of their loan, to make the required
determination of whether a borrower is eligible for relief.
The factors listed in proposed Sec. 30.91(b) fall into several
different groups, which in turn would inform how the factor could help
demonstrate hardship. Below we discuss these groupings and how they
could inform the Secretary's determination of whether the borrower has
experienced, or is experiencing, hardship that would qualify for
relief.
We note that the term ``factors'' is used in the title of proposed
Sec. 30.91(b) and ``indicators'' is used in the regulatory text of
proposed Sec. 30.91(b). The term ``indicators'' was intended to refer
to factors that may indicate hardship. To avoid confusion with the use
of the term ``indicators'' in statistical terminology, we use
``factors'' where possible.
Borrower's current and past finances (factors 1, 2, 3, 5, 6, 7, 14,
and 15). One category of proposed factors relates to borrowers' current
finances. These are listed below with their corresponding number in
proposed Sec. 30.91(b):
1. Household income;
2. Assets;
3. Type of loans and total debt balances owed for Federal student
loans, including those not owed to the Department;
5. Student loan total debt balances and required payments, relative
to household income;
6. Total debt balances and required payments, relative to household
income;
7. Receipt of a Pell Grant and other information from the Free
Application for Federal Student Aid (FAFSA) form;
14. Receipt of means-tested public benefits; and
15. High-cost burdens for essential expenses, such as healthcare,
caretaking, and housing.
The Department proposes these factors because they would provide
important information about a borrower's financial situation.
Information about household income and assets would help the Secretary
understand the level of resources a borrower might have available to
put toward their loans.
The borrower's household income also could be a relevant factor for
evaluating their likelihood of default. Research has found a borrower's
earnings to be correlated with their likelihood of default,\24\ and a
2021 Pew survey indicated that borrowers who reported relatively low
incomes or volatile incomes also reported substantially higher student
loan default rates, as compared to borrowers who reported higher
incomes or who reported stable earnings.\25\
---------------------------------------------------------------------------
\24\ Looney, Adam and Constantine Yannelis. ``A crisis in
student loans?: How changes in the characteristics of borrowers and
in the institutions they attended contributed to rising loan
defaults.'' Brookings Papers on Economic Activity 2015, no. 2
(2015): 1-89. Gross, Jacob PK, Osman Cekic, Don Hossler, and Nick
Hillman. ``What Matters in Student Loan Default: A Review of the
Research Literature.'' Journal of Student Financial Aid 39, no. 1
(2009): 19-29.
\25\ Takti-Laryea, Ama and Phillip Oliff. ``Who Experiences
Default?'' Pew Charitable Trusts. March 1, 2024. <a href="https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default">https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default</a>.
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Assets would be relevant to determine whether a borrower's ability
to repay a loan is impaired, because they are a component of a
borrower's finances that might be liquidated to allow repayment. They
also might provide a financial cushion that would allow a borrower to
avoid default in the event of a job loss or a large unplanned expense,
such as medical expenses.\26\ Homeownership, for example--whether by
the borrower or the borrower's parents--appears to be correlated with
lower likelihood of default.\27\ Homeowners can potentially obtain
liquidity by borrowing against their home in times of need, and
homeownership also correlates with other measures of creditworthiness
and financial advantage. Because assets--particularly more liquid
assets that can be tapped quickly in times of financial distress--might
provide a valuable cushion against default, information on a borrower's
assets, such as savings and investments, would be relevant to the
determination of whether the hardship standard in proposed Sec.
30.91(a) is met.
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\26\ Ibid.
\27\ Scott-Clayton, Judith. ``What accounts for gaps in student
loan default, and what happens after.'' (2018). Brookings. Mueller,
Holger M. and Constantine Yannelis. ``The rise in student loan
defaults.'' Journal of Financial Economics 131, no. 1 (2019): 1-19.
Mezza, Alvaro A. and Kamila Sommer. '' ``A Trillion-Dollar Question:
What Predicts Student Loan Delinquencies?.'' Journal of Student
Financial Aid 46, no. 3 (2016): 16-54.
---------------------------------------------------------------------------
Similarly, the proposed factor related to receipt of means-tested
public benefits could inform the Secretary if other government entities
have determined that a borrower meets the qualifications for public
assistance, which would streamline the Secretary's evaluation process.
Those data also could indicate hardship overall. Receipt of means-
tested public benefits, such as through the Supplemental Nutrition
Assistance Program (SNAP), Supplemental Security Income (SSI), or
Temporary Assistance for Needy Families (TANF), indicates an individual
or family is likely living at or near the Federal Poverty Level.
Demonstrated eligibility for these programs could indicate that a
borrower lacks additional funds to put toward repaying their student
loan debt. Additionally, survey data indicate that borrowers who
received public benefits were more likely to report not making
[[Page 87140]]
payments on their loans or having defaulted on a debt.\28\
---------------------------------------------------------------------------
\28\ Blagg, Kristin. ``The Demographics of Income-Driven Student
Loan Repayment.'' February 26, 2018. Urban Institute. <a href="https://www.urban.org/urban-wire/demographics-income-driven-student-loan-repayment">https://www.urban.org/urban-wire/demographics-income-driven-student-loan-repayment</a>. Takti-Laryea, Ama and Phillip Oliff. ``Who Experiences
Default?'' Pew Charitable Trusts. March 1, 2024. <a href="https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default">https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default</a>.
---------------------------------------------------------------------------
Federal Pell Grants are awarded to students who demonstrate
financial need. Information about Pell Grant receipt and other data
from the FAFSA could provide helpful information about a borrower's
economic circumstances at the time they went to college, as well as
their trajectory over the course of their enrollment in higher
education, which could help give the Secretary a perspective on the
duration of hardship that some borrowers face, and help the Secretary
determine the likelihood that the hardship would continue.
Researchers have found that receipt of a Pell Grant and the average
amount of the Pell Grant (which is determined by a number of factors
related to the borrower's enrollment, expenses, and financial capacity)
is correlated with difficulties repaying loans.\29\ Other evidence
indicates that a borrower's expected family contribution (EFC)--an
index number that until recent legislative changes was used to
determine eligibility for Federal student aid including Pell Grants
using data on students' income, assets, and other FAFSA inputs--is
correlated with default on student loans within 12 years.\30\
---------------------------------------------------------------------------
\29\ Mezza, Alvaro A. and Kamila Sommer. ``A trillion dollar
question: What predicts student loan delinquencies?'' Finance and
Economics Discussion Series 2015-098 (2015). Washington: Board of
Governors of the Federal Reserve System. Looney, Adam and
Constantine Yannelis. ``A crisis in student loans?: How changes in
the characteristics of borrowers and in the institutions they
attended contributed to rising loan defaults.'' Brookings Papers on
Economic Activity 2015, no. 2 (2015): 1-89.
\30\ Scott-Clayton, Judith. ``What accounts for gaps in student
loan default, and what happens after.'' (2018). Brookings. The EFC
is no longer being used in financial aid calculations, starting with
the 2024-2025 FAFSA form. Instead, there is a new index called the
Student Aid Index (SAI) that will be used. While the EFC and SAI use
different calculations, we expect the general evidence about EFC
(e.g., that is correlated with default) to also be true for SAI.
---------------------------------------------------------------------------
Other borrower experiences that are reflected in data reported on
the FAFSA also can be associated with future student loan default,
including parental education, borrower age, and dependency status.\31\
---------------------------------------------------------------------------
\31\ Ibid. Steiner, Matt and Natali Teszler. ``Multivariate
Analysis of Student Loan Defaulters at Texas A&M University.''
(2005) Texas Guaranteed Student Loan Corporation. Looney, Adam, and
Constantine Yannelis. ``A crisis in student loans?: How changes in
the characteristics of borrowers and in the institutions they
attended contributed to rising loan defaults.'' Brookings Papers on
Economic Activity 2015, no. 2 (2015): 1-89. Specifically, higher age
at time of repayment is negatively associated with default, as is
being a dependent. Borrowers who report a family income of under
$25,000 on their first FAFSA are more likely to default.
---------------------------------------------------------------------------
The other proposed factors in this group (paragraphs 3 through 6)
would provide important context about the extent to which financial
resources available to the borrower must be put toward other critical
expenses. For instance, information about a borrower's other debt
obligations would give the Secretary a more in-depth picture of a
borrower's financial situation that would account for other debts,
including non-Federal student loans, that are not otherwise known to
the Department. That helps in understanding total debt burden and how
much of a borrower's income goes to debt repayment.
The type of student debt that borrowers hold, and the amount of
that debt, can be predictive of the likelihood of being in default. For
example, to receive a Grad PLUS or Parent PLUS loan, a borrower must
not have an adverse credit history. This check for adverse credit
history, along with likely differences among parents, graduate
students, and undergraduate students, is likely to generate a pool of
borrowers with different characteristics than borrowers who receive
other types of Federal loans. Parent PLUS and Grad PLUS borrowers
typically borrow at older ages, at which point many will have more
established careers. Parent PLUS loans have lower rates of default than
Federal loans issued directly to students. For example, in fiscal year
2015, among borrowers aged 50 to 64 who hold Parent PLUS loans, 10
percent were in default, while borrowers in the same age group who held
Federal loans for their own education had a default rate of 35
percent.\32\ Many older borrowers who take out Federal loans for their
own education, however, have held their loans for a long time and are
likely to have experienced repayment struggles.\33\ An examination of
data about those who borrowed FFEL loans to attend institutions of all
types in Texas and who entered repayment between 2004 and 2010
indicates that Parent PLUS borrowers had higher repayment rates than
student borrowers during this period, although Parent PLUS borrowers
who borrowed for their children to attend Minority-Serving Institutions
(MSIs) paid down less debt and were more likely to default than
borrowers for children who attended other institutions.\34\
---------------------------------------------------------------------------
\32\ U.S. Government Accountability Office. ``Social Security
Offsets: Improvements to Program Design Could Better Assist Older
Student Borrowers with Obtaining Permitted Relief.'' December 2016.
\33\ Blagg, Kristin and Victoria Lee. ``The complexity of
education debt among older Americans.'' November 2017. Urban
Institute.
\34\ Di, Wenhua, Carla Fletcher, and Jeff Webster. ``A Rescue or
a Trap? An Analysis of Parent PLUS Student Loans.'' (2022). Federal
Reserve Bank of Dallas.
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Total student loan balance has been shown to correlate with
default, though the link between total student loan balances and
default can vary across borrowers.\35\ A borrower's outstanding
balance, and the type of loans for which they were eligible, can be
broadly correlated with other factors that could affect a borrower's
ability to repay, such as level of education, whether the borrower
completed education, and the borrower's dependency status. Federal
student loan borrowers with higher balances tend to be less likely to
enter default; more than half of borrowers in default as of 2015 owed
less than $10,000.\36\ This may be because many borrowers with
relatively high balances used loans to attend graduate school, which
can often lead to higher earnings. Others could be parents who are
borrowing to help pay for a child's education.\37\ Because both balance
amount and debt type may be correlated with a borrower's potential for
experiencing default, these factors would be relevant for the Secretary
to consider in determining whether a borrower is eligible for relief.
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\35\ See, for example, Scott-Clayton 2018, Appendix Table A2,
where amount borrowed is associated parabolically with likelihood of
default.
\36\ Looney, Adam, and Constantine Yannelis. ``How useful are
default rates? Borrowers with large balances and student loan
repayment.'' Economics of Education Review 71 (2019): 135-145.
Dynarski, Susan M. ``An economist's perspective on student loans in
the United States.'' Human Capital Policy (2021): 84-102. Edward
Elgar Publishing.
\37\ Ibid.
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In addition to debt by itself, payments and the amount of debt
relative to a borrower's income, such as their required monthly
payments relative to monthly income, are correlated with an increased
likelihood of default. For example, among a cohort of borrowers who
first entered post-secondary education in 2003-04, higher debt-to-
income ratios were associated with higher rates of default.\38\ Other
data show that among bachelor's degree recipients who left school in
1993, those with a monthly payment that was more than 12 percent of
their monthly income were more likely to default by 2003 than those
with debt payments that were a
[[Page 87141]]
lower share of income.\39\ It is possible that these trends may be
different in recent years due to the growth in usage of IDR plans.
However, because analyses like this rely on surveys that follow the
repayment histories of borrowers over a long-time horizon, these
currently represent the best evidence available to the Department about
longer-term repayment experiences.
---------------------------------------------------------------------------
\38\ Scott-Clayton, Judith. ``What accounts for gaps in student
loan default, and what happens after.'' (2018). Brookings.
\39\ Choy, Susan P. and Xiaojie Li. ``Dealing with Debt: 1992-93
Bachelor's Degree Recipients 10 Years Later. Postsecondary Education
Descriptive Analysis Report.'' (2006) NCES 2006-156.
---------------------------------------------------------------------------
A borrower's debt obligations beyond student loan debt can affect
financial stability, with research and data from a variety of settings
indicating that the types of debts that borrowers hold, their payments,
and the ratio of total debt to income, may be predictive of
default.\40\ In addition, in the presence of financial distress,
debtors may need to prioritize other payments instead of their student
loans in an effort to preserve liquidity or avoid losing the home or
auto that serves as collateral on other debt.\41\
---------------------------------------------------------------------------
\40\ Mezza, Alvaro A. and Kamila Sommer. ``A trillion dollar
question: What predicts student loan delinquencies?'' Finance and
Economics Discussion Series 2015-098 (2015). Washington: Board of
Governors of the Federal Reserve System. Blagg, Kristin.
``Underwater on Student Debt: Understanding Consumer Credit and
Student Loan Default.'' (2018). Urban Institute. Fuster, Andreas and
Paul S. Willen. ``Payment size, negative equity, and mortgage
default.'' American Economic Journal: Economic Policy 9, no. 4
(2017): 167-191.
\41\ For example, see Li, Wenli. ``The economics of student loan
borrowing and repayment.'' Business Review Q3 (2013): 1-10. Federal
Reserve Bank of Philadelphia. Ionescu, Felicia and Marius Ionsecu.
``The Interplay Between Student Loans and Credit Card Debt:
Implications for Default in the Great Recession.'' Federal Reserve
Bank Finance and Economics Discussion Series: 2014-14 (2014).
---------------------------------------------------------------------------
The proposed factor in Sec. 30.91(b)(15), related to high costs of
other essential expenses, also captures a key concept that is not
directly considered in other Department forms of repayment assistance.
Formulas for income-driven repayment plans, for example, only focus on
household size, income, and an amount of income protected based upon a
multiplier of the Federal Poverty Level. The Department continues to
believe that is the best approach for administering income-driven
repayment obligations, as it is a simpler way to determine a payment
obligation. However, that approach does not account for situations
where borrowers face exceptionally high costs that are not otherwise
factored in. During negotiated rulemaking, the Department heard from a
borrower who is expending significant resources caring for a sick
relative. In cases where the borrower is the only individual able to
bear those costs on behalf of the relative, those costs may reduce the
amount of income available for making payments on Federal student loans
and are an expense that could not reasonably be adjusted or anticipated
by the borrower. Agencies engaged in collection activity often consider
the borrower's overall expenses and whether such expenses are necessary
or excessive.\42\ Specifying that the Secretary may consider high-cost
burdens for essential expenses in the hardship determination would
allow the Secretary to address particularly concerning situations that
could impair the borrower's ability to fully repay their loan or
heighten the costs of enforcing the full debt to a point that such
enforcement is not justified.
---------------------------------------------------------------------------
\42\ See, e.g., 31 CFR 902.2(g).
---------------------------------------------------------------------------
Among those who experienced student loan default, the time and
financial burden of caring for young or medically needy family members
is mentioned as a reason for missing student loan payments.\43\ Among
borrowers who pursued discharge of their student debt through
bankruptcy proceedings, those who were a caretaker for family members
who have health or medical conditions were more likely to be successful
than borrowers who pursued bankruptcy proceedings, but who did not have
that same family need.\44\ Evidence also suggests that having medical
collections is associated with student loan repayment struggles.\45\
---------------------------------------------------------------------------
\43\ Pew Charitable Trusts. ``Borrowers Discuss the Challenges
of Student Loan Repayment.'' (2020).
\44\ Iuliano, Jason. ``An Empirical Assessment of Student Loan
Discharges and the Undue Hardship Standard,'' American Bankruptcy
Law Journal 86, no. 3 (Summer 2012): 495-526.
\45\ Cohn, Jason. ``Student Loan Default Patterns: What
Different Paths through Default Can Tell Us about Equitably
Supporting Borrowers.'' (November 2022). Urban Institute.
---------------------------------------------------------------------------
For some borrowers, student loan payments make up a large portion
of a household's overall budget. As payments restarted in October 2023
following the end of the payment pause, borrowers--particularly those
with non-$0 scheduled payments--anticipated making changes to their
household budget, such as reducing discretionary spending or
savings.\46\ Therefore, essential expenses and duties would be relevant
to the Secretary's determination of whether a borrower meets the
hardship standard in proposed Sec. 30.91(a).
---------------------------------------------------------------------------
\46\ Monarrez, Tom[aacute]s, and Dubravka Ritter. ``Resetting
Wallets: Survey Evidence on Household Budget Adjustments with
Student Loan Payments Resumption.'' (2024): 1-19.
---------------------------------------------------------------------------
Experience repaying student loans (factors 4 and 13). Another
category of proposed factors relates to information about the
borrower's experience repaying student loans. These factors are:
4. Current repayment status and other repayment history
information; and
13. Age of the borrower's loan based upon first disbursement, or
the disbursement of loans repaid by a consolidation loan.
The Department proposes considering these two factors because they
provide information about what is already known about the ability of
the borrower to repay their debt. Repayment history could indicate if
the borrower has previously experienced struggles repaying their
debt.\47\ Similarly, the age of loans would provide information about
how long a borrower has held these debts. The longer a loan is
outstanding without being repaid, the greater the concern about its
eventual repayment. This is particularly true for loans that are well
past the 10-year repayment period that is part of the Standard
Repayment Plan.\48\ For example, in a sample of students who first
entered postsecondary education in 1995-1996 and have not borrowed
since the 1999-2000 school year, the average borrower who had debt 20
years after entering school still owed 95 percent of what they
initially borrowed, and the median borrower owed 69 percent.\49\
---------------------------------------------------------------------------
\47\ The Department recognizes that a borrower's documented
repayment history could also be affected by servicer recordkeeping,
access to complete payment history, right to alternative payment
arrangement, loan forgiveness, cancellation, or discharge. Separate
and apart from these proposed regulations, the Department has taken
steps to address these issues such as through the payment count
adjustment. Moreover, even with these possible limitations, the
Department believes that it is still useful to include this factor
because repayment history can still provide valuable information
about a borrower's hardship.
\48\ Federal Student Aid, U.S. Department of Education.
``Standard Repayment Plan.'' <a href="https://studentaid.gov/manage-loans/repayment/plans/standard">https://studentaid.gov/manage-loans/repayment/plans/standard</a>.
\49\ U.S. Department of Education, National Center for Education
Statistics, Beginning Postsecondary Students: 1996/2001 (BPS).
<a href="https://nces.ed.gov/datalab/powerstats/table/nsqptw">https://nces.ed.gov/datalab/powerstats/table/nsqptw</a>.
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The Department has detailed information on the repayment histories
of borrowers who first entered repayment on their student loans prior
to the pandemic-related pause on student loan repayment. For borrowers
who newly entered repayment when student loan payments restarted in
October 2023, the Department will have at least six months of repayment
history. In the Department's experience, repayment status and other
information relevant to a borrower's loan history, including the
borrower's ability to access payment options under Title IV of the HEA,
can be a strong predictor of student loan default. Borrowers who
default often stay in default for a long
[[Page 87142]]
time and those who have a history of delinquency or previous defaults
may be more likely to default again.
Whether a borrower postpones payments through deferment or
forbearance could also be predictive of student loan default, though
the diverse bases for these postponement periods means that their
predictive power is context-dependent. For example, some borrowers use
a deferment for additional school enrollment or military service, while
others may seek a deferment due to economic hardship. In one study, the
median defaulter among those who first entered postsecondary education
in 2003-04 and experienced default within 12 years used two
forbearances.\50\ However, in another study, roughly 43 percent of a
cohort of borrowers who entered repayment in fiscal year 2011 and
attended community colleges in one State did not make a payment, or
postpone their payments using deferment or forbearance, before their
loans entered default.\51\
---------------------------------------------------------------------------
\50\ Miller, Ben. ``Who Are Student Loan Defaulters?'' (2017).
Center for American Progress.
\51\ Campbell, Colleen, and Nicholas Hillman. ``A Closer Look at
the Trillion: Borrowing, Repayment, and Default at Iowa's Community
Colleges.'' Association of Community College Trustees (2015).
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The Department acknowledges that the inclusion of factors related
to a borrower's repayment history could create a perception that
borrowers could intentionally change their repayment behavior to
improve their chances of receiving a waiver. However, as described
below, the Department believes that the plan for considering waivers
would not encourage large numbers of borrowers to act in such a
strategic manner. With respect to the relief under proposed Sec.
30.91(c), the Department proposes using the publication date of the
NPRM as the start of the two-year period in which a borrower may be
predicted to default. This would prevent borrowers from trying to
artificially establish hardship through strategic nonpayment; likewise,
it prevents granting relief to any such borrowers. Failure to pay
carries substantial risks to borrowers. Since there is no guarantee
that they would receive any relief under this proposed rule, failure to
pay would negatively impact credit scores, and risk wage garnishment or
the loss of loan benefits. Overall, we believe using data from the
publication date of the NPRM would negate the ability for borrowers to
game the hardship model.
With respect to the relief proposed under Sec. 30.91(d), the
Department would also take measures that prevent strategic maneuvers to
qualify for waiver. First, as part of the holistic assessment, the
Department would consider a multitude of factors that interact with
each other. Therefore, borrower attempts to adjust behavior and qualify
under that provision could result in a borrower hurting themselves
through delinquency or default with no guarantee of a waiver. Second,
solely being in delinquency or default is no guarantee that a
borrower's application would be approved. Third, as part of the
holistic assessment, the Department would consider anomalous changes in
repayment behavior--such as a borrower suddenly showing signs of
struggle when other borrower conditions appear favorable for repayment.
Overall, we believe the negative borrower consequences of delinquency
and default, combined with a multi-factor eligibility assessment that
is not limited to such status, would discourage intentional
nonrepayment of loans.
Borrower's personal attributes (factors 11 and 12). Another
category of factors relates to additional information about a
borrower's personal attributes. These are:
11. Age; and
12. Disability.
The Department proposes including these factors because they can
provide additional information about the ability of the borrower to
repay their loans, the likely amount the Department might be able to
collect from a borrower, and the associated costs of enforced
collections. Considering a borrower's age can help inform the
likelihood that their financial position is going to improve,
deteriorate, or stay the same. This is especially true when used in
concert with other factors. For instance, elderly borrowers are highly
unlikely to see their income increase and are instead more likely to
see their income diminish as they stop working. Relatedly, information
on a borrower's disability could indicate whether their earnings are
affected, which could help the Secretary understand the resources they
may or may not have available to repay their loans. Disability
information may also indicate that the borrower faces additional
expenses that subtract from what a borrower could pay on their loans.
For many people, earnings grow as they age and gain more experience;
however, many older borrowers have held their loans for a long time and
may have experienced repayment struggles.\52\ Older borrowers may also
be more likely to have financial commitments (such as expenses for
children or caring for others) that can result in difficulty making
student loan payments.\53\ Earnings also tend to peak for workers in
their mid-fifties, and so borrowers who hold loans until and beyond
this age may see their ability to pay plateau or erode if their
expenses are consistent but their income declines.\54\
---------------------------------------------------------------------------
\52\ Gross, Jacob PK, Osman Cekic, Don Hossler, and Nick
Hillman. ``What Matters in Student Loan Default: A Review of the
Research Literature.'' Journal of Student Financial Aid 39, no. 1
(2009): 19-29.
\53\ Ibid.
\54\ Tamborini, Christopher R., ChangHwan Kim, and Arthur
Sakamoto. ``Education and lifetime earnings in the United States.''
Demography 52, no. 4 (2015): 1383-1407.
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Borrowers are eligible for a discharge of their student loans if
they qualify for a total and permanent disability (TPD) discharge.\55\
To qualify for a TPD discharge, the Secretary must determine that a
borrower is ``unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that
can be expected to result in death, has lasted for a continuous period
of not less than 60 months, or can be expected to last for a continuous
period of not less than 60 months.'' \56\ With the proposed hardship
waivers, the Secretary would be looking at situations where a
borrower's disability may impair the extent to which they can work
without rising to the level that would justify a TPD discharge. For
example, the Department may consider, as one of several factors,
whether a disability that limits a borrower's ability to work full-time
for a sustained period, but does not completely preclude part-time
work, increases the likelihood of default, and indicates hardship
impairing the likely ability to fully repay the loan, even if that
borrower would not qualify for a TPD discharge. Although employment
rates for people with disabilities have increased since the COVID-19
pandemic, working-age individuals with disabilities have employment
rates that are roughly half of their counterparts without
disabilities.\57\ Moreover, the medical costs that may be associated
with treatment for a substantial disability or disabilities may make it
more difficult to make student loan payments. Among borrowers who have
successfully been granted a student loan discharge in bankruptcy and
have a medical problem or a dependent medical problem, a work-limiting
[[Page 87143]]
medical condition was relatively common.\58\
---------------------------------------------------------------------------
\55\ See, e.g., 20 U.S.C. 1087(a)(1) (authorizing the Department
to cancel or discharge FFEL loans due to total and permanent
disability), 20 U.S.C. 1087a(b)(2) (Direct loans), and 20 U.S.C.
1087dd(c)(1)(F)(ii) (Perkins loans).
\56\ 20 U.S.C. 1087(a)(1).
\57\ Andara, Kennedy, Anona Neal, and Rose Khattar. ``Disabled
Workers Saw Record Employment Gains in 2023, But Gaps Remain.''
(2024). Center for American Progress.
\58\ Iuliano, Jason. ``An Empirical Assessment of Student Loan
Discharges and the Undue Hardship Standard,'' American Bankruptcy
Law Journal 86, no. 3 (Summer 2012): 495-526.
---------------------------------------------------------------------------
Data and surveys indicate that borrowers with a disability tend to
have a higher probability of default, with variation across
conditions.\59\ Half of borrowers who reported a disability in a 2021
Pew survey were in default, compared to a third of those without a
disability.\60\
---------------------------------------------------------------------------
\59\ Campbell, Colleen. ``The Forgotten Faces of Student Loan
Default.'' (2018). Center for American Progress. Specifically, 60
percent of borrowers with emotional or psychiatric condition, 40
percent of those with orthopedic or mobility impairment, and 37
percent of those with a health impairment or problem experienced a
default within 12 years, relative to 28 percent of those without a
disability.
\60\ Takti-Laryea, Ama and Phillip Oliff. ``Who Experiences
Default?'' Pew Charitable Trusts. March 1, 2024. <a href="https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default">https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default</a>.
---------------------------------------------------------------------------
Borrower's postsecondary experiences (factors 8, 9, and 10). The
final group of factors are those related to a borrower's postsecondary
educational experience. Those factors are:
8. Type and level of institution attended;
9. Typical student outcomes associated with a program or programs
attended; and
10. Whether the borrower has completed any postsecondary
certificate or degree program for which the borrower received title IV,
HEA financial assistance.
The Department proposes to include these factors because there are
clear connections between student outcomes and the type of institution
attended.\61\ Similarly, there are very strong correlations between
non-completion of a certificate or degree program and struggles
repaying student loans, as described further below. This information
could be particularly helpful for determining whether a borrower may be
at heightened risk of default, which might indicate that the borrower
satisfies the hardship standard in proposed Sec. 30.91(a).
---------------------------------------------------------------------------
\61\ See, for example, Black, Dan A. & Smith, Jeffrey A. (2006).
Estimating the Returns to College Quality with Multiple Proxies for
Quality. Journal of labor Economics 24.3: 701-728. Cohodes, Sarah R.
& Goodman, Joshua S. (2014). Merit Aid, College Quality, and College
Completion: Massachusetts' Adams Scholarship as an In-Kind Subsidy.
American Economic Journal: Applied Economics 6.4: 251-285. Andrews,
Rodney J., Li, Jing & Lovenheim, Michael F. (2016). Quantile
treatment effects of college quality on earnings. Journal of Human
Resources 51.1: 200-238. Dillon, Eleanor Wiske & Smith, Jeffrey
Andrew (2020). The Consequences of Academic Match Between Students
and Colleges. Journal of Human Resources 55.3: 767-808. Further
discussion is included in Federal Register Vol. 88, No. 194.
---------------------------------------------------------------------------
The level of education pursued, and the type of institution
attended, can have a substantial impact on a student's earning
trajectory and on their propensity to default and propensity to
experience hardship as defined in proposed Sec. 30.91(a). Across
multiple studies and datasets, the sector and level of education
provided by the institution correlate with propensity to default. In
particular, students who attended for-profit institutions are more
likely to default.\62\ For example, among a cohort of borrowers who
first entered undergraduate education in 2003-04, borrowers who entered
a for-profit institution were 10 percentage points more likely to
default than those who enrolled at other types of institutions.\63\
Further, students enrolled in two-year schools, or vocational schools,
were more likely to default relative to students enrolled in four-year
institutions.\64\ And students who enroll in non-selective four-year
institutions were more likely to default than those who enroll in
selective four-year institutions.\65\
---------------------------------------------------------------------------
\62\ Mezza, Alvaro A. and Kamila Sommer. ``A trillion dollar
question: What predicts student loan delinquencies?.'' Finance and
Economics Discussion Series 2015-098 (2015). Washington: Board of
Governors of the Federal Reserve System.; Looney, Adam and
Constantine Yannelis. ``A crisis in student loans?: How changes in
the characteristics of borrowers and in the institutions they
attended contributed to rising loan defaults.'' Brookings Papers on
Economic Activity 2015, no. 2 (2015): 1-89.; Armona, Luis, Rajashri
Chakrabarti, and Michael F. Lovenheim. ``Student debt and default:
The role of for-profit colleges.'' Journal of Financial Economics
144, no. 1 (2022): 67-92.; Deming, David J., Claudia Goldin, and
Lawrence F. Katz. ``The for-profit postsecondary school sector:
Nimble critters or agile predators?.'' Journal of Economic
Perspectives 26, no. 1 (2012): 139-164.
\63\ Scott-Clayton, Judith. ``What accounts for gaps in student
loan default, and what happens after.'' (2018). Brookings.
\64\ Mezza, Alvaro A. and Kamila Sommer. ``A trillion dollar
question: What predicts student loan delinquencies?'' Finance and
Economics Discussion Series 2015-098 (2015). Washington: Board of
Governors of the Federal Reserve System.; Looney, Adam and
Constantine Yannelis. ``A crisis in student loans?: How changes in
the characteristics of borrowers and in the institutions they
attended contributed to rising loan defaults.'' Brookings Papers on
Economic Activity 2015, no. 2 (2015): 1-89.
\65\ Looney, Adam and Constantine Yannelis. ``A crisis in
student loans?: How changes in the characteristics of borrowers and
in the institutions they attended contributed to rising loan
defaults.'' Brookings Papers on Economic Activity 2015, no. 2
(2015): 1-89.
---------------------------------------------------------------------------
The Department has long used a CDR measure to assess an
institution's continued participation in title IV aid programs. An
institution's CDR is highly predictive of future student loan
delinquency.\66\
---------------------------------------------------------------------------
\66\ Mezza, Alvaro A. and Kamila Sommer. ``A trillion dollar
question: What predicts student loan delinquencies?'' Finance and
Economics Discussion Series 2015-098 (2015). Washington: Board of
Governors of the Federal Reserve System.
---------------------------------------------------------------------------
Research also has shown that there can be differential financial
returns to programs of study.\67\ Certain programs are also more likely
to produce graduates with high amounts of debt, relative to typical
earnings, which may affect loan repayment outcomes.\68\ While the
prevalence of loan default among borrowers who attended a particular
institution or program is not a direct measure of academic quality, it
can provide insight into whether the financial returns provided by a
program or institution are sufficient for borrowers.
---------------------------------------------------------------------------
\67\ Webber, Douglas A. ``The lifetime earnings premia of
different majors: Correcting for selection based on cognitive,
noncognitive, and unobserved factors.'' Labour economics 28 (2014):
14-23.; Andrews, Rodney J., Scott A. Imberman, Michael F. Lovenheim,
and Kevin M. Stange. ``The returns to college major choice: Average
and distributional effects, career trajectories, and earnings
variability.'' No. w30331. National Bureau of Economic Research,
2022.
\68\ Cellini, Stephanie Riegg, and Nicholas Turner. ``Gainfully
employed? Assessing the employment and earnings of for-profit
college students using administrative data.'' Journal of Human
Resources, 59(3) (2019): 342-371.; Christensen, Cody and Lesley J.
Turner. ``Student Outcomes at Community Colleges: What Factors
Explain Variation in Loan Repayment and Earnings?'' Brookings
Institution (2021).
---------------------------------------------------------------------------
While not independently determinative of hardship, whether a
borrower has completed their program of study generally correlates with
student loan delinquency and default.\69\ Borrowers who leave school
without the credential they were pursuing have debt but lack the
additional earnings premium that can come with attaining a degree or
certificate. Students who leave school without completing their degree
are less likely to report financial well-being and are more likely to
express a desire to have done things differently in their higher
education experience.\70\ These factors are relevant
[[Page 87144]]
to the Secretary's determination of whether the borrower is
experiencing or has experienced hardship that meets the eligibility
requirements.
---------------------------------------------------------------------------
\69\ Gross, Jacob PK, Osman Cekic, Don Hossler, and Nick
Hillman. ``What Matters in Student Loan Default: A Review of the
Research Literature.'' Journal of Student Financial Aid 39, no. 1
(2009): 19-29.; Mezza, Alvaro A. and Kamila Sommer. ``A trillion
dollar question: What predicts student loan delinquencies?'' Finance
and Economics Discussion Series 2015-098 (2015). Washington: Board
of Governors of the Federal Reserve System.; Looney, Adam and
Constantine Yannelis. ``A crisis in student loans?: How changes in
the characteristics of borrowers and in the institutions they
attended contributed to rising loan defaults.'' Brookings Papers on
Economic Activity 2015, no. 2 (2015): 1-89. Scott-Clayton, Judith.
``What accounts for gaps in student loan default, and what happens
after.'' (2018). Brookings.
\70\ Lockwood, Jacob and Webber, Douglas, Non-Completion,
Student Debt, and Financial Well-Being: Evidence from the Survey of
Household Economics and Decisionmaking (August, 2023). FEDS Notes
No. 2023-08-21.
---------------------------------------------------------------------------
Other factors (factors 16 and 17). In addition to the proposed
factors discussed above, the Department proposes to include Sec.
30.91(b)(16) to capture whether a borrower's hardship is likely to
persist. This information could help inform decisions about the amount
of a potential waiver, as hardships that are likely to persist would
counsel in favor of either larger or complete waivers. In addition, and
as described more fully below, under proposed Sec. 30.91(d), the
Department's holistic assessment would consider the persistence of the
borrower's hardship as part of the determination whether the borrower
met the eligibility requirements of showing a high likelihood 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.
Finally, proposed Sec. 30.91(b)(17) would be a catch-all
provision. As already noted, it would be important to acknowledge that
rare unanticipated circumstances may cause a borrower to experience
hardship that satisfies the standard for relief.
The Secretary's consideration of factors indicating hardship. Using
the factors in proposed Sec. 30.91(b), under both a predictive
assessment of the factors (under proposed Sec. 30.91(c)) and a
holistic assessment of the factors (under proposed Sec. 30.91(d)), the
Secretary would engage in a fact-specific analysis of individual
borrowers to determine whether the facts indicate that a borrower is
facing hardship that meets the eligibility requirements.
The committee reached consensus on this section.
Sec. 30.91(c) Immediate Relief for Borrowers Likely To Default
Statute: Section 432(a) of the HEA (20 U.S.C. 1082(a)) provides
that in the performance of, and with respect to, the functions, powers,
and duties, vested in him by this part, the Secretary may enforce, pay,
compromise, waive, or release any right, title, claim, lien, or demand,
however acquired, including any equity or any right of redemption.
Section 468(2) of the HEA endows the Secretary with similarly broad and
flexible powers with respect to loans arising under the Perkins
program.\71\
---------------------------------------------------------------------------
\71\ See 20 U.S.C. 1087hh(2).
---------------------------------------------------------------------------
Current Regulations: None.
Proposed Regulations: Proposed Sec. 30.91(c) would specify the
Secretary's discretionary authority to provide for immediate, one-time
relief to borrowers who are likely to default on their student loan
obligations. Specifically, should the Secretary choose to exercise such
discretion, the Secretary would be able to consider the factors in
proposed Sec. 30.91(b) to waive all or part of the federally held
student loans of borrowers who the Secretary determines, based on data
in the Secretary's possession, have experienced or are experiencing
hardship such that their loans are at least 80 percent likely to be in
default in the next two years after these proposed regulations are
published.
Reasons: Proposed Sec. 30.91(c) provides that the Secretary may
discharge loans for borrowers who would likely be in default within two
years of the publication date of this proposed regulation. The
Department proposes specifying the Secretary's authority to grant
relief for borrowers at a high risk of defaulting because we are
concerned about borrower hardship caused by default and its effects.
The Department proposes a statistical model, discussed in more detail
below, that describes the weighting of the factors in proposed Sec.
30.91(b) that would predict which borrowers are likely to be in default
within the two-year period and therefore meet the hardship standard in
proposed Sec. 30.91(a).
As previously described, a borrower's default status can be
indicative of the borrower's hardship repaying the loan.\72\ Department
data show that borrowers who default on their student loans tend to be
individuals who are lower income, are the first in their families to
attend college, have lower amounts of loan debt and yet still struggle
with repayment, and did not complete their postsecondary programs.
---------------------------------------------------------------------------
\72\ Li, Wenli. ``The economics of student loan borrowing and
repayment.'' 2013. Business Review, Federal Reserve Bank of
Philadelphia, issue Q3, pages 1-10. Takti-Laryea, Ama and Phillip
Oliff. ``Who Experiences Default?'' Pew Charitable Trusts. March 1,
2024. <a href="https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default">https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default</a>.
---------------------------------------------------------------------------
Importantly, using likelihood of being in default as an indicator
of hardship draws an explicit connection between a borrower's financial
circumstances and their ability to repay the loan. Default indicates
that a borrower has already faced hardship impairing their ability to
fully repay the loan, and default itself typically creates cascading
consequences that would further impair the ability to pay.\73\ When a
borrower defaults, their entire loan balance is accelerated,
potentially leading to wage garnishment and offset of Federal tax
refunds and benefits such as Social Security.\74\ Default is also
reported to consumer reporting agencies, likely reducing borrowers'
credit scores, and impeding them from obtaining credit or securing
employment. Injury to borrowers' credit history and scores from default
may also affect borrowers' ability to obtain housing, often
disqualifying them from mortgages and affecting the ability to rent
property. Finally, default may render borrowers ineligible for
additional title IV, HEA assistance, which may be needed to complete an
unfinished education. Therefore, defaults can compound the burdens of
existing loans by preventing the economic boost of a completed
education necessary to repay the debt. For all the reasons described
above, the relief under proposed Sec. 30.91(c) is consistent with the
exacting definition of ``hardship,'' \75\ because default is typically
a result of significant economic privation (such as income insufficient
to meet expenses, resulting in an inability to meet basic needs) and is
a cause of further privation.
---------------------------------------------------------------------------
\73\ Federal Student Aid, U.S. Department of Education. ''
Student Loan Delinquency and Default.'' <a href="https://studentaid.gov/manage-loans/default">https://studentaid.gov/manage-loans/default</a>.
\74\ Although the Secretary would consider the risk of default
as a circumstance indicating the borrower is likely suffering
hardship in repaying the loan, the statutory consequences of default
remain unaffected by the regulation. Borrowers who enter default
would remain subject to these consequences, while other borrowers
may demonstrate a high risk of default indicating hardship, and
therefore justifying a waiver, regardless of whether they have ever
entered default on their loans.
\75\ ``Hardship'' is defined as ``Privation; suffering or
adversity.'' Black's Law Dictionary (12th ed. 2024).
---------------------------------------------------------------------------
Using a predictive assessment of the factors in proposed Sec.
30.91(b) to grant immediate relief to borrowers likely to be in default
also would serve important practical purposes. This approach would
allow the Department to assess likely default based on information it
already has, without soliciting additional information from borrowers
or other sources. The Department would be able to assess borrower data
that correlate with student loan default, and therefore predict which
borrowers are likely to experience default within the two-year period.
This includes the factors in proposed Sec. 30.91(b) that correlate
with default rates, such as borrowers' current repayment status and
other repayment history, non-completion of a postsecondary program,
low-income levels shown on a FAFSA, receipt of a Pell Grant, and
attendance at a particular type and level of institution.
[[Page 87145]]
If the Secretary exercises discretion under proposed Sec.
30.91(c), the Secretary's grant of waivers under proposed Sec.
30.91(c) would be a one-time action. The Department anticipates that
shortly after finalizing and implementing these regulations, the
Department could identify borrowers who would be eligible for waivers
under proposed Sec. 30.91(c) based on data as of the publication of
the NPRM, and then would expeditiously choose whether to exercise
discretion to provide such relief as part of a one-time action.
The waivers under proposed Sec. 30.91(c) would be one-time actions
for two reasons. The Department has taken significant steps to reduce
the likelihood of default in the future, such as giving borrowers a
pathway to return defaulted loans to repayment status through the Fresh
Start program.\76\ Therefore, the Department anticipates that in the
future fewer borrowers will be likely to default. Second, the relief
available through proposed Sec. 30.91(d), by submitting an application
that would be reviewed on a holistic basis, would provide a pathway to
relief going forward for borrowers who continue to experience hardship
even with the measures described above. However, the proposed one-time
relief in proposed Sec. 30.91(c) would remain necessary to many
borrowers who have had loans for years without access to such benefits.
These borrowers may already have struggled with delinquency and default
and may be more likely to have already experienced challenges with
application processes in the past.\77\ Providing relief to such
borrowers, without requiring them to take additional steps, reduces the
cost to borrowers to gain access to eligible relief, and potentially
reduces the administrative costs to government.
---------------------------------------------------------------------------
\76\ See <a href="https://studentaid.gov/announcements-events/default-fresh-start">https://studentaid.gov/announcements-events/default-fresh-start</a>.
\77\ See for example, Ganong, Peter and Jeffrey B. Liebman.
``The decline, rebound, and further rise in SNAP enrollment:
Disentangling business cycle fluctuations and policy changes.''
American Economic Journal: Economic Policy 10 (4) (2018): 153-176.
---------------------------------------------------------------------------
The Department proposes to limit this waiver provision to borrowers
who are highly likely to be in default in the near term. Therefore,
proposed Sec. 30.91(c) would provide a waiver only to borrowers who
the Secretary determines have an ``80 percent'' or higher likelihood of
being in default within two years after these proposed regulations are
published. In determining the proper threshold to propose for this
provision, the Department believes it is important to propose a
likelihood of being in default greater than 50 percent. A number lower
than 50 percent would not be appropriate because it would imply that a
borrower was more likely to not be in default than they were to be in
default, and therefore materially less likely to be experiencing
hardship that would impair their ability to fully repay their loans. We
ultimately decided to propose an 80 percent threshold to distinguish a
pool of borrowers with a distinctly higher risk of default, as measured
by the factors in proposed Sec. 30.91(b). Our goal in choosing a
proposed threshold for this provision is to identify clusters of
borrowers in the probability distribution who are highly likely to be
in default within two years. Under the Department's proposed modeling
of the likelihood that a borrower is in default within the next two
years, which is described below, there is a significant group of
borrowers with minimal predicted risk of being in default and another
significant group of borrowers with a relatively high predicted risk of
being in default. The difference between the number of borrowers who
are 80 percent likely to be in default and those with somewhat lower
likelihood of being in default, such as 60 percent or 70 percent, is
minimal, but the Department nonetheless proposes 80 percent because it
reasonably identifies borrowers who are most at risk for default.
However, as the Department continues to obtain newly available
repayment data through the publication of this NPRM--and particularly
data after the payment pause ended--the Department would continue to
incorporate such data into the model. As such, we seek feedback from
the public about whether the Department should adjust the proposed 80
percent threshold, as well as feedback on whether there are other
reasons to adjust the 80 percent threshold and the related
justification.
Because we have taken steps to address default going forward, the
Department proposes using the likelihood of being in default within two
years of the publication date of the NPRM, as the Department is intent
on providing relief to borrowers who are likely to experience hardship
in the near term. We believe two years would be reasonable, since it is
a relatively short time period that would also reflect the possible
time it might take for a borrower to default if they began repayment or
were current at the start of the observation window. Generally, a
borrower is not treated as being in default on their loan until they
are 270 days late on payments, with additional days added for the
transfer of the loan to the Debt Management and Collections System
(DMCS). Were the Department to consider borrowers who are likely to be
in default within a shorter period, many borrowers experiencing
hardship would be excluded because they could not be in default within
that timeframe. For example, were we to only consider borrowers likely
to be in default within 12 months, then any borrower with fewer than
two missed payments could not default within that window. A two-year
observation window also would allow us to capture borrowers who may be
using deferment or forbearance to postpone loan repayment due to
economic hardship. For example, a borrower who used a 12-month
postponement at the start of the observation window may still default
within the second year. We believe using the proposed statistical model
described below to identify borrowers who are highly likely to default
within two years would be reasonable because these are borrowers who
the Department can reasonably predict have experienced or are
experiencing hardship that impairs their ability to fully repay their
loans.
As noted above, we recognize that a model designed to predict the
likelihood of being in default in the future might lead some to argue
that borrowers would be able to qualify for a waiver by intentionally
not repaying their loans, thereby increasing their risk of being in
default. However, we believe this risk is minimal in this instance.
First and foremost, as noted above, we are proposing that at the time
of the final rule, we would use data as of the publication of these
proposed rules. Since these regulations would identify borrowers
eligible for relief using data as of the NPRM's publication to predict
future outcomes, and since we anticipate that the Secretary's
discretionary grant of waivers under proposed Sec. 30.91(c) would be a
one-time action, borrowers would have limited opportunity to change
their likelihood of relief by strategically not paying and would have
no opportunity after this NPRM is published. Even if a later date were
chosen, trying to avoid payment to artificially indicate repayment
struggles would be a significant risk on the part of borrowers because
the issuance of any particular waiver is discretionary and is based on
the consideration of multiple factors. Therefore, any borrower who
intentionally fails to repay loans to try to qualify for a waiver may
end up harming their credit and facing the consequences of delinquency
or default with no guarantee of receiving a waiver. Second, the
Department's analysis considers the experience of
[[Page 87146]]
borrowers across the entire student loan portfolio. As such, even if an
individual borrower exhibits signs of delinquency, that borrower may
still not be identified as sufficiently likely to be in default if most
similarly situated borrowers are not predicted to be in default.
To assess the proposed hardship standard in Sec. 30.91(a) when
granting relief under proposed Sec. 30.91(c), the Department proposes
to use a statistical model that would predict likelihood of being in
default within two years. The model would guide how the Secretary would
consider and weigh data associated with the factors identified in
proposed Sec. 30.91(b) that are accessible to the Secretary without
the need for additional data collection.
This proposed model would be designed to predict default on a
Federal student loan in any quarter for two years from the date these
proposed regulations are published. Student loan default would be
estimated by a series of ``predictors,'' a term that we use to refer to
the data elements that serve as inputs into the model, which would
correspond to the 17 factors identified in proposed Sec. 30.91(b). In
Table 1 below, we include a list of the explanatory predictors that we
propose to consider based on data currently available to the
Department. We describe the proposed process for designing and refining
the prediction model that incorporates the factors from proposed Sec.
30.91(b) in further detail below.
As noted, the Department would derive these predictors from several
data sources available to the Department. Some of the data would come
from individual records available in the National Student Loan Data
System (NSLDS), such as repayment histories and loan debt outstanding.
Other data would be derived from information provided on the borrower's
FAFSA, such as Adjusted Gross Income or parental education. Some data
would be compiled based on multiple sources held within the Department,
such as data on the programs for which students borrowed and data that
are reported on the College Scorecard or in cohort default rate reports
that indicate typical student outcomes associated with a program or
programs attended.
Table 1--Proposed Model Inputs (``Predictors'')
------------------------------------------------------------------------
-------------------------------------------------------------------------
Past and Present Repayment Statuses.
Total amount of debt outstanding.
Past and present types of loans held, and amounts borrowed.
Year of loan disbursement.
Ratio of current loan balance to balances from 4 months prior.
Repayment plans in which borrower currently participates.
Payments made on student loans.
Scheduled payments on student loans.
Interest rate on loans.
Years in repayment.
Pell Grant receipt.
Adjusted Gross Income from the borrowers' first FAFSA.
Expected Family Contribution calculated from inputs on the FAFSA.
Parent education level reported on the FAFSA.
Dependent/independent status.
Borrower age.
Highest academic level reported for the borrower's loans.
Highest degree the borrower ever reported pursuing.
Graduation indicator.
Year of graduation, for those graduated.
Predominant degree of the school the student last attended or from which
they last graduated.
Ownership type of the school the student last attended or from which
they last graduated.
Cohort default rates of the school the student last attended or from
which they last graduated.
Earnings and debt information from College Scorecard of the school the
student last attended or from which they last graduated.
------------------------------------------------------------------------
Note: The Department proposes to use loan repayment statuses that
reflect the benefits provided by On Ramp and Fresh Start policies.
The proposed process for designing and refining the statistical
model to determine which borrowers meet the hardship standard in
proposed Sec. 30.91(a) based on 80 percent likelihood of being in
default (as described in proposed Sec. 30.91(c)) within two years
would be as follows. First, the Department would develop and validate
the model using multiple two-year random samples of data on Department-
held loans with data ranging from 2017 to February 2020. The Department
proposes to use samples from this time period because it contains the
most recent period of at least two years of uninterrupted repayment
before the COVID-19 payment pause, and therefore should provide the
most up to date predictions about the relationship between the
predictors described above and observed default over a two-year period.
We would use these data to estimate the extent to which the previously
described explanatory predictors (displayed in Table 1) would predict
whether a borrower was likely to be in default on a student loan in any
quarter within two years and therefore would meet the hardship standard
in proposed Sec. 30.91(a).
The Department would then evaluate a variety of methods to include
the ``predictors'' in the proposed model to create the most accurate
predictions of likelihood of being in default. There are generally two
forms that predictors can take in the source data. The first form is
continuous, which means that the predictor can be any value within a
range. For example, the amount of outstanding debt that a borrower has
could take on dollar values from greater than 0 to the maximum amount
of outstanding debt in our data. The second form is categorical, which
are predictors that have a finite number of distinct groups (e.g., type
of higher education institution). We propose to scale continuous
predictors by their means and standard deviations, but would also
consider those same predictors without scaling, and as categorical
variables defined with different types of cutoff values to create those
categories. The Department would also consider additional statistical
model specifications such as those that include interactions among
individual predictors, the use of higher order polynomials, and those
that generate estimates using different subgroups of the model. Among
these approaches to including variables in the model, the Department
would estimate the model using logistic regression as well as machine
learning approaches, such as gradient boosted trees.\78\
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\78\ Gradient boosted trees are a machine learning approach
commonly used for prediction based on decision trees. Decision trees
use a ``tree-like'' hierarchical structure to split the data at
various points in the distribution of predictor variable values,
with the goal of predicting the value of the target variable (in
this application, default within two years). Boosted trees typically
perform better than single decision trees or random forest methods
by sequentially learning from many decision trees. See Hastie,
Tibshirani, and Friedman (2009), The Elements of Statistical
Learning: Data Mining, Inference, and Prediction. 2nd Edition.
---------------------------------------------------------------------------
Next, to select the proposed model from among various potential
specifications and options, we would evaluate the performance of the
model using a distinct random hold out test sample of Department-held
loans from the same time period as the training sample. In this step,
to evaluate the performance of the model, we would calculate commonly
used metrics, including measures of model fit, confusion matrices with
a variety of threshold levels, standard metrics derived from the
confusion matrices, and other performance metrics.\79\
[[Page 87147]]
Generally, these measures provide different ways of comparing observed
outcomes to outcomes predicted by the model, and a model would be
considered to perform better if it more accurately classified borrowers
into those who will be in default and those who will not be in default.
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\79\ See for example, Albanesi, Stefania and Domonkos F.
Vamossy. ``Predicting Consumer Default: A Deeper Learning
Approach.'' NBER Working Paper 26165 (2019). Khandani, Amir E.,
Adlar J. Kim, and Andrew W. Lo. ``Consumer Credit-Risk Models Via
Machine-Learning Algorithms.'' Journal of Banking and Finance,
34(2010): 2767-2787. Hastie, Trevor, Robert Tibshirani, and Jerome
Friedman. The Elements of Statistical Learning: Data Mining,
Inference, and Prediction. 2nd Edition (2009).
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The proposed assessment based on this model would produce a score
for each borrower that accumulates the prediction related to the
predictors included in the model for likelihood of being in default
within two years. The scores would range from 0 percent to 100 percent.
This score could be interpreted as an estimate of the probability that
a borrower is in default within the next two years. We would use the
score from the model to assist with identifying borrowers who were at
least 80 percent likely to be in default on a student loan in any
quarter within two years of the proposed regulations' publication date.
Once the regulations are finalized and implemented, this model
would be used to conduct an individualized determination of whether
each borrower fits within the hardship standard in proposed Sec.
30.91(a) and therefore qualifies for a waiver under proposed Sec.
30.91(c).
For purposes of this NPRM, we estimated which borrowers would have
an 80 percent likelihood of being in default within the applicable two-
year period using a 5 percent sample of Department-held loans as of
April 2024. At the time of the publication of the NPRM, however, the
Department will have access to additional data that could be used to
refine the model. For example, in the data used for modeling in this
NPRM, the Department has recent borrower repayment history only for
about five months since the end of the payment pause. At the time of
the publication of the NPRM, however, the Department will be able to
observe recent repayment and engagement experiences over a longer time
horizon through the date of the NPRM.
The Department proposes to measure this two-year window as of the
publication date of the NPRM to preclude strategic behavior to increase
the likelihood of receiving hardship relief by defaulting on loans. The
reason for measuring the two-year window as of the publication date of
the NPRM is because we are intent on providing relief as soon as
possible once the NPRM is finalized, and because we are concerned that
a longer period between finalizing the regulations and measuring the
two-year window could create incentives for borrowers to attempt to
strategically adjust their repayment behavior to be more likely to
obtain a waiver.
The committee reached consensus on this regulatory provision.
Sec. 30.91(d) Process for Additional Relief
Statute: Section 432(a) of the HEA (20 U.S.C. 1082(a)) provides
that in the performance of, and with respect to, the functions, powers,
and duties, vested in him by this part, the Secretary may enforce, pay,
compromise, waive, or release any right, title, claim, lien, or demand,
however acquired, including any equity or any right of redemption.
Section 468(2) of the HEA endows the Secretary with similarly broad and
flexible powers with respect to loans arising under the Perkins
program.\80\
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\80\ See 20 U.S.C. 1087hh(2).
---------------------------------------------------------------------------
Current Regulations: None.
Proposed Regulations: Proposed Sec. 30.91(d) provides that the
Secretary may rely on data in the Secretary's possession that may have
been acquired through an application or any other means to provide
relief, including automated relief, based on criteria demonstrating
that the borrower has experienced or is experiencing hardship.
Reasons: Proposed Sec. 30.91(d) would clarify the procedures the
Department could use to provide relief if the Secretary were to
exercise the discretion under this section to issue waivers.
The pathway for discretionary relief under proposed Sec. 30.91(d)
is for the Secretary to assess a borrower's circumstances in a holistic
manner, which may be based in part on an application submitted by the
borrower, to determine if the borrower is experiencing or has
experienced hardship. Proposed Sec. 30.91(d) operates fully
independently and separately from proposed Sec. 30.91(c) and would
therefore be fully severable.
The Department intends the ``hardship'' necessary to trigger relief
under proposed Sec. 30.91(d) to be a substantial harm. The Department
interprets the hardship required for relief under proposed Sec.
30.91(d) as: the borrower must be 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 requirement that other payment
relief options would not sufficiently address a borrower's persistent
hardship would apply both to borrowers who meet the standard because
the Department finds they are highly likely to be in default and to
borrowers who meet the standard because the Department finds they are
highly likely to experience similarly severe negative and persistent
circumstances.
Default is one of the strongest indications that a borrower has not
been able to use options available to avoid hardship in repaying their
student loans, so the Department would use a standard related to
default as one part of the hardship test for individual applicants
under proposed Sec. 30.91(d).
In addition, the Department would also have to determine that other
options for payment relief under the HEA, including IDR plans and other
forgiveness opportunities, are not sufficient for the borrower to avoid
a high likelihood of being in default or similarly severe and
persistent negative circumstances.\81\ To determine whether the
borrower faces a persistent hardship, the Department would consider the
factors described in proposed Sec. 30.91(b).
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\81\ The Department recognizes that the relief in proposed Sec.
30.91(d) would include a determination that other payment relief
options are not sufficient, but the relief under proposed Sec.
30.91(c) would not include such a determination. The Department does
not think such a determination is necessary for the relief under
proposed Sec. 30.91(c) because eligible borrowers under that
provision may have spent years or decades without access to other
IDR plans, such as PAYE and REPAYE, and did not benefit from
strengthened loan servicer accountability under the new USDS
contracts. This determination also would not be needed under
proposed Sec. 30.91(c) because borrowers would have little to no
ability to influence the results under proposed Sec. 30.91(c) with
strategic non-payment.
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The Department makes student loans to students with the expectation
that they will be repaid according to the terms provided under the HEA
and laid out in the Master Promissory note. The Department understands
that many borrowers experience difficulty repaying their loans at some
point in their repayment experience that necessitates relief from
monthly payments calculated under the standard 10-year repayment plan.
As discussed above, there are many options under the HEA available to
borrowers who may experience difficulty repaying their loans. Relief
options include the short-term use of deferment or forbearance options.
These proposed regulations are not designed to supplant any of the
options available to borrowers. Rather, these proposed regulations are
designed as a safety valve for those borrowers who cannot receive
sufficient relief to avoid hardship via payment relief options already
in existence under the
[[Page 87148]]
HEA. For the purposes of proposed Sec. 30.91(d), the Department would
consider the availability of the following payment relief options \82\
to determine whether such options could sufficiently address the
borrower's hardship: deferment or forbearance; forgiveness
opportunities such as borrower defense discharge and TPD discharge, and
income-driven repayment (IDR) plans.
---------------------------------------------------------------------------
\82\ A payment relief option would only be available to a
borrower if they satisfied the applicable statutory and regulatory
requirements.
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A payment relief option would not be sufficient if it would not
prevent the borrower from still experiencing a hardship related to the
loan that makes them highly likely to be in default or experience
similarly severe negative and persistent circumstances that
substantially impairs their ability to fully repay the loan. For
example, a borrower that is on an IDR plan with a $0 monthly payment
might still be eligible for a waiver if the borrower would still be
highly likely to experience similarly severe negative and persistent
circumstances because they have a persistent hardship and lack the
disposable income needed to fully repay the loan without jeopardizing
their basic financial security over an extended period of time. In
other words, the Department could determine that a payment relief
option was not sufficient if it only temporarily delayed--but did not
eliminate--the need to discharge some or all of the borrower's loans to
sufficiently address the hardship.
The Department seeks to provide relief for individuals who are
experiencing hardship without creating incentives for borrowers to
strategically choose to cease making payments in order to qualify for
relief. Proposed Sec. 30.91(c) would prevent this strategic behavior
by specifying the Secretary's discretion to provide one-time immediate
relief based on a predictive assessment that would use the publication
date of this NPRM as the beginning of the two-year period. There would
be no future opportunity to change behavior and to obtain relief under
proposed Sec. 30.91(c).
For proposed Sec. 30.91(d), the Department would address the risk
of strategic behavior with a two-fold requirement that the borrower
must be highly likely to be in default, or experience similarly severe
negative and persistent circumstances, and that other options for
payment relief would not sufficiently address the borrower's persistent
hardship, including IDR plans, for those eligible. As a result, a
borrower who is experiencing a high likelihood of being in default that
they could avoid by enrolling in an IDR plan but has chosen not to
enroll as an attempt at strategic behavior, would be extremely unlikely
to receive relief under proposed Sec. 30.91(d). In cases where a
borrower who could find sufficient relief from hardship through an IDR
plan applies for relief under proposed Sec. 30.91(d), the Department
would encourage that borrower to enroll in IDR, and that borrower would
be unlikely to be eligible for a waiver under proposed Sec. 30.91(d).
Nor would a borrower who faces default simply because they have chosen
not to make payments, without any evidence of experiencing hardship,
receive relief under proposed Sec. 30.91(d). These requirements would
advance the goal of the proposed regulations and apply the standard of
proposed Sec. 30.91(a), providing relief in cases of genuine hardship.
Moreover, should the Secretary choose to exercise authority under
these regulations, proposed Sec. 30.91(c) would provide relief to the
millions of borrowers who are experiencing hardship already, and in
many cases who have lacked access to the full range of repayment
options that will now be fully available going forward. Relief would
only be available to individuals under proposed Sec. 30.91(d) who
experience hardship that is not sufficiently addressed by other options
for payment relief and have a high likelihood of being in default or
experiencing similarly severe negative and persistent circumstances.
One type of borrower eligible for relief under proposed Sec.
30.91(d) would be a borrower who is already enrolled in an IDR plan but
who is highly likely to default or experience similarly severe negative
and persistent circumstances even with an IDR plan's payment
protections. Although IDR plans take into account income and household
size, there are borrowers who would still experience hardship related
to their loans that could not be remedied through other means.
Consistent with the factors described in Sec. 30.91(b), the Secretary
could consider, for example, whether an individual has unusually high
expenses (such as nondiscretionary medical or housing expenses) such
that they are highly likely to be in default, or to experience
similarly severe negative and persistent circumstances.
In general, to determine whether an individual has such high
expenses, the Department would look to established benchmarks, such as
the Department of Housing and Urban Development measures of a ``rent
burdened'' or ``severely rent burdened'' household that pays rent m 30
or 50 percent of household income, respectively, or the Internal
Revenue Code standard allowing for deduction of health expenses in
excess of 7.5 percent of Adjusted Gross Income. The Department would
consider these expenses in the context of the borrower's overall
financial resources, including income, assets, and debt.
As an example, consider an individual who is earning $80,000 a
year, has $35,000 in loans, few assets, three dependents, and a monthly
payment obligation of approximately $277 a month under an income-based
repayment plan. That obligation would not ordinarily lead to hardship.
However, in this example, the individual lives in a high-rent area and
pays the typical rent of $2,300 for a one-bedroom apartment (more than
30 percent of their income or ``rent burdened'' under the HUD standard)
and has a dependent that requires medication and treatment for a
chronic health condition that costs $1,600 per month (well in excess of
7.5 percent of AGI). In order to pay for these expenses in addition to
other essentials, like food and transportation, the borrower is in
default or is on the verge of being in default after missing seven
months of payments. If this borrower demonstrated that they did not
have the assets to avoid being in default, and that their circumstances
were unlikely to improve within a period of time, then they could
potentially receive relief under this provision.
There may also be cases where an individual can demonstrate
hardship even in the absence of a payment burden (such as when a
borrower has a $0 IDR payment). For example, a borrower may be able to
show that they meet the standard for hardship described above if they
can show that, even with a $0 IDR payment, the existence of the debt
itself causes the required hardship. As stated above, a borrower on an
IDR plan with a $0 monthly payment may also be able to show that they
are still highly likely to experience similarly severe negative and
persistent circumstances because they have a persistent hardship and
lack the disposable income needed to fully repay the loan without
jeopardizing their basic financial security over an extended period of
time. The Department has also included a directed question regarding
the circumstances in which this might occur.
Relief under proposed Sec. 30.91(d), whether based on data
``acquired through an application or by any other means'' would be
assessed on a holistic basis to determine whether the standard
described above for proposed Sec. 30.91(d)
[[Page 87149]]
is met.\83\ The Department interprets the word ``automated'' as used in
proposed Sec. 30.91(d) to mean relief that the Secretary may grant
based on information already in the Department's possession rather than
acquired through an application. The Department anticipates that the
number of borrowers for whom the Department would possess sufficient
information to conduct the holistic review without data acquired from
an application would be small. The Secretary would not be able to use a
default risk model such as a model similar to the one described in
Sec. 30.91(c) in order to provide relief under proposed Sec.
30.91(d). A borrower could only receive a waiver without an application
under proposed Sec. 30.91(d) if the Department's holistic review of
the borrower's data satisfied the same stringent standard that the
Department would apply for application-based relief. Such cases would
be considered rare since the data that the Department possesses would
have to sufficiently establish eligibility including that other options
for payment relief would not sufficiently address the borrower's
persistent hardship and would also need to sufficiently distinguish
such borrowers from otherwise similar borrowers who would not be deemed
to qualify for relief.
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\83\ The Department recognizes that determining eligibility for
relief under proposed Sec. 30.91(c) relies on data already in the
Department's possession. However, as explained elsewhere, proposed
Sec. 30.91(c) and proposed Sec. 30.91(d) are designed to address
different challenges and accordingly have different eligibility
criteria as described in this NPRM. Proposed Sec. 30.91(c) is
designed to provide, at the Secretary's discretion, immediate relief
on a one-time basis to address the hardship of borrowers who may
have spent years or decades without access to other IDR plans, such
as PAYE and REPAYE, and did not benefit from strengthened loan
servicer accountability under the new USDS contracts. By contrast,
proposed Sec. 30.91(d) is meant to provide ongoing relief to
borrowers on a going-forward basis even after the Department has
implemented various improvements to assist with student loan
repayment, such as the implementation of IDR plans and updated
servicer contracts. The Department believes that in most instances,
additional information would be necessary for the Department to
conduct a holistic assessment to determine whether the borrower
meets the specific standard for relief under proposed Sec.
30.91(d).
---------------------------------------------------------------------------
The Department recognizes that to meet this stringent standard, the
Department would need data that would allow the Secretary to determine
whether a borrower meets proposed Sec. 30.91(d)'s standard. The
Department notes that the Secretary would need to expand or refine data
elements in the future to provide relief to borrowers under proposed
Sec. 30.91(d) without an application because, at the time of preparing
this NPRM, the Department does not currently have sufficient data
available to determine whether a borrower meets the eligibility
standard. We seek feedback from the public about the type of data that
could be used for relief without an application under proposed Sec.
30.91(d), and how those data could be obtained.
As discussed throughout this NPRM including in the Regulatory
Impact Analysis, the proposed process under Sec. 30.91(d) would likely
involve detailed reviews of applications submitted by borrowers or
other data already in the Department's possession. We anticipate that
the processes under Sec. 30.91(d) would take time to implement
following the publication of a final rule, including developing an
application, producing clarifying guidance, and hiring and training
staff. Given the administrative costs associated with this process, we
also anticipate that the volume of applications the Department would be
able to process would be low at first and would be dependent on the
amount of funding received by FSA through the annual appropriations
process. Therefore, depending on the number of applications, it would
take time for the Department to make waiver determinations on a
borrower's individual application, and the Department would not be in
position to guarantee a response within a specific period. As a result,
borrowers should anticipate continuing to make payments while their
application is pending.
The committee reached consensus on this section.
Regulatory Impact Analysis
Executive Orders 12866 (as Modified by 14094) and 13563
Under Executive Order 12866, the Office of Management and Budget
(OMB) must determine whether this regulatory action is ``significant''
and, therefore, subject to the requirements of the Executive Order and
subject to review by OMB. Section 3(f) of Executive Order 12866, as
amended by Executive Order 14094, defines a ``significant regulatory
action'' as an action likely to result in a rule that may--
(1) Have an annual effect on the economy of $200 million or more
(adjusted every 3 years by the Administrator of OIRA for changes in
gross domestic product), or adversely affect in a material way the
economy, a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, territorial, or
Tribal governments or communities;
(2) Create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impacts of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise legal or policy issues for which centralized review would
meaningfully further the President's priorities, or the principles
stated in the Executive Order, as specifically authorized in a timely
manner by the Administrator of OIRA in each case.
This proposed regulatory action would have an annual effect on the
economy of $200 million or more. Table 4.1 in this regulatory impact
analysis (RIA) provides an estimate of the net budget effects of each
provision of these proposed regulations. We also provide estimates of
the administrative costs for these provisions. Because the net budget
effect is larger than $200 million a year, this proposed regulatory
action is subject to review by OMB under section 3(f) of Executive
Order 12866 (as amended by Executive Order 14094). Notwithstanding this
determination, we have assessed the potential costs and benefits, both
quantitative and qualitative, of this proposed regulatory action and
have determined that the benefits would justify the costs.
We have also reviewed these regulations under Executive Order
13563, which supplements and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established in
Executive Order 12866. To the extent permitted by law, Executive Order
13563 requires that an agency--
(1) Propose or adopt regulations only on a reasoned determination
that their benefits justify their costs (recognizing that some benefits
and costs are difficult to quantify);
(2) Tailor its regulations to impose the least burden on society,
consistent with obtaining regulatory objectives and considering--among
other things and to the extent practicable--the costs of cumulative
regulations;
(3) In choosing among alternative regulatory approaches, select
those approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other
advantages; distributive impacts; and equity);
(4) To the extent feasible, specify performance objectives, rather
than the behavior or manner of compliance a regulated entity must
adopt; and
(5) Identify and assess available alternatives to direct
regulation, including economic incentives--such as user fees or
marketable permits--to
[[Page 87150]]
encourage the desired behavior, or provide information that enables the
public to make choices.
Executive Order 13563 also requires an agency ``to use the best
available techniques to quantify anticipated present and future
benefits and costs as accurately as possible.'' The Office of
Information and Regulatory Affairs of OMB has emphasized that these
techniques may include ``identifying changing future compliance costs
that might result from technological innovation or anticipated
behavioral changes.''
We are issuing these proposed regulations upon on a reasoned
determination that their benefits would justify their costs. In
choosing among alternative regulatory approaches, we selected those
approaches that, in the Department's estimation, best balance the size
of the estimated transfer and qualitative benefits and costs. Based on
the analysis that follows, the Department believes that these proposed
regulations are consistent with the principles in Executive Order
13563.
We have also determined that this regulatory action would not
unduly interfere with State, local, territorial, and Tribal governments
in the exercise of their governmental functions.
As described in OMB Circular A-4, we compare the proposed
regulations to the current regulations. In this regulatory impact
analysis, we discuss the need for regulatory action, the summary of key
proposed provisions, potential costs and benefits, net budget impacts,
and the regulatory alternatives we considered.
Elsewhere in this section under the Paperwork Reduction Act of
1995, we identify and explain burdens specifically associated with
information collection requirements.
1. Congressional Review Act Designation
Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.),
the Office of Information and Regulatory Affairs designated that these
regulations are covered under 5 U.S.C. 804(2) and (3).
2. Need for Regulatory Action
These proposed regulations describe circumstances in which the
Secretary might exercise the longstanding discretionary waiver
authority under sections 432(a)(6) and 468(2) of the HEA to waive all
or part of a Federal student loan held by the Department to provide
relief to a borrower who has experienced or is experiencing hardship.
Addressing the issue of hardship is critical in building a strong
student loan program. While the Department currently offers a number of
options for payment relief, including IDR plans and forgiveness
opportunities, the complexity of borrowers' lives may lead to hardships
that are not sufficiently addressed by these existing options such that
these hardships are likely to impair their ability to repay a Federal
loan in full or cause the anticipated costs of collecting the loan to
exceed the likely benefits of continued collection of the entire debt.
The Department frequently hears from borrowers about a range of these
situations, such as borrowers facing significant unexpected expenses
caring for loved ones with chronic illnesses, living with disabilities
that limit but do not eliminate work opportunities, dealing with
financially burdensome medical bills, or fearing that they will
struggle to repay loans as they prepare to exit the workforce by
retiring.
Sections 432(a)(6) and 468(2) of the HEA provide the Secretary with
discretion to address these situations. Issuing a clear regulatory
framework to address hardship would better inform the public about how
the Secretary might exercise this waiver authority by considering a set
of factors and standards that would allow for the consistent treatment
of similarly situated borrowers, while also recognizing the inherent
variability of each borrower's particular situation.
As further explained in the preamble, these proposed regulations
specify two different pathways by which the Secretary may exercise
discretion to grant relief to borrowers experiencing hardship: a
pathway for immediate relief using a ``predictive assessment''
(proposed Sec. 30.91(c)) and a separate pathway for additional relief
based on a ``holistic assessment'' of information submitted by the
borrower through an application or acquired by any other means
(proposed Sec. 30.91(d)).
For the immediate relief described in proposed Sec. 30.91(c), the
Secretary proposes to assess whether the borrower meets the hardship
standard by determining whether a borrower has at least an 80 percent
chance of being in default within two years, using a predictive
assessment based on data already in the Department's possession to
analyze the hardship factors in proposed Sec. 30.91(b). The use of a
predictive assessment would allow the Department to recognize
situations in which similarly situated borrowers face comparable
challenges likely to impair their ability to fully repay the loan, or
that would cause the costs of collecting the loan to outweigh the
benefits.
Further, this predictive assessment under proposed Sec. 30.91(c)
would be based on data in the Department's possession and therefore
would promote efficiency and reduce administrative costs. For example,
the predictive assessment would promote efficiency because it would
eliminate the need for individual borrowers to complete applications
and for the Department to process those applications. Furthermore,
using this predictive assessment would also avoid the risk that many
borrowers in need of relief would miss out on the opportunity for
relief because they are unaware of the need to apply or be unable to
overcome the administrative challenges of applying.
While the predictive assessment described in proposed Sec.
30.91(c) would reduce administrative burden for both borrowers and the
Department and could be implemented quickly because it would rely on
data the Department already has, it would not be able to capture all
borrowers who are experiencing hardship that satisfies the proposed
standard for waiver. One reason is that the Department currently does
not have data on several of the factors described in proposed Sec.
30.91(b), such as information on debts not owed to the Department or a
borrower's expenses for caretaking, housing, and other factors, which
could be burdensome for some borrowers.
Therefore, the Department would also need the discretionary option
of receiving additional information from borrowers through an
application process so that the Department could conduct a holistic
assessment of the borrower's circumstances to determine whether the
borrower meets the applicable standard for hardship under proposed
Sec. 30.91(d). As described in the preamble, under this process, the
Department would determine whether: (i) the borrower is highly likely
to be in default or experience similarly severe and persistent negative
circumstances, and (ii) other options for payment relief would not
sufficiently address the borrower's persistent hardship. The Department
could also make this determination based on information already in the
Department's possession, or a combination of information already in the
Department's possession or received through an application. This
application-based pathway would be important to give borrowers the
opportunity to provide additional information and data that might not
be captured in existing data systems to which the Department has
access, or to describe any additional relevant circumstances.
[[Page 87151]]
Overall, the relief contemplated in these proposed regulations
would provide important support in situations where a borrower's
investment in postsecondary education fails to yield the potential
benefits from completing such an education. Generally, postsecondary
education provides significant individual and societal benefits.
Earning a postsecondary credential typically provides individuals with
a range of personal benefits in the labor market, including higher
income and lower unemployment risk.\84\ In addition to individual
benefits related to earnings and employment, additional education can
provide a host of individual benefits, including greater access to
health insurance, increased job satisfaction, and overall
happiness.\85\ Increasing levels of postsecondary attainment also have
spillover benefits for communities and society, including benefits to
those who never attended or completed postsecondary education. For
example, researchers have documented that wages of non-college
graduates rise when the supply of college graduates increases.\86\
Increases in education are also linked to higher civic participation,
reduced crime, and improved health of future generations.\87\
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\84\ Barrow, Lisa and Ofer Malamud. ``Is College a Worthwhile
Investment?'' Annual Review of Economics 7 no. 1 (2015): 519-555.
Card, David. ``The Causal Effect of Education on Earnings.''
Handbook of Labor Economics 3 (1999): 1801-1863.
\85\ Oreopoulos, Philip and Kjell G. Salvanes. ``Priceless: The
Nonpecuniary Benefits of Schooling.'' Journal of Economic
Perspectives 25 no. 1 (2011):159-184.
\86\ Moretti, Enrico. ``Estimating the social return to higher
education: evidence from longitudinal and repeated cross-sectional
data.'' Journal of econometrics 121, no. 1-2 (2004): 175-212.
\87\ Currie, Janet, and Enrico Moretti. ``Mother's education and
the intergenerational transmission of human capital: Evidence from
college openings.'' The Quarterly journal of economics 118, no. 4
(2003): 1495-1532; Lochner, Lance, ``Nonproduction Benefits of
Education: Crime, Health, and Good Citizenship,'' in E. Hanushek, S.
Machin, and L. Woessmann (eds.), Handbook of the Economics of
Education, Vol. 4, Ch. 2, Amsterdam: Elsevier Science (2011); Ma,
Jennifer, and Matea Pender. Education Pays 2023: The Benefits of
Higher Education for Individuals and Society. Washington, DC:
College Board. Milligan, Kevin, Enrico Moretti, and Philip
Oreopoulos. ``Does education improve citizenship? Evidence from the
United States and the United Kingdom.'' Journal of public Economics
88, no. 9-10 (2004): 1667-1695.; Lochner, Lance, and Enrico Moretti.
``The effect of education on crime: Evidence from prison inmates,
arrests, and self-reports.'' American economic review 94, no. 1
(2004): 155-189.
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For some borrowers, financing an education does not lead to
individual net benefits. Loans taken out for postsecondary education
commonly take a decade or more to repay, and borrowers may never reach
sustained periods of income security necessary to afford and manage
their loans. This could be because they never complete their program
and therefore never receive a meaningful earnings return, or they may
lose the income security attendant to an education when they face
unexpected and significant life events outside their control, such as
the need to care for sick dependents, expensive medical problems, or
the onset of disabilities that limit work opportunities.
These proposed regulations would establish a framework for the
Secretary to exercise the discretionary waiver authority in a
consistent and transparent manner. This framework would fill existing
gaps in relief that are otherwise available from the Department to
assist borrowers with managing repayment of their loans. The
Department's existing avenues for payment relief, for example, may be
insufficient to assist older borrowers with high student loan debt
burdens at increased risk of default and resulting financial
insecurity, or those with significant obligations expenses for child or
dependent care. Therefore, these proposed regulations would specify the
Secretary's authority to grant relief where the Secretary determines
the borrower's hardship impairs the borrower's ability to fully repay
loans or makes collecting the loans unjustifiably costly.
Summary of Proposed Key Provisions
Table 2.1 below summarizes the proposed provisions in the NPRM.
Table 2.1--Summary of Proposed Provisions
------------------------------------------------------------------------
Regulatory Description of proposed
Provision section provision
------------------------------------------------------------------------
Standard for waiver due to Sec. Provides that the
likely impairment of borrower 30.91(a) Secretary may waive up
ability to fully repay or to the outstanding
undue costs of collection. balance of a Federal
student loan held by
the Department if the
Secretary determines
that the borrower has
experienced or is
experiencing hardship
related to such a loan
such that the hardship
is likely to impair
the borrower's ability
to fully repay the
Federal government or
the costs of enforcing
the full amount of the
debt are not justified
by the expected
benefits of continued
collection of the
entire debt.
Factors that substantiate Sec. Provides a non-
hardship. 30.91(b) exclusive list of
factors the Secretary
could consider in
determining whether a
borrower meets the
standard for waiver
based on hardship.
Immediate relief for borrowers Sec. Provides that the
likely to default. 30.91(c) Secretary may consider
the borrower's factors
indicating hardship
described in proposed
Sec. 30.91(b) to
exercise discretion to
waive all or some of
outstanding loans held
by borrowers who the
Secretary determines
have experienced or
are experiencing
hardship such that
their loans are at
least 80 percent
likely to be in
default in the two
years after the
publication of the
proposed regulations.
Process for additional relief.. Sec. Provides that the
30.91(d) Secretary may rely on
data obtained from an
application or by any
other means, or
potentially a
combination or both,
to provide relief for
borrowers who are
highly likely to be in
default or to
experience similarly
severe and persistent
negative
circumstances, and
other payment relief
options do not
sufficiently address
the borrower's
persistent hardship.
------------------------------------------------------------------------
3. Discussion of Costs, Benefits and Transfers
Overall, waivers that the Secretary grants under the proposed
regulations would result in costs in the form of transfers from the
Federal Government to student loan borrowers. The size of these
transfers would vary based upon the number of borrowers who the
Secretary determines are at least 80 percent likely to be in default
and, therefore, eligible for waiver under proposed Sec. 30.91(c). It
would also depend on the number of borrowers who are approved for
waivers under proposed Sec. 30.91(d). The Department believes that
these transfers would
[[Page 87152]]
provide significant benefits to borrowers in the form of waiving their
obligation to repay some or all of their Federal student loan debt. The
Department would also see benefits from waivers granted on loans that
are unlikely to be repaid in a reasonable period, which would prevent
or reduce costly collection efforts.
The transfers to borrowers in the form of waivers could result in
costs to the Federal Government and in turn taxpayers, to the extent
that borrowers receiving waivers might otherwise have repaid the loan
in part or whole, or the financial costs of collecting the loan might
have proved less than the benefits of collection. The proposed rules
would also result in administrative expenses for the Department to
implement these provisions. When considering all these factors, the
Department believes that the benefits from these proposed regulations
would outweigh the costs.
What follows is a description of the data used to create estimates
in this RIA, followed by a discussion of the costs, benefits, and
transfers for each of the distinct regulatory provisions.
Data Used in This RIA
This section describes the data used in the RIA. To generate
information about the expected number of borrowers who would be
eligible to receive relief under these proposed regulations, the
Department relied upon non-public records contained in the
administrative data the Department uses to administer the title IV, HEA
programs.
The primary data used in the RIA to estimate the number of
borrowers who could potentially qualify for a waiver under proposed
Sec. 30.91(c) is a 5 percent random sample of the Federal Department-
held student loan portfolio with at least one open title IV, HEA
student loan as of April 30, 2024. We are using a random sample
including over 2 million borrowers, but we present all estimates in the
analyses below in terms of the full Department-held student loan
portfolio. The data we use for modeling in the RIA are stored in the
National Student Loan Data System (NSLDS), maintained by the
Department's Office of Federal Student Aid. The Department determined
that a sample of this size was appropriate to provide reasonable
estimates of the impact of the proposed regulation. A sample of this
size is similar to what the Department uses in other modeling, such as
for the annual President's budget and for the net budget impact
modeling in this RIA.
Analysis of Costs, Benefits, and Transfers for Each Proposed Regulatory
Section
The sections that follow contain a discussion of the costs,
benefits, and transfers for the different proposed regulatory
provisions if the Secretary chooses to grant waivers under such
provisions. We separately discuss the relief potentially provided under
proposed Sec. 30.91(c)'s pathway for ``immediate relief'' and proposed
Sec. 30.91(d)'s pathway for ``additional relief'' based on an
application or information already in the Secretary's possession, or
both, because those provisions would represent different pathways for
the Secretary to exercise discretion to grant a waiver for a borrower.
Implementation of each of these provisions would include administrative
costs for the Department. Because these administrative costs generally
would represent baseline implementation expenses, we provide a separate
discussion of administrative costs at the end of this part of the RIA.
We do not include a discussion of proposed Sec. 30.91(a) or (b),
which would establish the standard for hardship and the indicators to
be considered in determining if a borrower is facing hardship, because
these provisions do not describe discretionary pathways for relief that
may result in costs, benefits, and transfers.
Sec. 30.91(c) Immediate Relief for Borrowers Likely To Be in Default
Should the Secretary choose to grant waivers under proposed Sec.
30.91(c), the proposed regulations would result in costs in the form of
transfers from the Department to borrowers through waiver of
outstanding debt to the Department. Waiving these amounts would
eliminate future payments by these borrowers to the Department, which
is a cost to the Federal Government and, by extension, to taxpayers.
The extent of transfers and their associated cost would vary depending
on the eligible borrower's amount of outstanding debt, loan type(s),
age of the loan, likelihood of repayment, and other factors. The
proposed regulations would also result in administrative expenses for
the Department to implement these provisions. When considering all
these factors, the Department believes that the benefits from these
proposed regulations would outweigh the costs.
Borrowers who are in default are likely to have repeated instances
of default or be in default for a protracted time. Department data show
that almost all of those who were likely to be in default in the next
two years had struggles with loan repayment in the past, as evidenced
by instances of current or prior default, or of payment delinquency.
Acknowledging past hardship recognizes that previous periods of
hardship may have current and future consequences for a borrower. For
example, a borrower who struggled to repay their loans may have seen
their balance increase in size such that full repayment of that greater
amount is no longer feasible. The likelihood of prior or persistent
repayment struggles observed in Department data is similar to that
found in other data. A Federal Reserve Bank of Philadelphia survey of
borrowers demonstrated that most of the individuals who anticipated
difficulties making loan payments after the payment pause ended also
reported making no or partial payments prior to the pandemic
forbearance.\88\ These data also suggest that there is greater
prevalence of longer-term or repeated defaults among communities with
greater shares of Black and Hispanic residents, and that student loan
default commonly co-occurs with delinquency and collections on other
types of debt, such as medical debts and utilities.\89\ These
distributional effects reflect underlying differences in income,
completion status, and other factors that correlate with student loan
struggles.\90\
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\88\ Akana, T., & Ritter, D. (2022). Expectations of Student
Loan Repayment, Forbearance, and Cancellation: Insights from Recent
Survey Data. Federal Reserve Bank of Philadelphia.
\89\ Cohn, Jason. ``Student Loan Default Patterns: What
Different Paths through Default Can Tell Us about Equitably
Supporting Borrowers.'' (November 2022). Urban Institute. See also
LaVoice, J., & Vamossy, D. F. (2024). Racial disparities in debt
collection. Journal of Banking & Finance, 164, 107208.
\90\ The Department provides this information for showing
proposed Sec. 30.91(c)'s likely effects rather than an underlying
reason for proposing such a waiver.
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In addition, many of the borrowers who might receive a waiver under
proposed Sec. 30.91(c) have been in repayment for an extended time.
For instance, based on analysis of Department data, in 2022, more than
1 million borrowers held loans that had been in default for at least 20
years. These borrowers could have been subject to negative credit
reporting, wage garnishment, tax refund offset, and even litigation. If
these loans are still outstanding after all this time, notwithstanding
the availability of those powerful collection tools, the odds that they
would be fully repaid in a reasonable period are unlikely.
Older loans are also likely to be held by older borrowers. Analysis
of Department data indicates that almost a
[[Page 87153]]
quarter of borrowers who would receive a waiver are over 55 years old.
The older the borrower, the greater the likelihood that they will stop
working prior to successful repayment. Forty-one percent of non-Parent
PLUS borrowers 62 years of age and older with an open loan have held
their student loans for more than 20 years, and 30 percent of borrowers
62 years of age and older with an open loan have held their student
loans for more than 25 years.\91\ Waiving such loans would not create
significant costs for the Government in the form of transfers because
the Department is unlikely to receive significant additional payments
from a retired borrower.
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\91\ U.S. Department of Education. Negotiated Rulemaking for
Higher Education 2023-2024 Materials for Student Loan Debt Relief
Session 2 (November 6-7, 2023): Data on Older Borrowers and Parents.
<a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/data-on-older-borrowers-and-parents-session-2.pdf">https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/data-on-older-borrowers-and-parents-session-2.pdf</a>.
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About two-thirds of borrowers who may receive a waiver received a
Pell Grant in our data, but this number is likely an underestimate
because Pell Grant status is unavailable for most borrowers who entered
repayment on their last loan before 1999.
Borrowers would receive significant benefits from no longer having
to repay loans, and the Federal Government would also see benefits from
conserved administrative costs through discontinued servicing or
collecting on loans that the Department does not expect to be repaid in
full.
As noted above, these transfers would create some costs for the
Federal government and, by extension, taxpayers. However, as discussed
above, these waivers would generally affect loans with lower expected
repayment rates (therefore have a low likelihood of generating funds
for the Federal government), and any limited lost revenue from waiving
some of the Department's worst-performing loans would likely be
outweighed by significant individual and social economic benefits to
the borrower. Specifically, the waivers proposed here would provide
borrowers facing hardship with a greater ability to avoid financial
distress, and potentially lower delinquency rates on other types of
debt, promote consumption (which can benefit the economic wellbeing of
their communities), improve access to credit, and may reduce reliance
on other forms of the Federal safety net.\92\
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\92\ See, for example, The Economics of Administration Action on
Student Debt, available at <a href="https://www.whitehouse.gov/cea/written-materials/2024/04/08/the-economics-of-administration-action-on-student-debt/">https://www.whitehouse.gov/cea/writte
[…truncated; see source link]Indexed from Federal Register on October 31, 2024.
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