FG Trade | E+ | Getty Images
The situation is still uncertain, but there are clues coming from the US Department of Education and other programs that aim to help the same group of borrowers.
Since the Supreme Court struck down President Joe Biden’s original plan to cancel up to $400 billion in student debt, his administration has sought to rework the relief package to make it legally sustainable. To do so, he sought to narrow aid by focusing on certain groups, including those with balances higher than they originally borrowed and students from schools of dubious quality.
More from personal finance:
How a seaside town helps residents age in place
What happens to your Social Security benefits when you die
62% of adults aged 50 and over have not used professional help for retirement
The U.S. Department of Education now says it will hold an additional rulemaking session on its “Plan B” for student loan forgiveness on Feb. 22 and 23, during which negotiators will focus exclusively on borrowers in financial distress.
It may be difficult to define this category.
But the department is looking for ways for people to get their debt canceled based on hardships that remain after other benefits have been exhausted, according to a source familiar with its plans.
Here’s who might be eligible.
The Department of Education has indicated that it may turn to the Student Loan Discharge in Bankruptcy Standard for guidance on how to define who is eligible for forgiveness under the hardship provision.
To get rid of student debt in bankruptcy, borrowers must typically demonstrate “undue hardship,” which contains three factors: 1) the inability to maintain a minimum standard of living, 2) the unlikelihood of seeing their financial situation change and, 3 ) a record of their good faith efforts to repay their loans.
“These standards can provide insight into the considerations that other policymakers have used to identify challenges,” the department wrote in a recent document.
Few borrowers are able to meet these requirements, said higher education expert Mark Kantrowitz: “Student loan bankruptcy relief requires very stringent standards.”
Negotiators on Biden’s revised aid program committee identified several categories that could signal difficulties. These include borrowers who received a Pell Grant or qualified for a health insurance subsidy on the Affordable Care Act marketplace.
Lawmakers also pushed the department to consider borrowers’ student debt-to-income ratios, as well as those borrowers over a certain age with limited income.
One problem: The Education Department has suggested it wants to identify eligible borrowers through easily obtainable administrative records. As a result, some hardships, including medical or child care expenses, may be difficult to address.
“They much prefer options that can be implemented using the data already available to them,” Kantrowitz said.
Currently, the department can access records from the U.S. Department of Veterans Affairs and the Social Security Administration. These agencies could potentially help him find some borrowers with disabilities and/or those living in poverty. Your data may be used to identify borrowers who have received a Pell Grant.
According to Kantrowitz, more than 90 percent of Pell Grant recipients in 2015-2016 came from families with a household income of less than $60,000. More than 6 million college students received scholarships in 2020.
The Education Department could obtain data from the U.S. Department of Health and Human Services to identify those who received a health benefit, Kantrowitz said.
Meanwhile, the government’s collection practices with student loan borrowers, including garnishing wages and Social Security benefits, are another area under review, according to the source familiar with its plans. Consumer advocates have said these measures are extreme and punish people already struggling.
The Department of Education recently made it easier for struggling borrowers to get their student loans discharged from bankruptcy court. Previously, it was difficult, if not impossible, for people to pay off their educational debt under a normal bankruptcy process.
Don’t miss these stories from CNBC PRO: