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, 87130-87163 [2024-25067]
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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
Office of Postsecondary
Education, Department of Education.
ACTION: Notice of proposed rulemaking.
AGENCY:
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 Regulations.gov. Information
on using Regulations.gov, 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
Regulations.gov, please contact
regulationshelpdesk@gsa.gov 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
Regulations.gov. 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
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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 Regulations.gov 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 Regulations.gov 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:
NegRegNPRMHelp@ed.gov.
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 https://
www.regulations.gov/docket/ED-2023OPE-0123. 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
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
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proposed rule, the Department would
specify how the Secretary would
exercise discretionary authority to grant
waivers using the following standard:
the Secretary would determine that a
borrower is experiencing or has
experienced hardship related to the
loan: (1) that is likely to impair the
borrower’s ability to fully repay the
Federal government, or (2) that renders
the costs of enforcing the full amount of
the debt not justified by the expected
benefits of continued collection of the
entire debt (proposed § 30.91(a)).
The proposed regulations would then
provide a non-exhaustive list of factors
the Secretary may consider in deciding
whether to grant relief (proposed
§ 30.91(b)). Then, proposed § 30.91(c)
would provide a process by which the
Secretary may grant individualized
automatic relief through a predictive
assessment based on the factors in
proposed § 30.91(b). Should the
Secretary choose to exercise such
discretion, proposed § 30.91(c) would
provide immediate, one-time relief as
soon as practicable. And, proposed
§ 30.91(d) would provide a primarily
application-based process by which the
Secretary may provide additional relief
on an on-going basis.
The proposed regulations describe
two different pathways that the
Secretary could take to exercise
discretion to grant a waiver in instances
where the borrower meets the hardship
standard in proposed § 30.91(a). We
describe those pathways in greater
detail in the preamble below to assist
the public in understanding how the
proposed regulations would operate and
to clarify terminology to guide such a
discussion.
The first pathway would be a
‘‘predictive assessment,’’ pursuant to
proposed § 30.91(c), under which the
Secretary would consider information in
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 Department’s possession to
determine whether the borrower meets
the proposed standard for hardship in
§ 30.91(a) such that their loans are at
least 80 percent likely to be in default
within the next two years. The
Department would make a predictive
assessment that considers factors
indicating hardship (described in
proposed § 30.91(b)) and may, in the
Secretary’s discretion, then provide
immediate relief by granting waivers to
eligible borrowers, without requiring
any action by those borrowers to seek
that relief.
The second pathway, which is under
proposed § 30.91(d), would be a
determination based on a ‘‘holistic
assessment’’ of the borrower’s
circumstances (based on the factors in
proposed § 30.91(b)) that meets the
proposed hardship standard for waiver
specified in proposed § 30.91(a). This
assessment would focus on borrowers
who are not otherwise eligible for the
immediate relief under proposed
§ 30.91(c) and who are not eligible for
relief sufficient to redress their
hardships through other Department
programs supporting student loan
borrowers. Under this pathway for
relief, the Department would conduct a
holistic assessment of the borrower’s
hardship based on information about
the borrower’s experience with the
factors in proposed § 30.91(b) obtained
through an application or based on
information already within the
Department’s possession, or a
combination of the above. A borrower
would be eligible for relief if, based on
the Department’s holistic assessment,
the Department determines that the
borrower is highly likely to be in default
or experience similarly severe negative
and persistent circumstances, and other
options for payment relief would not
sufficiently address the borrower’s
persistent hardship.
The two pathways for relief described
above, namely the immediate relief in
proposed § 30.91(c) and the additional
relief in proposed § 30.91(d), would
operate separately and distinctly from
each other and would therefore be fully
severable. Because these proposed
regulations only concern waivers due to
hardship, these proposed hardship
waivers would therefore also be separate
and distinct from other proposed rules
related to waivers of Federal student
loan debt.2
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
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Summary of This Regulatory Action
These proposed regulations would
add a new § 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.
Costs and Benefits: As further detailed
in the Regulatory Impact Analysis (RIA),
the proposed regulations would have
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
§ 30.91(c), the Secretary could provide
individualized automatic relief through a predictive
assessment based on certain factors. Under
proposed § 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.
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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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):
• Be concise but support your claims.
• Explain your views as clearly as
possible and avoid using profanity.
• Refer to specific sections and
subsections of the proposed regulations
throughout your comments, particularly
in any headings that are used to
organize your submission.
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• 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.
• Where you disagree with the
proposed regulatory text, suggest
alternatives, including regulatory
language, and your rationale for the
alternative suggestion.
• 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.
• 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 Regulations.gov. 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
Regulations.gov. 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
§ 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.
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Comments that are submitted after the
comment period closes will not be
posted to Regulations.gov or addressed
in the NFR.
Comments containing personal threats
will not be posted to Regulations.gov
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
Regulations.gov.
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 § 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 § 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 § 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
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invites feedback from the public on
what circumstances constitute similarly
severe negative and persistent
circumstances that are comparable to
default.
4. Under proposed § 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 § 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 decisionmaking, 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 § 30.91(d), would
a borrower who is eligible for a $0
monthly payment under an incomedriven repayment plan meet the
standard for relief in proposed
§ 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
§ 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
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proposed § 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.
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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.
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 welldocumented benefits to communities
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.
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.
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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
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
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
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.
7 See 20 U.S.C. 1087e(e) and 20 U.S.C. 1098e.
8 See, for example, this US Government
Accountability Office (GAO) report that
demonstrates higher rates of debt among older
Americans, https://www.gao.gov/products/gao-21170. For a discussion of how medical costs account
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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.
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
for a larger share of expenditures among older
individuals also see, Banks, James, Richard
Blundell, Peter Levell, and James P. Smith. ‘‘Lifecycle 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.
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).
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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.
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.
The Department’s waiver authority
operates within the context of the HEA’s
text, structure, and goals, and the wellestablished principles that govern debt
collection and waiver more broadly.
10 https://www.merriam-webster.com/dictionary/
benefit.
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).
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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
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 § 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
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.
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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 § 30.91(c); (ii) a
pathway for ‘‘additional relief’’ using a
holistic assessment in proposed
§ 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
§ 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 § 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 § 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
§ 30.91(b). The Secretary then could
choose to exercise discretion to grant
‘‘immediate relief’’ to borrowers who
qualify under proposed § 30.91(c).
Under the second pathway for relief,
described in proposed § 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 § 30.91(b). The
Department interprets the hardship
required for relief under proposed
§ 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 § 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
14 Borrowers who may be included in this model
are those who have at least one federally held loan
that has entered repayment.
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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
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.
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
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:
https://www2.ed.gov/policy/highered/
reg/hearulemaking/2023/.
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.
15 See
16 88
HEA section 432(a)(6).
FR 43069 (July 6, 2023).
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, nonFederal 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 Regulations.gov,
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 https://
www2.ed.gov/policy/highered/reg/
hearulemaking/2023/.
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The Committee included the
following members, representing their
respective constituencies:
• Civil Rights Organizations: Wisdom
Cole, NAACP, and India Heckstall
(alternate), Center for Law and Social
Policy.
• 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.
• 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.
• 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.
• 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.
• Private Nonprofit Institutions of
Higher Education: Angelika Williams,
University of San Francisco, and Susan
Teerink (alternate), Marquette
University.
• Proprietary Institutions: Kathleen
Dwyer, Galen College of Nursing, and
Belen Gonzalez (alternate), Mech-Tech
College.
• 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.
• Federal Family Education Loan
(FFEL) Lenders, Servicers, or Guaranty
Agencies: Scott Buchanan, Student Loan
Servicing Alliance, and Benjamin Lee
(alternate), Ascendium Education
Solutions, Inc.
• Student Loan Borrowers Who
Attended Programs of Two Years or
Less: Ashley Pizzuti, San Joaquin Delta
College, and David Ramirez (alternate),
Pasadena City College.
• Student Loan Borrowers Who
Attended Four-Year Programs: Sherrie
Gammage, The University of New
Orleans, and Sarah Christa Butts
(alternate), University of Maryland.
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• 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.
• Currently Enrolled Postsecondary
Education Students: Jada Sanford,
Stephen F. Austin University, and
Jordan Nellums (alternate), University of
Texas.
• Consumer Advocacy Organizations:
Jessica Ranucci, New York Legal
Assistance Group, and Ed Boltz
(alternate), Law Offices of John T.
Orcutt, P.C.
• Individuals with Disabilities or
Organizations Representing Them: John
Whitelaw, Community Legal Aid
Society Inc., and Waukecha Wilkerson
(alternate), Sacramento State University.
• 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.
• 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.
On February 2, 2024, the Department
published a document in the Federal
Register 19 announcing a fourth session
of Committee negotiations on February
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.
19 89 FR 7317 (February 2, 2024).
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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:
• Civil Rights Organizations: Wisdom
Cole, NAACP.
• 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.
• 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.
• State Attorneys General: Yael
Shavit, Office of the Massachusetts
Attorney General.
• Public Institutions of Higher
Education, Including Two-Year and
Four-Year Institutions: Melissa Kunes,
The Pennsylvania State University.
• Private Nonprofit Institutions of
Higher Education: Angelika Williams,
University of San Francisco, and Susan
Teerink (alternate), Marquette
University.
• Proprietary Institutions: Kathleen
Dwyer, Galen College of Nursing, and
Belen Gonzalez (alternate), Mech-Tech
College.
• 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.
• Federal Family Education Loan
(FFEL) Lenders, Servicers, or Guaranty
Agencies: Scott Buchanan, Student Loan
Servicing Alliance.
• Student Loan Borrowers Who
Attended Programs of Two Years or
Less: Ashley Pizzuti, San Joaquin Delta
College.
• Student Loan Borrowers Who
Attended Four-Year Programs: Sarah
Christa Butts (alternate who served as
primary), University of Maryland.
• 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.
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• Currently Enrolled Postsecondary
Education Students: Jordan Nellums
(alternate who served as primary),
University of Texas.
• Consumer Advocacy Organizations:
Jessica Ranucci, New York Legal
Assistance Group, and Ed Boltz
(alternate), Law Offices of John T.
Orcutt, P.C.
• Individuals with Disabilities or
Organizations Representing Them: John
Whitelaw, Community Legal Aid
Society Inc.
• U.S. Military Service Members,
Veterans, or Groups Representing Them:
Vincent Andrews, Veteran.
• 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: https://
www2.ed.gov/policy/highered/reg/
hearulemaking/2023/final-session-4summary-2-27-24.pdf.
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: https://www2.ed.gov/policy/
highered/reg/hearulemaking/2023/
index.html.
Summary of Proposed Changes
These proposed regulations would
add § 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
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applicable), the new proposed
regulatory text, and the reasons why we
proposed to add new regulatory text or
revise the existing regulatory text.
§ 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
Current Regulations: None.
Proposed Regulations: Under
proposed § 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 § 30.91(a) sets
forth the purpose of proposed § 30.91. It
clarifies both the types of Federal loans
that could be considered for waiver
under proposed § 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 § 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
20 See
20 U.S.C. 1087hh(2).
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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
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87137
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 nonfinancial 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
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
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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.
Proposed § 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 § 30.91(a)
should be understood in the context of
the standards for relief described in the
discussion of proposed § 30.91(c) and
§ 30.91(d). If the Secretary determined
that a borrower is eligible for relief
under proposed § 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
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.
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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.
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
22 See, e.g., 81 FR 75926 (Nov. 1, 2016) and 84
FR 49788 (Sept. 23, 2019).
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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.
§ 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
Current Regulations: None.
Proposed Regulations: Proposed
§ 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:
• Household income;
• Assets;
• Type of loans and total debt
balances owed for loans described in
proposed 30.91(a), including those not
owed to the Department;
• Current repayment status and other
repayment history information;
• Student loan total debt balances
and required payments, relative to
household income;
• Total debt balances and required
payments, relative to household income;
• Receipt of a Pell Grant and other
information from the Free Application
for Federal Student Aid (FAFSA) form;
• Type and level of institution
attended;
• Typical student outcomes
associated with a program or programs
attended;
• Whether the borrower has
completed any postsecondary certificate
or degree program for which the
borrower received title IV, HEA
financial assistance;
23 See
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• Age;
• Disability;
• Age of the borrower’s loan based
upon first disbursement, or the
disbursement of loans repaid by a
consolidation loan;
• Receipt of means-tested public
benefits;
• High-cost burdens for essential
expenses, such as healthcare,
caretaking, and housing;
• The extent to which hardship is
likely to persist; and
• Any other indicators of hardship
identified by the Secretary.
Reasons: The Department proposes
this non-exhaustive list in proposed
§ 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 § 30.91(b)(17),
to preserve the Department’s flexibility
to address unanticipated factors that
affect specific borrowers. Although the
list in proposed § 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 § 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 § 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 § 30.91(c) or § 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 § 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
§ 30.91(b) fall into several different
groups, which in turn would inform
how the factor could help demonstrate
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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 § 30.91(b)
and ‘‘indicators’’ is used in the
regulatory text of proposed § 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 § 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
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.
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87139
rates, as compared to borrowers who
reported higher incomes or who
reported stable earnings.25
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 § 30.91(a) is met.
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 meanstested 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
25 Takti-Laryea, Ama and Phillip Oliff. ‘‘Who
Experiences Default?’’ Pew Charitable Trusts.
March 1, 2024. https://www.pewtrusts.org/en/
research-and-analysis/data-visualizations/2024/
who-experiences-default.
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.
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payments on their loans or having
defaulted on a debt.28
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
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
28 Blagg, Kristin. ‘‘The Demographics of IncomeDriven Student Loan Repayment.’’ February 26,
2018. Urban Institute. https://www.urban.org/
urban-wire/demographics-income-driven-studentloan-repayment. Takti-Laryea, Ama and Phillip
Oliff. ‘‘Who Experiences Default?’’ Pew Charitable
Trusts. March 1, 2024. https://www.pewtrusts.org/
en/research-and-analysis/data-visualizations/2024/
who-experiences-default.
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.
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
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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
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.
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.
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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
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.
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-toincome 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
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.
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.
38 Scott-Clayton, Judith. ‘‘What accounts for gaps
in student loan default, and what happens after.’’
(2018). Brookings.
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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.
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
The proposed factor in § 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
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.
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).
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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 highcost 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.
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
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
§ 30.91(a).
Experience repaying student loans
(factors 4 and 13). Another category of
proposed factors relates to information
about the borrower’s experience
42 See,
e.g., 31 CFR 902.2(g).
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.
46 Monarrez, Tomás, and Dubravka Ritter.
‘‘Resetting Wallets: Survey Evidence on Household
Budget Adjustments with Student Loan Payments
Resumption.’’ (2024): 1–19.
43 Pew
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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
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
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.’’ https://
studentaid.gov/manage-loans/repayment/plans/
standard.
49 U.S. Department of Education, National Center
for Education Statistics, Beginning Postsecondary
Students: 1996/2001 (BPS). https://nces.ed.gov/
datalab/powerstats/table/nsqptw.
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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
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 § 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 § 30.91(d), the Department would
also take measures that prevent strategic
maneuvers to qualify for waiver. First,
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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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
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.
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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
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
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.
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.
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medical condition was relatively
common.58
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
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
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.
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. https://www.pewtrusts.org/en/
research-and-analysis/data-visualizations/2024/
who-experiences-default.
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.
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borrower satisfies the hardship standard
in proposed § 30.91(a).
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 § 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
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
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.
66 Mezza, Alvaro A. and Kamila Sommer. ‘‘A
trillion dollar question: What predicts student loan
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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.
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
delinquencies?’’ Finance and Economics Discussion
Series 2015–098 (2015). Washington: Board of
Governors of the Federal Reserve System.
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).
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, NonCompletion, Student Debt, and Financial WellBeing: Evidence from the Survey of Household
Economics and Decisionmaking (August, 2023).
FEDS Notes No. 2023–08–21.
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to the Secretary’s determination of
whether the borrower is experiencing or
has experienced hardship that meets the
eligibility requirements.
Other factors (factors 16 and 17). In
addition to the proposed factors
discussed above, the Department
proposes to include § 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 § 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 § 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 § 30.91(b), under
both a predictive assessment of the
factors (under proposed § 30.91(c)) and
a holistic assessment of the factors
(under proposed § 30.91(d)), the
Secretary would engage in a factspecific 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.
§ 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
Current Regulations: None.
71 See
20 U.S.C. 1087hh(2).
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Proposed Regulations: Proposed
§ 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
§ 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 § 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
§ 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 § 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.
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
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. https://www.pewtrusts.org/en/
research-and-analysis/data-visualizations/2024/
who-experiences-default.
73 Federal Student Aid, U.S. Department of
Education. ’’ Student Loan Delinquency and
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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 § 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.
Using a predictive assessment of the
factors in proposed § 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 § 30.91(b) that
correlate with default rates, such as
borrowers’ current repayment status and
other repayment history, noncompletion 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.
Default.’’ https://studentaid.gov/manage-loans/
default.
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).
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If the Secretary exercises discretion
under proposed § 30.91(c), the
Secretary’s grant of waivers under
proposed § 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 § 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
§ 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 § 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
§ 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.
The Department proposes to limit this
waiver provision to borrowers who are
highly likely to be in default in the near
term. Therefore, proposed § 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
76 See https://studentaid.gov/announcementsevents/default-fresh-start.
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.
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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 § 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
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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 twoyear 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 § 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
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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 § 30.91(a) when granting
relief under proposed § 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 § 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 § 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 § 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.
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TABLE 1—PROPOSED MODEL INPUTS
(‘‘PREDICTORS’’)—Continued
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
§ 30.91(a) based on 80 percent
likelihood of being in default (as
described in proposed § 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 Departmentheld 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
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would meet the hardship standard in
proposed § 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
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
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.
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.,
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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.
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 § 30.91(a) and therefore
qualifies for a waiver under proposed
§ 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
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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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.
§ 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
Current Regulations: None.
Proposed Regulations: Proposed
§ 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 § 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 § 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 § 30.91(d) operates
fully independently and separately from
proposed § 30.91(c) and would therefore
be fully severable.
The Department intends the
‘‘hardship’’ necessary to trigger relief
under proposed § 30.91(d) to be a
substantial harm. The Department
interprets the hardship required for
relief under proposed § 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
80 See
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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 § 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 § 30.91(b).
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 shortterm 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
81 The Department recognizes that the relief in
proposed § 30.91(d) would include a determination
that other payment relief options are not sufficient,
but the relief under proposed § 30.91(c) would not
include such a determination. The Department does
not think such a determination is necessary for the
relief under proposed § 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 § 30.91(c)
because borrowers would have little to no ability to
influence the results under proposed § 30.91(c) with
strategic non-payment.
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HEA. For the purposes of proposed
§ 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.
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
§ 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 § 30.91(c).
For proposed § 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
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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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 § 30.91(d). In cases
where a borrower who could find
sufficient relief from hardship through
an IDR plan applies for relief under
proposed § 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 § 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 § 30.91(d). These
requirements would advance the goal of
the proposed regulations and apply the
standard of proposed § 30.91(a),
providing relief in cases of genuine
hardship.
Moreover, should the Secretary
choose to exercise authority under these
regulations, proposed § 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 § 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 § 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 § 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
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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 onebedroom 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 § 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 § 30.91(d)
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is met.83 The Department interprets the
word ‘‘automated’’ as used in proposed
§ 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
§ 30.91(c) in order to provide relief
under proposed § 30.91(d). A borrower
could only receive a waiver without an
application under proposed § 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.
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
§ 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 § 30.91(d) without an
application because, at the time of
preparing this NPRM, the Department
does not currently have sufficient data
83 The Department recognizes that determining
eligibility for relief under proposed § 30.91(c) relies
on data already in the Department’s possession.
However, as explained elsewhere, proposed
§ 30.91(c) and proposed § 30.91(d) are designed to
address different challenges and accordingly have
different eligibility criteria as described in this
NPRM. Proposed § 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 § 30.91(d) is meant
to provide ongoing relief to borrowers on a goingforward 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 § 30.91(d).
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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 § 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
§ 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 § 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;
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(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
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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.
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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
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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 § 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 § 30.91(d)).
For the immediate relief described in
proposed § 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 § 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.
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Further, this predictive assessment
under proposed § 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 § 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 § 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 § 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.
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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
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
87151
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
section
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Provision
Description of proposed provision
Standard for waiver due to likely impairment of borrower ability to fully repay
or undue costs of collection.
§ 30.91(a)
Factors that substantiate hardship ...........
§ 30.91(b)
Immediate relief for borrowers likely to
default.
§ 30.91(c)
Process for additional relief ......................
§ 30.91(d)
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 § 30.91(c). It would also
depend on the number of borrowers
who are approved for waivers under
proposed § 30.91(d). The Department
believes that these transfers would
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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Provides that the Secretary may waive up to the outstanding 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.
Provides a non-exclusive list of factors the Secretary could consider in determining
whether a borrower meets the standard for waiver based on hardship.
Provides that the Secretary may consider the borrower’s factors indicating hardship
described in proposed § 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.
Provides that the 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.
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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.
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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 § 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 Departmentheld 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.
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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 § 30.91(c)’s pathway for
‘‘immediate relief’’ and proposed
§ 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 § 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.
§ 30.91(c) Immediate Relief for
Borrowers Likely To Be in Default
Should the Secretary choose to grant
waivers under proposed § 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
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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
In addition, many of the borrowers
who might receive a waiver under
proposed § 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
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 § 30.91(c)’s likely effects rather
than an underlying reason for proposing such a
waiver.
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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.
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
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. https://www2.ed.gov/policy/highered/
reg/hearulemaking/2023/data-on-older-borrowersand-parents-session-2.pdf.
92 See, for example, The Economics of
Administration Action on Student Debt, available at
https://www.whitehouse.gov/cea/written-materials/
2024/04/08/the-economics-of-administrationaction-on-student-debt/.
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To estimate the number of borrowers
we would expect to be eligible for relief
under proposed § 30.91(c), we followed
the process described for implementing
proposed § 30.91(c) above, where we
used predictors that correspond to the
17 factors described in proposed
§ 30.91(b) to predict whether borrowers
were at least 80 percent likely to be in
default on a student loan in any quarter
for the subsequent two years after the
NPRM’s publication. For the purposes
of the NPRM, we used a 5 percent
sample of Department-held loans as of
April 2024.
Should the Secretary choose to
exercise authority under these
regulations, we estimate that
approximately 6.0 million borrowers
would be eligible to receive relief under
proposed § 30.91(c). This estimate is
based on output of the proposed model
developed to estimate the likelihood
that a borrower would have been in
default within two years.
The estimate of borrowers who may
receive waivers under this provision
uses data as of April 30, 2024, and
calculates the two-year measurement
window as of April 30, 2024. The
Department chose April 30, 2024,
because it was the most recent
comprehensive dataset available to the
Department at the time that the
Department was developing the
proposed model for this NPRM. The
borrower portfolio may change between
April 2024 and the publication of the
NPRM, both in terms of its composition
(i.e., which borrowers are in the
portfolio) and in the borrowers’
circumstances (e.g., the loans held by
borrowers and outstanding debt amount
may change between April 30, 2024 and
the publication of the NPRM). It is not
clear what the substantive effects of
such changes would be, as they could
drive the model’s outcomes in different
directions. Estimates presented in the
NPRM also do not include potential
overlap with relief that would be
provided by any proposed rules that are
not yet final as of the publication of this
NPRM, or of waivers through other
provisions that were not yet
implemented as of April 30, 2024.
§ 30.91(d) Process for Additional Relief
Borrowers would benefit from any
waivers granted by the Secretary under
proposed § 30.91(d)’s pathway for
additional relief based upon a holistic
assessment of information already in the
Secretary’s possession or submitted by
the borrower through an application
Di Maggio, M., Kalda, A., & Yao, V. (2019).
Second chance: Life without student debt (No.
w25810). National Bureau of Economic Research.
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process, or both in conjunction, to
determine whether: (i) the borrower is
highly likely to be in default or to
experience similarly severe and
persistent negative circumstances, and
(ii) other payment relief options would
not sufficiently address the borrower’s
persistent hardship. As further
described in this NPRM’s preamble,
such waivers would address challenges
that these borrowers face while trying to
repay their loans. While this approach
would provide overall financial
benefits, the specific benefits for
borrowers who receive a waiver would
vary depending on the nature of their
qualifying hardship. Waivers granted
under proposed § 30.91(d) would also
create administrative costs for the
Department to implement, which are
discussed at the end of this subsection
of the RIA.
Consider several examples of
borrowers who may receive waivers
based on a holistic assessment of the
factors in proposed § 30.91(b). For
example, a borrower whose qualifying
hardship is a result of advanced age,
having an old loan, and no longer
working would benefit from no longer
having to manage a loan payment in
their final years of life. If they were in
default, they could also potentially see
an increase in the total amount of Social
Security benefits they could retain since
they would not be at risk of having
amounts offset. By comparison, a
borrower who is facing hardship due to
having extensive expenses caring for an
elderly relative could also accrue
benefits, but in a different form, such as
being able to better afford necessary care
for that individual, including
potentially paying for better services for
that relative. Since the precise facts that
support waiver under proposed
§ 30.91(d) would vary across individual
borrowers’ circumstances based on a
holistic assessment of their factors in
proposed § 30.91(b), the specific
benefits of waiver would vary. But in
general, to the extent that the hardship
results in the borrower being
overburdened by necessary expenses,
the waiver would help a borrower better
afford those expenses while maintaining
basic financial security and also greatly
reduce or eliminate their risk of
experiencing the substantial harms of
default, or other similarly severe
negative and persistent circumstances.
Waivers granted under proposed
§ 30.91(d) would create costs to the
government in the form of transfers to
student loan borrowers. These costs
would also accrue to taxpayers.
However, we believe the benefits would
exceed these costs. As discussed, the
Secretary may provide a waiver under
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proposed § 30.91(d) only after
determining: (i) the borrower has
experienced, or is experiencing,
hardship such that the borrower is
highly likely to be in default or to
experience similarly severe and
persistent negative circumstances, and
(ii) other payment relief options do not
sufficiently address the borrower’s
persistent hardship. Therefore,
borrowers who may receive waivers are
those with lower-than-expected
repayments who are highly likely to
struggle with repaying their loans. By
contrast, as described above, the
benefits to borrowers could be
significant. And such waivers could
provide benefits to the government as
well. The Department would no longer
pay to collect on or service loans that
are highly unlikely to be repaid. And to
the extent borrowers are facing hardship
while receiving other Federal benefits,
such as Social Security, no longer
having those amounts at risk of being
offset would allow broader Federal
benefits to better achieve their intended
purposes, such as keeping senior
citizens out of poverty.
Estimating the number of borrowers
who could, at the Secretary’s discretion,
be approved for relief under proposed
§ 30.91(d) depends on assumptions
about: (1) the number of borrowers who
have characteristics that are likely to
make them eligible for relief based on
the Department’s holistic assessment of
their circumstances, and (2) the share of
borrowers who are potentially eligible
who would actually apply. At the end
of this section, to inform the estimates
of administrative costs, we discuss
further assumptions about the number
of borrowers who would apply, but who
we would expect would not be
approved for discretionary relief. In the
sections below, we describe the
information the Department considered
to reach estimates used in this NPRM.
Recognizing data limitations and that
there are no perfect historical analogs
that could inform estimates with perfect
precision, we included a directed
question that solicits feedback and input
from the public about other data or
information that could be used to
improve and refine estimates.
First, we consulted available
Department data on borrowers and
national survey data related to student
debt holders to inform the number of
borrowers who have characteristics that
are likely to make them eligible for relief
based on the Department’s holistic
assessment of their circumstances.
These borrowers would need to have
indicators that show they are highly
likely to be in default or experience
similarly severe negative and persistent
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circumstances, that would not be
sufficiently addressed by other options
for payment relief. In addition, the
Department anticipates that proposed
§ 30.91(c) would, at the Secretary’s
discretion, be implemented first and
that such relief would likely be
sufficient to address the hardship of a
borrower who receives such relief.
Therefore, because we do not want to
double count borrowers, the estimate for
proposed § 30.91(d) discussed below
does not include borrowers who would
be expected to receive full relief under
proposed § 30.91(c).
As a starting point the Department
consulted economic studies of
individuals experiencing poverty. We
believe estimates of persistent poverty
provide an important perspective on
borrowers who may have enduring
negative economic conditions, even if it
is not the perfect comparison. Poverty
by itself may not lead to relief under
proposed § 30.91(d), but people in
poverty often face challenges such as
not being able to afford necessary
expenses. In addition, other available
payment relief options might address
episodic spells of poverty. As described
earlier, the Department expects that a
borrower would need to have indicators
showing a high likelihood of persistent
hardship rather than a short-term
hardship to receive relief under this
provision. On the other hand, it is also
possible that borrowers could be facing
persistent hardship and receive relief,
even if they are not considered in
poverty. Even acknowledging these
limitations, we believe estimates of
persistent poverty are a reasonable
consideration for estimates under
proposed § 30.91(d).
Studies suggest that a meaningful, but
small, share of the population
experience persistent poverty, defined
in many studies as having an income
below the Federal Poverty Level. For
example, longitudinal studies of
families experiencing poverty, using the
Panel Study of Income Dynamics
suggest that between about 3 to 5
percent of adults are exposed to
instances of poverty that last five years
or more across their adult lifetimes.93
93 Other estimates suggest a rate of 10 to 15
percent over three years, and that rates can vary by
education level, age, and other characteristics. See,
for a review, Cellini, S.R., McKernan, S.M., &
Ratcliffe, C. (2008). The dynamics of poverty in the
United States: A review of data, methods, and
findings. Journal of Policy Analysis and
Management: The Journal of the Association for
Public Policy Analysis and Management, 27(3),
577–605, as well as evidence from Sandoval, D.A.,
Rank, M.R., & Hirschl, T.A. (2009). The increasing
risk of poverty across the American life course.
Demography, 46, 717–737. and from Hoynes, H.W.,
Page, M.E., & Stevens, A.H. (2006). Poverty in
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Therefore, if we applied the persistent
poverty rate of 3 percent to 5 percent to
the number of ED-managed borrowers in
the current portfolio, we might expect
somewhere between 1 and 2 million
borrowers in the current portfolio to
experience persistent economic
hardship at some point in their
adulthood that would meet the
eligibility requirements under
§ 30.91(d).
This range of 1 to 2 million borrowers
from the current portfolio is
corroborated through other data sources.
In Department data, as of December
2023, there were about 9 million
borrowers who were recorded as past
due in their payments.94 Solely being
behind on student loan payments would
not lead to eligibility for a waiver under
§ 30.91(d). Therefore, the Department
also reviewed information that was
reported in the Federal Reserve Board’s
Survey of Household Economics and
Decisionmaking (SHED).95 The SHED
provides information about borrowers
and their personal finances, and
indicates whether borrowers who were
behind on student loan payments also
reported some other condition that
could indicate hardship, such as being
unemployed or underemployed due to a
health or medical limitation or a
disability or living with parents or adult
children to provide help with child or
medical care.96 Those data indicate that
about 13 to 25 percent of borrowers who
are behind on student loan payments
also reported one of these other
indicators. Applying those percentages
to the current portfolio of borrowers
implies that between 1 to 2 million
borrowers may be experiencing some
America: Trends and Explanations. The Journal of
Economic Perspectives, 20(1), 47–68. https://
www.jstor.org/stable/30033633.
94 https://blog.ed.gov/2024/04/an-update-on-thefirst-months-of-the-return-to-repayment/. This does
not include borrowers in default. This figure is
likely to be a high-water mark, given the challenges
and policy context of returning to repayment after
the pandemic, and would be expected to decline in
the future.
95 For the analyses of SHED data, we stacked five
years of SHED surveys (2018 to 2022) and used
survey weights. We include data only for those who
report student debt but are not currently enrolled
in school. The SHED data likely undercounts
borrowers who only hold Parent PLUS loans, and
the survey does not distinguish between Federal
student loans specifically and other types of student
loans.
96 In the SHED survey, roughly 18 percent of
those with education debt indicated being behind
on payments. Among all borrowers who are behind
on student payments, about 25 percent of borrowers
report being unemployed or underemployed due to
a health or medical limitation or a disability, and
13 percent of borrowers live with parents or adult
children to provide help with child or medical care.
These forms of hardship are indicative of the types
of circumstances that may make borrowers eligible
to apply for a waiver under § 30.91(d).
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substantial economic hardship and
report being behind on payments. We
would expect that borrowers reporting a
greater number of economic challenges
in survey data might be more indicative
of the type of hardship that would
qualify for a waiver under § 30.91(d). In
the SHED data, about 40 percent of the
student loan borrowers who are behind
on payments experience both conditions
described above, which would imply an
estimate of the number of borrowers in
the current portfolio in the range of 0.4
to 0.8 million borrowers. These ranges
are based on a single point in time.
Under § 30.91(d), borrowers would need
to face hardship consistently in order
qualify for a waiver, so estimates based
on an isolated observation likely
overestimates the number of borrowers
who are facing persistent challenges on
these factors. On the other hand, a point
in time observation would not count
borrowers who may experience
struggles in the future, even if not
showing such markers at the time of the
survey.
For our base assumptions, we take the
high end of the range suggested by
available evidence and assume that
about 2 million borrowers from the
current portfolio would potentially have
characteristics that might make them
highly likely to be in default or
experience similarly severe negative and
persistent circumstances at some point
in their remaining repayment. As we
discuss later, other payment relief
options might sufficiently address the
hardship for some of these borrowers,
not all borrowers who might be eligible
will apply for relief, and most borrowers
will not have sufficient data already in
the Department’s possession that would
be necessary for any non-applicationbased relief.
We assume a take up rate of 75
percent among the 2 million borrowers
from the current portfolio that we
estimate would be potentially eligible
for relief. This take up rate is blended
across borrowers who might meet the
standard for relief under proposed
§ 30.91(d), described above, based on
the Department conducting holistic
assessments that may either rely on data
already in the Secretary’s possession,
data submitted by the borrower through
an application, or a combination of
both. This borrower estimate assumes
that, as noted above, the Department
would need to expand or refine data
elements in the future to provide relief
to borrowers under proposed § 30.91(d)
without an application because, at the
time of preparing this NPRM, the
Department does not have sufficient
data available to determine whether a
borrower meets the eligibility standard.
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Borrowers for whom the Department
possesses sufficient information to
conduct the holistic review without data
acquired from an application would not
need to apply (implying a take up rate
of 100 percent), but the Department
anticipates that the number of such
borrowers based on future data matches
or data collections would be small.
Ample evidence suggests that borrowers
do not always apply for benefits for
which they are eligible for many
reasons, including because of the
burden associated with application and
lack of knowledge about the benefits.
Evidence from other settings—none
being perfect analogies—including from
SNAP, the Earned Income Tax Credit
(EITC), and Unemployment Insurance,
suggest a range of take-up rates that
differ across benefit amounts, salience,
and eligible populations.97 Many of the
programs with high take-up rates, such
as SNAP and EITC, which have take-up
rates at or above 80 percent, are well
known and have been around for a long
time, and some programs have
infrastructures that help beneficiaries
apply. Other researchers have reported
take up of Unemployment Insurance of
42 percent to 55 percent.98 There are
reasons to believe that the take-up rate
for forgiveness proposed under
§ 30.91(d) could be lower than those for
SNAP or EITC, since this would be a
new program, benefits would be
uncertain, and many borrowers do not
engage with student loan programs that
can be beneficial to them. In sensitivity
analyses below, we assume a lower takeup rate.
We also assume that about one-third
of these remaining borrowers would
benefit from other payment relief
options that could sufficiently address
their hardship. Some estimates suggest
that payment relief options available
from the Department can benefit large
swaths of borrowers; 99 however, not all
borrowers who benefit from existing
97 See, e.g., U.S. Government Accountability
Office. College Closures: Many Impacted Borrowers
Struggled Despite Being Financially Eligible for
Loan Discharges. (September 2021). Accessed at
https://www.gao.gov/products/gao-21-105373. See
the review in Ko & Moffit (2022). Take-up of Social
Benefits. NBER Working Paper 30148. Also see
various articles in ‘‘Administrative Burdens and
Inequality in Policy Implementation’’ Part I and
Part II in RSF: The Russell Sage Foundation Journal
of the Social Sciences, volume 9, issues 4 and 5,
2023 and Currie, Janet (2006). The Take-up of
Social Benefits. In Public Policy and the Income
Distribution. Russell Sage Foundation. Herd &
Moynihan (2018). Administrative Burdens.
98 Kuka and Stuart (2022). Racial Inequality in
Unemployment Insurance Receipt and Take Up.
NBER Working Paper 29595.
99 For example, see https://
budgetmodel.wharton.upenn.edu/issues/2023/7/17/
income-driven-repayment-modeling-take-up-rates.
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payment relief options will have their
hardship sufficiently addressed.
This leads to an estimate of 1 million
borrowers, or about 2.5 percent of the
current portfolio, who we expect could,
at the Secretary’s discretion, be
approved for relief under proposed
§ 30.91(d) in the period after this
regulation is implemented and
throughout the remainder of the
borrowers’ repayment periods. We also
estimate that an additional 1 million
borrowers who could, at the Secretary’s
discretion, be approved among the next
10 cohorts of borrowers. To arrive at
estimates of borrowers who would be
affected in the next ten future cohorts,
we assume that 5 percent of each cohort
could, at the Secretary’s discretion, be
approved for a waiver under proposed
§ 30.91(d) at some point in their
repayment. This is double the share of
borrowers estimated in the current
portfolio because borrowers in the
current portfolio would receive waivers
on a one-time basis under proposed
§ 30.91(c), whereas borrowers in future
cohorts would not. Using an assumption
of roughly 2 million new borrowers
each year for the next ten years, this
leads to an estimate of roughly 100,000
borrowers per cohort, and 1 million
borrowers over these cohorts.
In addition to our primary estimate,
we include low and high estimates to
bound the range of reasonable possible
waivers under proposed § 30.91(d). Our
low estimate assumes that the take-up of
application-based relief is 50 percent
(instead of 75 percent), but still assumes
that one-third of eligible borrowers
benefit from other payment relief
options. This results in a total of 1.33
million borrowers who could, at the
Secretary’s discretion, be approved for
relief, 0.67 million among the current
portfolio, and 0.67 million from future
borrower cohorts. In our high estimate,
we assume a larger share of borrowers
would qualify for relief. Specifically, we
assume that 10 percent of borrowers in
the current portfolio could be approved
for a waiver under proposed § 30.91(d).
This larger share aligns with estimates
from research suggesting that 10 percent
of adults experience spells of poverty
that last at least three years, whereas the
5 percent in our base estimate was based
on five-year spells.100 Similar to our
100 Rates can vary by education level, age, and
other characteristics. See, for a review, Cellini, S.R.,
McKernan, S.M., & Ratcliffe, C. (2008). The
dynamics of poverty in the United States: A review
of data, methods, and findings. Journal of Policy
Analysis and Management: The Journal of the
Association for Public Policy Analysis and
Management, 27(3), 577–605, as well as evidence
from Sandoval, D.A., Rank, M.R., & Hirschl, T.A.
(2009). The increasing risk of poverty across the
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base case, we assume a take-up rate of
75 percent and that 1⁄3 of borrowers get
relief through another option. In this
high scenario, we estimate that 2
million borrowers in the current
portfolio, and 2 million borrowers in
future cohorts would qualify. We note
that overall estimates could be reduced
once they account for other, anticipated
regulatory actions that provide relief to
borrowers with education debt.
We also consider the possibility that
the Department could potentially use
data aligned with the factors listed in
§ 30.91(b) that was not obtained through
an application (e.g. from additional or
refined data to which the Department
has access in the future). In such
potential cases, a borrower could
receive a waiver 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 under proposed
§ 30.91(d) (e.g., the borrower must be
highly likely to be in default or
experience similarly severe and
persistent negative circumstances, and
other payment relief options would not
sufficiently address the borrower’s
persistent hardship). Such cases would
be considered rare since the data that
the Department may possess would
have to sufficiently establish eligibility,
sufficiently show that other options for
payment relief did not address the
borrower’s hardship, and sufficiently
distinguish such borrowers from
otherwise similar borrowers who would
not be deemed to qualify for relief.
We interpret the potential for such
waivers to occur on the margin of the
take-up rate that we have built into our
overall estimates. Changes to the
assumptions about the total number of
borrowers who could be approved
because of the potential for nonapplication waivers would not be due to
differences in the applicable eligibility
standard, but rather assumptions about
the precision with which various data
sources could identify borrowers who
were experiencing hardship that could
qualify under the standard for relief in
proposed § 30.91(d). Our base case
assumption includes a 75 percent takeup rate, and we believe this already
generously incorporates a high implied
take-up rate for a small share of
borrowers who might receive waivers
under proposed § 30.91(d) without an
application. However, we consider the
possibility that there could be a higher
American life course. Demography, 46, 717–737.
and from Hoynes, H.W., Page, M.E., & Stevens, A.H.
(2006). Poverty in America: Trends and
Explanations. The Journal of Economic
Perspectives, 20(1), 47–68. https://www.jstor.org/
stable/30033633.
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take-up rate, for example, 80 percent.
We also consider that a greater number
of borrowers could potentially be
approved. Assuming that 5 percent
more borrowers could be approved, and
a take-up rate of 80 percent, our primary
estimates of who would receive relief
under proposed § 30.91(d) would
increase from 1 million borrowers in the
current portfolio to about 1.1 million.
We do not formally run a new budget
scenario below with these different
assumptions, as we believe those
estimates would be below the high
scenario already discussed above.
The Department also considered how
to estimate how many applications it
would receive, and the rate at which an
application for waiver would be likely
to be approved at the Secretary’s
discretion. As with the discussion
above, there is no perfect comparison on
which to rely. However, considering
that some borrowers who are ineligible
will apply, and that for other borrowers,
other options for payment relief would
sufficiently address the borrower’s
hardship, we assume that for every
borrower who is approved at the
Secretary’s discretion, there would be
one that is rejected, i.e., we assume an
approval rate of 50 percent.
For estimating the potential
application rates, the Department
considered situations that might be
closely analogous to the applicationbased approach contemplated by
proposed § 30.91(d), whereby the
Secretary would conduct a holistic
assessment of the borrower’s factors
indicating hardship to determine if the
borrower met the standard for waiver
described in proposed § 30.91(d). We
identified few comparative situations.
Applications similar to the ones for IDR,
Public Service Loan Forgiveness, or the
prior pandemic-related student debt
relief plan under the HEROES Act were
not closely relevant for this estimation,
because they generally only involve
completing straightforward background
questions and checking certain boxes,
and there is no meaningful open
response required from the borrower. By
contrast, the Department expects that
the application for relief under
proposed § 30.91(d) would solicit a
range of qualitative and quantitative
information from the borrower to inform
the Department’s determination of
whether the borrower satisfies the
hardship standard.
We also considered using the rate of
approvals when borrowers submit
applications to use a different payment
amount when seeking to rehabilitate
their loans, but that information is not
readily tracked by the Department’s
contractor. Even if an approval rate were
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available, that form may still not be an
appropriate comparison, since it only
affects borrowers in default and those
borrowers have particular
characteristics in terms of
postsecondary completion, type of
institution, and debt balance that might
be different than the broader population
of borrowers. Another approval rate we
considered was borrower defense to
repayment. Borrower defense also is not
a perfect comparison because it tends to
have disproportionate numbers of
applications from borrowers who
attended private for-profit colleges than
might be expected to occur here, and
there are significant differences between
the factors that justify borrower defense
to repayment and the waivers proposed
here.
Unless specified otherwise in the
above discussion, estimates of
borrowers who would be eligible for
relief under proposed § 30.91(d) do not
account for potential overlap with relief
that may be provided by any other
proposed regulations that are not yet
final as of the publication of the NPRM,
or of waivers through other provisions
that were not yet implemented as of
April 30, 2024.
We invite feedback from the public
about how to refine these estimates.
Administrative Costs
The proposed regulations could result
in significant administrative costs for
the Department. These costs would be
relatively small for immediate relief
granted under proposed § 30.91(c). For
that type of relief, the Department
would expend one-time resources on
developing the predictive assessment
contemplated in proposed § 30.91(c)
that would predict the likelihood that a
borrower will be in default within two
years after the publication of these
proposed regulations. But the
Department would not need to expend
significant further resources to apply the
predictive assessment to a borrower’s
information and would not need to
expend any resources developing an
application, disseminating the
application, and reviewing and
processing the application.
For relief granted under the
application-based pathway described in
proposed § 30.91(d), however, the
Department would incur significant
costs to create, disseminate, and process
applications to complete a holistic
assessment of the information submitted
by the borrower related to hardship. The
Department would need to either
repurpose or hire additional staff for
this purpose. This would create
expenses for systems to accept and track
the status of applications as well as call-
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center staffing costs to address inquiries
related to the application process. The
degree of these costs would vary based
upon the number of applications the
Department has the capacity to process
in a year. Increasing the Department’s
capacity to holistically assess
applications would require hiring more
staff, either directly or through
subcontractors. Greater initial costs for
staff could result in lower long-term
costs, however, as we anticipate that
most borrowers who are initially
interested in the application-based
process would do so soon after such
process is available. We anticipate that
future applications would come from
newer borrowers or those with a
significant change in their
circumstances such that they have now
decided to seek a hardship waiver.
The Department has developed
estimates of the administrative costs for
the application-based pathway specified
in proposed § 30.91(d) by considering
existing analogous administrative
processes, particularly the costs related
to reviewing applications for borrower
defense to repayment. Those processes
share some similarities, particularly that
borrowers submit applications that may
reveal information and evidence that is
not otherwise available to the
Department and must be reviewed.
There are also some key differences.
First, borrower defense requires
conducting fact-finding related to an
institution. That can be a significant
upfront investment of time, but any
findings from that work can then be
applied to multiple applications.
Second, the review of borrower defense
applications is generally carried out by
attorneys. This reflects the legal
standards used for borrower defense
approvals, which often include making
determinations about the nature of
misrepresentations and meeting certain
evidentiary bars that are grounded in
concepts similar to those used by States
in their unfair and deceptive acts and
practices (UDAP) laws.
The proposed application-based
approach for hardship waivers under
proposed § 30.91(d) would be different.
First, we do not anticipate that the factfinding related to institutional conduct
would apply to the Department’s review
of applications under proposed
§ 30.91(d). Second, we do not anticipate
that the individuals reviewing hardship
applications would need to be attorneys.
That means the typical staffing cost
could be lower than it is for borrower
defense.
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Based upon these considerations, the
Department modeled the possible
administrative costs of the applicationbased pathway described in proposed
§ 30.91(d) in the following manner.
First, we assumed that the cost per hour
to review was $50. This is based on the
current hourly rate used by
subcontractors for the Office of Federal
Student Aid in the Department of
Education, which is roughly half the
hourly rate were Department staff hired
for the same process. We then assumed
that it would take each reviewer on
average 30 minutes to review an
application and render a recommended
decision to the Secretary. The 30-minute
estimate is similar to how long
Department contractors typically take to
review a form where borrowers submit
detailed income and expense
information when seeking to rehabilitate
a defaulted loan (information collection
1845–0120). We expect that some
applications would be faster while
others that include significant
additional information might take
longer. The overall administrative cost
would then depend on how many
applications the Department anticipates
receiving annually as well as how many
we anticipate being able to review in a
year. The number would also be higher
or lower depending on the number of
applications processed each year, the
total number of anticipated
applications, and the average time to
review the application. If we expect a
total of 4 million applications, at the
current hourly rate and expected review
time, the personnel costs for application
review is estimated at about $100
million. We will continue to refine these
estimates based upon comments
received from the public.
In addition to staffing costs, the
Department also anticipates incurring
some administrative costs for updating
and maintaining data systems to process
the intake of applications from
borrowers seeking hardship waivers,
staffing call centers for questions, and
costs to train system users. We estimate
this amount to be approximately $9
million in the first year, and an
additional $1.7 million each year
thereafter.
4. Net Budget Impact
Table 4.1 provides an estimate of the
net Federal budget impact of these
proposed regulations that are
summarized in Table 2.1 of this RIA.
This includes both costs of a
modification to existing loan cohorts
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87157
and costs for loan cohorts from 2025 to
2034. A cohort reflects all loans
originated in a given fiscal year.
Consistent with the requirements of the
Federal Credit Reform Act of 1990
(FCRA), budget cost estimates for the
student loan programs reflect the
estimated net present value of all future
non-administrative Federal costs
associated with a cohort of loans. The
baseline for estimating the cost of these
final regulations is the President’s
Budget for 2025 (PB2025) as modified
for changes to debt management
policies. The baseline 101 does not
include any changes related to the
student debt relief provisions described
in the NPRM published April 17,
2024.102 Should such debt relief
provisions be finalized as proposed in
the April NPRM and should the
Department provide waivers under such
provisions, the Department expects that
the estimated costs of these regulations
would decrease.
101 The Department notes that the baseline also
includes the existence of the final regulations
published in July 2023 that made various changes
to the Department’s pre-existing income contingent
repayment plan (known as the Revised Pay As You
Earn, or REPAYE, plan) and to the Department’s
other income contingent repayment plans. Those
regulations also changed the name of the REPAYE
plan to the Saving on a Valuable Education (SAVE)
plan. See 88 FR 43820. Several states have
challenged the SAVE regulations as part of ongoing
litigation. See generally Missouri v. Biden, No. 24–
2332 (8th Cir.); Alaska v. Department of Education,
Nos. 24–3089, 24–3094 (10th Cir.). Because the
SAVE regulations have not been permanently
enjoined, it is appropriate to include them in the
baseline. The Department recognizes that if the
SAVE regulations are permanently enjoined, this
could increase the estimated costs for these
regulations because there may be more borrowers
who are eligible for relief. For example, in the
absence of provisions under SAVE or other ICR
plans, the Department expects there would be more
borrowers eligible for relief under proposed
§ 30.91(d) since more borrowers would be likely to
be in default or experience similarly severe negative
and persistent circumstances, and existing payment
relief options would not sufficiently address their
persistent hardship. The Department notes that
even if the estimated costs increased in such a
manner, the Department believes the benefits of
these proposed regulations would still outweigh the
costs since the proposed regulations would
authorize providing waivers to borrowers who are
unlikely to fully repay their loans and, relatedly,
the waivers would discharge debt that the
Department is unlikely to fully collect in a
reasonable period of time.
102 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.
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TABLE 4.1—ESTIMATED NET BUDGET IMPACT OF THE NPRM FOR DIRECT LOANS AND ED-HELD LOANS
[$ in millions]
Description
§ 30.91(c) ..............................
§ 30.91(d) ..............................
Immediate relief for borrowers likely to be in default .........
Application-based relief for borrowers experiencing hardship.
It is possible that a borrower who is
eligible for immediate relief under
proposed § 30.91(c) may also be
inclined to apply for relief under
proposed § 30.91(d). For budgeting
purposes, however, we assume that all
relief would be full relief, and that if a
borrower qualifies for and receives a
waiver under proposed § 30.91(c) then
they would not also receive a waiver
under proposed § 30.91(d). Accordingly,
the primary budget estimate stacks the
scores in the order shown on the
assumption that immediate relief under
proposed § 30.91(c) would be provided
to eligible borrowers prior to any
additional relief under proposed
§ 30.91(d) to different borrowers. The
Department believes this stacked
estimation is appropriate for the
primary estimates of the proposed
regulations.
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Modification
score
(1994–2024)
Section
Methodology for Budget Impact
The Department estimated the budget
impact of the proposed provisions in
this NPRM through changes to the
Department’s Death, Disability, and
Bankruptcy (DDB) assumption that
handles a broad range of loan discharges
or adjustments, the collections
assumption to reflect balance changes
on loans that ever defaulted, and the
IDR assumption for effects on borrowers
in those repayment plans. The DDB
assumption is used in the Student Loan
Model (SLM) to determine the rate and
timing of loan discharges due to the
death, disability, bankruptcy, or other
discharge of the borrowers (this model
is not the same as the predictive
assessment that is described for
determining whether a borrower may be
eligible for a waiver under proposed
§ 30.91(c)). The SLM is designed to
calculate cash flow estimates for the
Department’s Federal postsecondary
student loan programs in compliance
with the FCRA and all relevant Federal
guidance. The SLM calculates student
loan net cost estimates for loan cohorts
where a cohort consists of the loans
originated in a given budget (fiscal)
year. The model operates with input
data obtained from historical experience
and other relevant data sources. The
SLM cash flow components range from
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origination fees through scheduled
principal and interest payments,
defaults, collections, recoveries, and
fees. The cash flow time period begins
with the fiscal year of first disbursement
and ends with the fiscal year of the
events at the end of the life of the loan:
repayment, discharge, or forgiveness.
For each loan cohort, the SLM
contains separate DDB rates by loan
program, population (Non-Consolidated,
Consolidated Not From Default, and
Consolidated From Default), loan type,
and budget risk group (Two-Year
Proprietary, Two-Year Public and Notfor-Profit, Four-Year Freshman and
Sophomore of all institution types,
Four-Year Junior and Senior of all
institution types, and Graduate Student
of all institution types). The DDB rate is
the sum of several component rates that
reflect underlying claims data and
assumptions about the effect of policy
changes and updated data on future
claims activity. In general, DDB claims
are aggregated as the numerator by fiscal
year of origination and population,
program, loan type, risk group, and
years from origination until the DDB
claims. Zeros are used for any missing
categories in the numerator. Net loan
amounts are aggregated as the
denominator by fiscal year of
origination and population, program
loan type, and risk group. The DDB rate
is simply the ratio of the numerator to
the denominator. Because the SLM only
allows for DDB rates to be specified up
to 30 years from origination, DDB claims
occurring more than 30 years after
origination are included in the year 30
rate. DDB rates for future cohorts are
forecasted using weighted averages of
prior year rates and have a number of
additions and adjustment factors built
into them to capture policies or
anticipated discharges that are not
reflected in the processed discharge data
yet, including adjustments for
anticipated increased borrower defense
and closed school activity.
For estimates related to waivers
granted to borrowers enrolled in IDR
repayment plans, the Department has a
borrower and loan type level submodel
that generates representative cashflows
for use in the SLM. This IDR submodel
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70,200
29,600
Outyear
score
(2025–2034)
........................
12,100
Total
(1994–2034)
70,200
41,700
contains information about borrowers’
time in repayment, the use of
deferments and forbearances, estimated
incomes and filing statuses, and annual
balances. Therefore, we are able to
identify or assign the borrowers in the
IDR submodel who would be eligible for
one of the waivers in proposed § 30.91
and incorporate that effect by ending the
payment cycle for borrowers who would
be eligible to receive a waiver under
proposed § 30.91(c) or (d).
The estimated cost of waivers under
proposed § 30.91(c) or (d) varies
depending on whether the borrower is
in IDR, as well as whether the waiver is
a full or partial discharge of the loan.
Partial waiver of balances for borrowers
already modeled to be on an IDR plan
could have three different effects
depending upon whether the borrower
was expected to get IDR forgiveness
prior to these waivers, and whether the
waiver changes that anticipated
outcome. These potential effects would
be:
1. Before and after the waiver is
applied, borrowers are expected to
receive some IDR forgiveness at the end
of their repayment term. For these
borrowers, the waivers would affect the
amount ultimately forgiven, but because
payments are based upon income and
the amount of time borrowers would be
expected to repay is unchanged, there
would be no effect on the amount of
anticipated future payments.
2. The borrower was expected to
receive IDR forgiveness before the
waiver’s application, but afterward is
now expected to pay off their balance
before receiving IDR forgiveness.
Because these borrowers would now be
expected to repay in less time, there
would be some reduction in the amount
of anticipated future payments.
3. Before applying the waiver, the
borrower was expected to retire their
loan balance prior to receiving IDR
forgiveness, but as a result of the policy
would now be expected to retire their
balance sooner. Because these borrowers
would now be expected to repay in less
time, there would be some reduction in
the amount of anticipated future
payments.
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Generally, we project that most partial
waivers for borrowers modeled to be on
IDR would end up in the first group.
Since these borrowers would not see a
change in the amount they pay before
receiving forgiveness, we do not assign
a cost to the waivers for these
borrowers. Any costs for waivers
granted to borrowers who are modeled
to be on IDR come from either full
waivers or the minority of borrowers in
the second and third groups, for whom
the waivers would reduce the number of
payments needed to fully repay their
loan.
For estimates related to the effects of
the proposed waiver provisions on
borrowers with loans not in IDR plans,
the Department’s approach would be to:
(1) estimate the potential waiver
amounts borrowers would be eligible for
and aggregate them by loan cohort, loan
type, and budget risk group used in the
SLM; (2) add the waiver amounts for
non-defaulted, non-IDR borrowers to the
Department’s baseline DDB assumption
in FY 2025; and (3) remove the amounts
associated with the waiver provisions
from defaulted, non-IDR borrowers from
the baseline collections assumption.
The revised IDR, DDB and collections
groups are run in a SLM scenario for
each provision to generate the estimates
in Table 4.1. To produce the potential
waiver amounts in Step 1 of this
process, the Department developed a
loan-level file based on the FY2023
sample of NSLDS information used for
preparing budget estimates, with
balance information supplemented by
redrawing key loan information as of
June 13, 2024, to account for the
discharges and waivers that occurred in
FY2024 and reduced borrower’s
balances to zero. Information from this
file would allow the evaluation of times
in repayment that would qualify for one
of the provisions and anticipated future
balances for use in calculating the
amount that the Secretary might waive
for borrowers who have experienced
changes in balance.
These estimates are all based on the
same random sample of borrowers that
the Department uses for all other budget
estimation activity related to Federal
student loans. Currently, the most
recent sample available is from the end
of FY2023, which is the best currently
available data that maintains the
Department’s consistent scoring
practices.
The Department followed two
different approaches for modeling the
estimated cost of the provisions in
proposed § 30.91(c) and (d). For
proposed § 30.91(c), the Department
considered the output of the model
developed to project the likelihood that
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a borrower would be in default within
two years. We used that model to
estimate the number of borrowers by
risk group as well as repayment status
(e.g., in default or in repayment) and
estimated the cost of forgiving those
loans. For the outyear cohorts, we
randomly assigned borrowers to default
based on default rates by cohort, risk
group and loan type assumed in the
President’s Budget for FY2025 baseline.
This approach reflects that under
proposed § 30.91(c), the Secretary may
identify borrowers eligible for relief
based on a predictive assessment,
without requiring any action by those
borrowers.
The Department took a different
approach for proposed § 30.91(d). That
proposed provision describes an
application-based pathway for relief
whereby the Secretary may conduct a
holistic assessment of the borrower’s
factors indicating hardship based on
information obtained through an
application process in addition to
potentially supplementing that data
with information already in the
Department’s possession. To model this
approach, the Department generated
assumptions of the number of borrowers
who would be eligible for a waiver. Of
this number of assumed eligible
applicants, we then calculated the
distribution of borrowers across risk
group (e.g., 2-year proprietary, graduate
borrowers, and 4-year nonprofit or
public institutions), and by cohort year.
We describe this process in greater
detail below.
First, as described earlier, the
Department considered multiple
potentially comparable situations it has
dealt with in the past to estimate the
number of applications from borrowers
seeking proposed waivers related to
hardship. We examined the volume
associated with borrowers on IDR plans,
those who applied for student debt
relief under the HEROES Act, and those
who applied for economic deferment or
hardship from a period prior to the
payment pause. With no perfect analog
but based on the best available data, we
use a base estimate that about 1 million
borrowers in the current portfolio would
be approved for relief. The estimate of
borrowers who would be affected in
future cohorts over the next ten years is
1 million.
To reduce the possibility in the net
budget impact estimate that borrowers
who might be otherwise captured under
proposed § 30.91(c) and could
potentially be double counted in both
proposed § 30.91(c) and proposed
§ 30.91(d), we estimated the cost of the
waivers proposed in proposed § 30.91(d)
after accounting for the cost of proposed
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§ 30.91(c) and only allowed borrowers
to receive a waiver under one of the
proposed provisions. The Department
seeks feedback about the assumed
number of borrowers who would be
approved for a waiver under proposed
§ 30.91(d), and we will continue to
refine this estimate.
Next, to estimate the distribution of
approved applicants across risk group
and cohort year, the Department
consulted the closest past situations that
might operate similarly to the proposed
waivers. This included looking at the
distribution of borrowers across risk
group and cohort year who submitted
applications for relief under the
HEROES Act Plan that was announced
in August 2022, borrowers who ever
defaulted on loans based on Department
data, and borrowers who had a
qualifying economic hardship
forbearance or deferment. While not
exact corollaries, these data nonetheless
provide useful information on which
types of borrowers might choose to
apply. We believe these are better
comparisons for thinking about the
distribution of approved borrowers than
other types of existing information. For
instance, we do not think closed school
loan discharges would be a good
comparison, because those borrowers
only come from colleges that closed,
which would largely exclude public
institutions. We also chose not to use
borrowers who documented income and
expense information when seeking a
loan rehabilitation, because these
borrowers are disproportionately likely
to have not finished their postsecondary
programs, whereas the hardship
applications could come from borrowers
who graduated but who are struggling
on their loans in ways beyond just being
in default.
Specifically, to estimate the
distribution of approved applicants
across cohort years, the Department
equally weighted the distributions
observed under submitted applications
for relief under the HEROES Act Plan
that was announced in August 2022 and
borrowers who ever defaulted on loans
based on Department data. To calculate
the distribution of borrowers across risk
groups, the Department equally
weighted the distributions observed
under submitted applications for relief
under the HEROES Act Plan that was
announced in August 2022 and
borrowers who had a qualifying
hardship forbearance or deferment. If a
cell reached 100 percent of sampling in
current Department data, the excess
approved applicants were distributed
within the respective cohort range row
by weight. The resulting estimated
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distribution of approved applicants is
shown in Table 4.2.
TABLE 4.2—ESTIMATED PERCENTAGE DISTRIBUTION OF APPROVED APPLICANTS BY COHORT AND RISK GROUP
Total
Nonconsolidated
1994–2004
2005–2009
2010–2014
2015–2019
2020–2024
Consolidated
non-default
Consolidated
default
2-Yr
Proprietary
4-Yr PubPri
FrSo
2-Yr Public
4-Yr PubPri
JrSr
Grad
........................
........................
........................
........................
........................
0.6
0.7
2.3
1.8
0.9
0.2
0.7
2.4
1.8
0.9
1.3
2.1
6.9
5.2
2.8
1.3
3.2
10.5
7.9
4.2
1.4
1.6
5.1
3.8
2.0
3.5
2.5
8.3
6.3
3.3
0.9
0.6
2.1
0.9
0.1
9.1
11.5
37.4
27.6
14.3
Total ...........................
6.3
6.0
18.2
27.1
13.8
23.9
4.6
100.0
Next, we randomly identified nondefaulted, non-IDR borrowers within
each risk group and cohort year cell,
based on the percentages shown in
Table 4.2, to be in the approved
applicant pool. We then waived the
assumed future balances in the sample
to generate the estimated increase in
DDB claims or reduction in collections
associated with the hardship
application provisions. To provide a
maximally conservative budget
estimate, we assumed all of these
approvals would result in full relief.
Lesser amounts of relief would reduce
the estimated cost.
Table 4.3 shows the outstanding loan
balances by risk group for approved
borrowers from existing cohorts that
entered repayment by 2024.
The sampling process described above
generated the estimated forgiveness for
borrowers from existing cohorts for
loans that entered repayment by 2024.
For future cohorts and loans that enter
repayment in 2025 and later from
existing cohorts, we calculated the
percent of net volume that was
associated with borrowers that entered
repayment by 2024 assigned to receive
forgiveness by origination cohort,
consolidation status, budget risk group,
and time to receiving hardship
forgiveness from entering repayment
(offset). We then took the average
forgiveness percentage of volume across
origination cohorts by risk group,
consolidation status, and offset to
estimate the percent of volume that will
enter repayment from 2025 and out that
we estimate will receive hardship
TABLE 4.3—OUTSTANDING LOAN
forgiveness. As we expect it will take
BALANCES BY RISK GROUP
borrowers some years in repayment to
demonstrate persistent hardship, we
[$ Millions]
have distributed forgiveness in the
Outstanding
outyears evenly from years 5 to 15 in
Risk group
loan balances repayment. This estimated forgiveness
is then summarized by origination
2-Yr Proprietary ....................
835
2-Yr Public ............................
1,103 cohort, consolidation status, budget risk
4-Yr PubPri FrSo ..................
6,099 group, loan type, and offset and added
4-Yr PubPri JrSr ...................
5,680 to the baseline estimate for the
Grad ......................................
5,034 discharge assumption to generate the
Consol ...................................
7,523 cost of § 30.91(d).
The Department also considered how
Total ...............................
26,275
to estimate how many applications it
would receive, and the rate at which an
application for waiver would be likely
to be approved.
As described previously, we assume
that for every two borrowers who are
eligible, there is one that is rejected
because their needs are met via other
Department payment relief options,
such as IDR plans. We also assume that
there would be borrowers who apply
but do not meet the standard. On net,
we assume that for every eligible
applicant, there is also one ineligible
applicant, for an effective approval rate
of 50 percent. The Department seeks
feedback about these assumed approval
rates, and we will continue to refine this
estimate.
5. Accounting Statement
As discussed in OMB Circular A–4,
we have prepared an accounting
statement showing the classification of
the expenditures associated with the
provisions of these proposed
regulations. Table 5.1 provides our best
estimate of the changes in annual
monetized transfers that may result from
these proposed regulations.
Expenditures are classified as
transfers from the Federal government
to affected student loan borrowers.
TABLE 5.1—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES
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[In millions]
Reduction in loans that are unlikely to be repaid in full in a reasonable period ................................................................................
Increased ability for borrowers to repay loans on which they have or are experiencing hardship ....................................................
Reduced administrative burden for Department due to reduced servicing, default, and collection costs .........................................
Category:
Paperwork Reduction Act burden on borrowers to complete applications ..................................................................................
Administrative costs to Federal government to update systems and contracts to implement the proposed regulations ...........
Administrative costs of staff reviews ............................................................................................................................................
Reduced transfers from borrowers due to waivers: .....................................................................................................................
Based on high likelihood of being in default ................................................................................................................................
Based on applications ..................................................................................................................................................................
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6. Alternatives Considered
The Department considered the
option of not proposing these
regulations, as the Secretary has existing
waiver authority under sections
432(a)(6) and 468(2) of the HEA.
However, we believe these regulations
are important to inform the public about
how the Secretary would exercise this
longstanding discretionary waiver
authority in a consistent and transparent
manner. The Department believes that
foregoing these proposed regulations
would reduce transparency about the
Secretary’s discretionary use of waiver.
For all the reasons detailed above,
hardship waivers would produce
substantial, critical benefits for
borrowers and the Department. Overall,
as discussed above in the context of the
relevant Executive Orders, the
Department’s analysis suggests that the
benefits of the proposed regulations will
outweigh their costs.
As part of the development of these
proposed regulations, the Department
engaged in a negotiated rulemaking
process in which we received comments
and proposals from non-Federal
negotiators representing numerous
impacted constituencies. These
included higher education institutions,
legal assistance organizations, consumer
advocacy organizations, student loan
borrowers, civil rights organizations,
State officials, and State attorneys
general. Non-Federal negotiators
submitted a variety of proposals relating
to the issues under discussion.
Information about these proposals is
available on our negotiated rulemaking
website at https://www2.ed.gov/policy/
highered/reg/hearulemaking/2023/
index.html.
Because the negotiators reached
consensus on the proposed regulations
in this NPRM, the Department did not
consider alternative regulations in the
drafting of this NPRM. We did,
however, consider some alternatives
during the negotiated rulemaking
process.
The Department considered including
the issue of borrowers affected by
servicer errors as a potential sign of
hardship. However, we decided not to
explicitly include that as a factor under
proposed § 30.91(b) because the
Department has existing procedures to
address administrative errors without
needing these specific regulations for
them.
The Department also considered using
an exclusive list of factors indicating
hardship in proposed § 30.91(b) but
concluded that a non-exhaustive list
would provide necessary flexibility to
consider unanticipated factors
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indicating hardship and to incorporate
new types of data as they become
available.
As noted above, the Committee
reached consensus on the regulatory
language proposed in this NPRM.
7. Regulatory Flexibility Act
The Secretary certifies, under the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.), that this final regulatory action
would not have a significant economic
impact on a substantial number of
‘‘small entities.’’
These regulations will not have a
significant impact on a substantial
number of small entities because they
are focused on arrangements between
the borrower and the Department. They
do not affect institutions of higher
education in any way, and those entities
are typically the focus on the Regulatory
Flexibility Act analysis. As noted in the
Paperwork Reduction Act section,
burden related to the final regulations
will be assessed in a separate
information collection process and that
burden is expected to involve
individuals.
8. Paperwork Reduction Act
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department provides the
general public and Federal agencies
with an opportunity to comment on
proposed and continuing collections of
information in accordance with the
Paperwork Reduction Act of 1995 (PRA)
(44 U.S.C. 3506(c)(2)(A)). This helps
make certain that the public
understands the Department’s collection
instructions, respondents can provide
the requested data in the desired format,
reporting burden (time and financial
resources) is minimized, collection
instruments are clearly understood, and
the Department can properly assess the
impact of collection requirements on
respondents.
Proposed § 30.91 in this NPRM
contains information collection
requirements. Under the PRA, the
Department would, at the required time,
submit a copy of these sections and an
Information Collections Request to the
Office of Management and Budget
(OMB) for its review.
A Federal agency may not conduct or
sponsor a collection of information
unless OMB approves the collection
under the PRA and the corresponding
information collection instrument
displays a currently valid OMB control
number. Notwithstanding any other
provision of law, no person is required
to comply with, or is subject to penalty
for failure to comply with, a collection
of information if the collection
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instrument does not display a currently
valid OMB control number. In the final
regulations, we would display the
control numbers assigned by OMB to
any information collection requirements
proposed in this NPRM and adopted in
the final regulations.
Section 30.91—Waiver due to likely
impairment of borrower ability to repay
or undue costs of collection.
Requirements: The NPRM proposes to
add a new § 30.91 to 34 CFR part 30 in
which the Secretary would consider
granting a waiver for borrowers
experiencing hardship. To implement
proposed § 30.91(d), the Department
would use an ‘‘additional relief’’ process
using a holistic assessment approach,
where the Department would consider
information provided by a borrower
through an application, based on a nonexclusive list of factors in proposed
§ 30.91(b), indicating that they are
experiencing hardship. Information
would include items such as a
borrower’s household income and
assets, payments on debt relative to
household income, and exceptional
amounts of costs for caretaking.
While some of the information in
proposed § 30.91(b) could be obtained
from the Department’s administrative
data, other information must be
obtained from the borrowers themselves
through an application. The information
collected on the application would be
used to assess eligibility for a hardship
determination. The Department expects
that the application for relief under
proposed § 30.91(d) would solicit a
range of qualitative and quantitative
information from the borrower to inform
the Department’s determination of
whether the borrower satisfies the
hardship standard.
Burden Calculations:
§ 30.91 Waiver due to likely
impairment of borrower ability to repay
or undue costs of collection.
The proposed regulatory changes
would add burden to borrowers and
would require a new information
collection. As discussed in the net
budget impact section, we estimate that
between 2.67 million and 8 million
borrowers would submit hardship
applications. The costs are estimated
using the median hourly wage of $23.11
reported by the Bureau of Labor
Statistics for all occupations.103 We
estimated the number of hours needed
to complete the proposed application
based upon discussions with
Department staff that have worked on
similar processes in the past. Through
those conversations, we estimate that it
103 https://www.bls.gov/oes/current/oes_
nat.htm#00-0000.
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Federal Register / Vol. 89, No. 211 / Thursday, October 31, 2024 / Proposed Rules
would take a typical borrower 1 hour to
complete the application form to
indicate they want to pursue the
application-based process. The
Department’s two closest analogous
types of application forms are the one
that borrowers submit when filing a
borrower defense to repayment
application and the one that borrowers
fill out to document their income and
expenses when seeking to rehabilitate a
defaulted loan. For borrower defense
forms, the Department estimates that it
takes a borrower 30 minutes (0.5 hours)
to complete, while the rehabilitation
form takes an estimated 60 minutes (1
hour) per borrower. We anticipate that
the application form for the proposed
hardship waiver would likely take as
long as the rehabilitation form to fill
out. We came to this conclusion because
borrowers who want to provide
information about indicators of
hardship from their finances or assets
may need to provide supplemental
financial information. Applicants may
have to put together documentation
related to high essential expenses, such
as health care or dependent care costs.
They may also need to provide
information about how they are
experiencing hardship as a result of the
Affected entity
§ 30.91 Hardship Application—OMB
Control Number 1845–NEW
Applications
Individual low scenario ................................................................................................................
Individual medium scenario .........................................................................................................
Individual high scenario ...............................................................................................................
Average Total .......................................................................................................................
Consistent with the discussions
above, the following chart describes the
sections of the proposed regulations
involving information collections, the
information being collected and the
collections that the Department would
items identified and why it is likely to
persist.
Because we do not want to double
count borrowers who may qualify for
and receive relief under proposed
§ 30.91(c), the estimate for proposed
§ 30.91(d) illustrated below does not
include borrowers who would be
expected to receive full relief under
proposed § 30.91(c).
These figures and considerations are
the basis for the following estimations.
submit to OMB for approval and public
comment under the PRA, and the
estimated costs associated with the
information collections. The monetized
net cost of the increased burden for
borrowers using wage data was
2,667,000
4,000,000
8,000,000
4,889,000
Cost
$22.31
per hour
Burden hours
2,667,000
4,000,000
8,000,000
4,889,000
59,500,770
89,240,000
178,480,000
109,073,590
developed using Bureau of Labor
Statistics (BLS) data. For individuals,
we have used the median hourly wage
for all occupations, $23.11 per hour
according to BLS.104
COLLECTION OF INFORMATION
Estimated cost
$23.11
per hour
Would allow the Secretary to receive applications that provide information for the Secretary to conduct hardship determinations..
1845–NEW 4,889,000 average
hours.
$109,073,590
....................................................................................................................
1845–NEW 4,889,000 .....................
Information collection
§ 30.91 ...........
Total ........
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OMB control number and
estimated burden
Regulatory
section
If you wish to review and comment
on the Information Collection Requests,
please follow the instructions in the
ADDRESSES section of this notification.
Note: The Office of Information and
Regulatory Affairs in OMB and the
Department review all comments posted
at www.regulations.gov.
In preparing your comments, you may
want to review the Information
Collection Request, including the
supporting materials, in
www.regulations.gov by using the
Docket ID number specified in this
notification. This proposed collection is
identified as proposed collection 1845–
NEW.
We consider your comments on these
proposed collections of information in—
• Deciding whether the proposed
collections are necessary for the proper
performance of our functions, including
whether the information will have
practical use.
• Evaluating the accuracy of our
estimate of the burden of the proposed
collections, including the validity of our
methodology and assumptions.
• Enhancing the quality, usefulness,
and clarity of the information we
collect; and
• Minimizing the burden on those
who must respond.
Consistent with 5 CFR 1320.8(d), the
Department is soliciting comments on
the information collection through this
document. Between 30 and 60 days after
publication of this document in the
Federal Register, OMB is required to
make a decision concerning the
collections of information contained in
these proposed priorities, requirements,
definitions, and selection criteria.
Therefore, to make certain that OMB
gives your comments full consideration,
it is important that OMB receives your
comments on these Information
Collection Requests by December 2,
2024.
9. Intergovernmental Review
This program is subject to Executive
Order 12372 and the regulations in 34
CFR part 79. One of the objectives of the
Executive Order is to foster an
intergovernmental partnership and a
strengthened Federalism. The Executive
order relies on processes developed by
State and local governments for
coordination and review of proposed
Federal financial assistance.
104 https://www.bls.gov/oes/current/oes_
nat.htm#00-0000.
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This document provides early
notification of our specific plans and
actions for this program.
your search to documents published by
the Department.
Miguel Cardona,
Secretary of Education.
10. Assessment of Education Impact
In accordance with section 411 of the
General Education Provisions Act, 20
U.S.C. 1221e–4, the Secretary
particularly requests comments on
whether these final regulations would
require transmission of information that
any other agency or authority of the
United States gathers or makes
available.
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11. Federalism
Executive Order 13132 requires us to
provide meaningful and timely input by
State and local elected officials in the
development of regulatory policies that
have Federalism implications.
‘‘Federalism implications’’ means
substantial direct effects on the States,
on the relationship between the
National Government and the States, or
on the distribution of power and
responsibilities among the various
levels of government. The proposed
regulations do not have Federalism
implications.
Accessible Format: On request to the
program contact person(s) listed under
FOR FURTHER INFORMATION CONTACT,
individuals with disabilities can obtain
this document in an accessible format.
The Department will provide the
requestor with an accessible format that
may include Rich Text Format (RTF) or
text format (txt), a thumb drive, an MP3
file, braille, large print, audiotape, or
compact disc, or another accessible
format.
Electronic Access to This Document:
The official version of this document is
the document published in the Federal
Register. You may access the official
edition of the Federal Register and the
Code of Federal Regulations at
www.govinfo.gov. At this site you can
view this document, as well as all other
documents of this Department
published in the Federal Register, in
text or Adobe Portable Document
Format (PDF). To use PDF, you must
have Adobe Acrobat Reader, which is
available free at the site.
You may also access documents of the
Department published in the Federal
Register by using the article search
feature at www.federalregister.gov.
Specifically, through the advanced
search feature at this site, you can limit
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For the reasons discussed in the
preamble, the Secretary of Education
proposes to revise part 30 of title 34 of
the Code of Federal Regulations as
follows:
List of Subjects in 34 CFR Part 30
Claims, Income taxes.
For the reasons discussed in the
preamble, the Department of Education
proposes to amend 34 CFR part 30 to
read as follows:
PART 30—DEBT COLLECTION
1. The authority citation for part 30
continues to read as follows:
■
Authority: 20 U.S.C. 1221e–3(a)(1), and
1226a–1, 31 U.S.C. 3711(e), 31 U.S.C. 3716(b)
and 3720A, unless otherwise noted.
2. Add subpart G, consisting of § 30.91
to read as follows:
■
Subpart G—Waiver of Federal Student
Loan Debts
§ 30.91 Waiver due to likely impairment of
borrower ability to repay or undue costs of
collection.
(a) Standard for waiver due to
hardship. The Secretary may waive up
to the outstanding balance of a loan
owed to the Department arising under
the Federal Family Education Loan
Program authorized under title IV, part
B, of the HEA, the William D. Ford
Federal Direct Loan Program authorized
under title IV, part D, of the HEA, the
Federal Perkins Loan Program
authorized under title IV, part E, of the
HEA, and the Health Education
Assistance Loan Program authorized by
sections 701–720 of the Public Health
Service Act, 42 U.S.C. 292–292o, when
the Secretary determines that a 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.
(b) Factors that substantiate hardship.
In determining whether a borrower
meets the conditions described in
paragraph (a) of this section, the
Secretary may consider any indicators
of hardship related to the borrower,
including but not limited to—
(1) Household income;
(2) Assets;
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(3) Type of loans and total debt
balance owed for loans described in
paragraph (a) of this section, including
those not owed to the Department;
(4) Current repayment status and
other repayment history information;
(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 FAFSA form;
(8) Type and level of institution
attended;
(9) Typical student outcomes
associated with a program or programs
attended;
(10) Whether the borrower has
completed any postsecondary certificate
or degree program for which they
received title IV, HEA financial
assistance;
(11) Age;
(12) Disability;
(13) Age of the borrower’s loan based
upon first disbursement, or the
disbursement of loans repaid by a
consolidation loan;
(14) Receipt of means-tested public
benefits;
(15) High-cost burdens for essential
expenses, such as healthcare,
caretaking, and housing;
(16) The extent to which hardship is
likely to persist; and
(17) Any other indicators of hardship
identified by the Secretary.
(c) Immediate relief for borrowers
likely to default. The Secretary may
consider any indicators of hardship
related to the borrower, including but
not limited to the factors described in
paragraph (b) of this section 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 October 31, 2024.
(d) Process for additional relief. In
exercising the authority described in
paragraph (a) of this section, 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 the conditions
described in paragraph (a) of this
section.
[FR Doc. 2024–25067 Filed 10–30–24; 8:45 am]
BILLING CODE 4000–01–P
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]]>Agencies
[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 [www.gpo.gov]
[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.
-----------------------------------------------------------------------
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 Regulations.gov. Information on using Regulations.gov,
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
Regulations.gov, please contact [email protected] 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 Regulations.gov. 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
Regulations.gov 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 Regulations.gov
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:
[email protected].
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
https://www.regulations.gov/docket/ED-2023-OPE-0123. 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)).
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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):
Be concise but support your claims.
Explain your views as clearly as possible and avoid using
profanity.
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]]
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.
Where you disagree with the proposed regulatory text,
suggest alternatives, including regulatory language, and your rationale
for the alternative suggestion.
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.
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
Regulations.gov. 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
Regulations.gov. 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 Regulations.gov or addressed in the NFR.
Comments containing personal threats will not be posted to
Regulations.gov 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 Regulations.gov.
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.
---------------------------------------------------------------------------
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, https://www.gao.gov/products/gao-21-170. 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\ https://www.merriam-webster.com/dictionary/benefit.
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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.
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\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).
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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\
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\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.
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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).
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\14\ Borrowers who may be included in this model are those who
have at least one federally held loan that has entered repayment.
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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\
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\15\ See HEA section 432(a)(6).
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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).
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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 Regulations.gov, 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 https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/.
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:
https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/.
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:
Civil Rights Organizations: Wisdom Cole, NAACP, and India
Heckstall (alternate), Center for Law and Social Policy.
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.
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.
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.
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.
Private Nonprofit Institutions of Higher Education:
Angelika Williams, University of San Francisco, and Susan Teerink
(alternate), Marquette University.
Proprietary Institutions: Kathleen Dwyer, Galen College of
Nursing, and Belen Gonzalez (alternate), Mech-Tech College.
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.
Federal Family Education Loan (FFEL) Lenders, Servicers,
or Guaranty Agencies: Scott Buchanan, Student Loan Servicing Alliance,
and Benjamin Lee (alternate), Ascendium Education Solutions, Inc.
Student Loan Borrowers Who Attended Programs of Two Years
or Less: Ashley Pizzuti, San Joaquin Delta College, and David Ramirez
(alternate), Pasadena City College.
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]]
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.
Currently Enrolled Postsecondary Education Students: Jada
Sanford, Stephen F. Austin University, and Jordan Nellums (alternate),
University of Texas.
Consumer Advocacy Organizations: Jessica Ranucci, New York
Legal Assistance Group, and Ed Boltz (alternate), Law Offices of John
T. Orcutt, P.C.
Individuals with Disabilities or Organizations
Representing Them: John Whitelaw, Community Legal Aid Society Inc., and
Waukecha Wilkerson (alternate), Sacramento State University.
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.
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).
---------------------------------------------------------------------------
Civil Rights Organizations: Wisdom Cole, NAACP.
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.
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.
State Attorneys General: Yael Shavit, Office of the
Massachusetts Attorney General.
Public Institutions of Higher Education, Including Two-
Year and Four-Year Institutions: Melissa Kunes, The Pennsylvania State
University.
Private Nonprofit Institutions of Higher Education:
Angelika Williams, University of San Francisco, and Susan Teerink
(alternate), Marquette University.
Proprietary Institutions: Kathleen Dwyer, Galen College of
Nursing, and Belen Gonzalez (alternate), Mech-Tech College.
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.
Federal Family Education Loan (FFEL) Lenders, Servicers,
or Guaranty Agencies: Scott Buchanan, Student Loan Servicing Alliance.
Student Loan Borrowers Who Attended Programs of Two Years
or Less: Ashley Pizzuti, San Joaquin Delta College.
Student Loan Borrowers Who Attended Four-Year Programs:
Sarah Christa Butts (alternate who served as primary), University of
Maryland.
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.
Currently Enrolled Postsecondary Education Students:
Jordan Nellums (alternate who served as primary), University of Texas.
Consumer Advocacy Organizations: Jessica Ranucci, New York
Legal Assistance Group, and Ed Boltz (alternate), Law Offices of John
T. Orcutt, P.C.
Individuals with Disabilities or Organizations
Representing Them: John Whitelaw, Community Legal Aid Society Inc.
U.S. Military Service Members, Veterans, or Groups
Representing Them: Vincent Andrews, Veteran.
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: https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/final-session-4-summary-2-27-24.pdf.
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: https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/.
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).
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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:
Household income;
Assets;
Type of loans and total debt balances owed for loans
described in proposed 30.91(a), including those not owed to the
Department;
Current repayment status and other repayment history
information;
Student loan total debt balances and required payments,
relative to household income;
Total debt balances and required payments, relative to
household income;
Receipt of a Pell Grant and other information from the
Free Application for Federal Student Aid (FAFSA) form;
Type and level of institution attended;
Typical student outcomes associated with a program or
programs attended;
Whether the borrower has completed any postsecondary
certificate or degree program for which the borrower received title IV,
HEA financial assistance;
[[Page 87139]]
Age;
Disability;
Age of the borrower's loan based upon first disbursement,
or the disbursement of loans repaid by a consolidation loan;
Receipt of means-tested public benefits;
High-cost burdens for essential expenses, such as
healthcare, caretaking, and housing;
The extent to which hardship is likely to persist; and
Any other indicators of hardship identified by the
Secretary.
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. https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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. https://www.urban.org/urban-wire/demographics-income-driven-student-loan-repayment. Takti-Laryea, Ama and Phillip Oliff. ``Who Experiences
Default?'' Pew Charitable Trusts. March 1, 2024. https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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\
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\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.'' https://studentaid.gov/manage-loans/repayment/plans/standard.
\49\ U.S. Department of Education, National Center for Education
Statistics, Beginning Postsecondary Students: 1996/2001 (BPS).
https://nces.ed.gov/datalab/powerstats/table/nsqptw.
---------------------------------------------------------------------------
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).
---------------------------------------------------------------------------
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\
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\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\
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\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. https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default.
---------------------------------------------------------------------------
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. https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2024/who-experiences-default.
---------------------------------------------------------------------------
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.
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\73\ Federal Student Aid, U.S. Department of Education. ''
Student Loan Delinquency and Default.'' https://studentaid.gov/manage-loans/default.
\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).
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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 https://studentaid.gov/announcements-events/default-fresh-start.
\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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\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.
https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/data-on-older-borrowers-and-parents-session-2.pdf.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\92\ See, for example, The Economics of Administration Action on
Student Debt, available at https://www.whitehouse.gov/cea/written-materials/2024/04/08/the-economics-of-administration-action-on-student-debt/.
Di Maggio, M., Kalda, A., & Yao, V. (2019). Second chance: Life
without student debt (No. w25810). National Bureau of Economic
Research.
---------------------------------------------------------------------------
To estimate the number of borrowers we would expect to be eligible
for relief under proposed Sec. 30.91(c), we followed the process
described for implementing proposed Sec. 30.91(c) above, where we used
predictors that correspond to the 17 factors described in proposed
Sec. 30.91(b) to predict whether borrowers were at least 80 percent
likely to be in default on a student loan in any quarter for the
subsequent two years after the NPRM's publication. For the purposes of
the NPRM, we used a 5 percent sample of Department-held loans as of
April 2024.
Should the Secretary choose to exercise authority under these
regulations, we estimate that approximately 6.0 million borrowers would
be eligible to receive relief under proposed Sec. 30.91(c). This
estimate is based on output of the proposed model developed to estimate
the likelihood that a borrower would have been in default within two
years.
The estimate of borrowers who may receive waivers under this
provision uses data as of April 30, 2024, and calculates the two-year
measurement window as of April 30, 2024. The Department chose April 30,
2024, because it was the most recent comprehensive dataset available to
the Department at the time that the Department was developing the
proposed model for this NPRM. The borrower portfolio may change between
April 2024 and the publication of the NPRM, both in terms of its
composition (i.e., which borrowers are in the portfolio) and in the
borrowers' circumstances (e.g., the loans held by borrowers and
outstanding debt amount may change between April 30, 2024 and the
publication of the NPRM). It is not clear what the substantive effects
of such changes would be, as they could drive the model's outcomes in
different directions. Estimates presented in the NPRM also do not
include potential overlap with relief that would be provided by any
proposed rules that are not yet final as of the publication of this
NPRM, or of waivers through other provisions that were not yet
implemented as of April 30, 2024.
Sec. 30.91(d) Process for Additional Relief
Borrowers would benefit from any waivers granted by the Secretary
under proposed Sec. 30.91(d)'s pathway for additional relief based
upon a holistic assessment of information already in the Secretary's
possession or submitted by the borrower through an application process,
or both in conjunction, to determine whether: (i) the borrower is
highly likely to be in default or to experience similarly severe and
persistent negative circumstances, and (ii) other payment relief
options would not sufficiently address the borrower's persistent
hardship. As further described in this NPRM's preamble, such waivers
would address challenges that these borrowers face while trying to
repay their loans. While this approach would provide overall financial
benefits, the specific benefits for borrowers who receive a waiver
would vary depending on the nature of their qualifying hardship.
Waivers granted under proposed Sec. 30.91(d) would also create
administrative costs for the Department to implement, which are
discussed at the end of this subsection of the RIA.
Consider several examples of borrowers who may receive waivers
based on a holistic assessment of the factors in proposed Sec.
30.91(b). For example, a borrower whose qualifying hardship is a result
of advanced age, having an old loan, and no longer working would
benefit from no longer having to manage a loan payment in their final
years of life. If they were in default, they could also potentially see
an increase in the total amount of Social Security benefits they could
retain since they would not be at risk of having amounts offset. By
comparison, a borrower who is facing hardship due to having extensive
expenses caring for an elderly relative could also accrue benefits, but
in a different form, such as being able to better afford necessary care
for that individual, including potentially paying for better services
for that relative. Since the precise facts that support waiver under
proposed Sec. 30.91(d) would vary across individual borrowers'
circumstances based on a holistic assessment of their factors in
proposed Sec. 30.91(b), the specific benefits of waiver would vary.
But in general, to the extent that the hardship results in the borrower
being overburdened by necessary expenses, the waiver would help a
borrower better afford those expenses while maintaining basic financial
security and also greatly reduce or eliminate their risk of
experiencing the substantial harms of default, or other similarly
severe negative and persistent circumstances.
Waivers granted under proposed Sec. 30.91(d) would create costs to
the government in the form of transfers to student loan borrowers.
These costs would also accrue to taxpayers. However, we believe the
benefits would exceed these costs. As discussed, the Secretary may
provide a waiver under
[[Page 87154]]
proposed Sec. 30.91(d) only after determining: (i) the borrower has
experienced, or is experiencing, hardship such that the borrower is
highly likely to be in default or to experience similarly severe and
persistent negative circumstances, and (ii) other payment relief
options do not sufficiently address the borrower's persistent hardship.
Therefore, borrowers who may receive waivers are those with lower-than-
expected repayments who are highly likely to struggle with repaying
their loans. By contrast, as described above, the benefits to borrowers
could be significant. And such waivers could provide benefits to the
government as well. The Department would no longer pay to collect on or
service loans that are highly unlikely to be repaid. And to the extent
borrowers are facing hardship while receiving other Federal benefits,
such as Social Security, no longer having those amounts at risk of
being offset would allow broader Federal benefits to better achieve
their intended purposes, such as keeping senior citizens out of
poverty.
Estimating the number of borrowers who could, at the Secretary's
discretion, be approved for relief under proposed Sec. 30.91(d)
depends on assumptions about: (1) the number of borrowers who have
characteristics that are likely to make them eligible for relief based
on the Department's holistic assessment of their circumstances, and (2)
the share of borrowers who are potentially eligible who would actually
apply. At the end of this section, to inform the estimates of
administrative costs, we discuss further assumptions about the number
of borrowers who would apply, but who we would expect would not be
approved for discretionary relief. In the sections below, we describe
the information the Department considered to reach estimates used in
this NPRM. Recognizing data limitations and that there are no perfect
historical analogs that could inform estimates with perfect precision,
we included a directed question that solicits feedback and input from
the public about other data or information that could be used to
improve and refine estimates.
First, we consulted available Department data on borrowers and
national survey data related to student debt holders to inform the
number of borrowers who have characteristics that are likely to make
them eligible for relief based on the Department's holistic assessment
of their circumstances. These borrowers would need to have indicators
that show they are highly likely to be in default or experience
similarly severe negative and persistent circumstances, that would not
be sufficiently addressed by other options for payment relief. In
addition, the Department anticipates that proposed Sec. 30.91(c)
would, at the Secretary's discretion, be implemented first and that
such relief would likely be sufficient to address the hardship of a
borrower who receives such relief. Therefore, because we do not want to
double count borrowers, the estimate for proposed Sec. 30.91(d)
discussed below does not include borrowers who would be expected to
receive full relief under proposed Sec. 30.91(c).
As a starting point the Department consulted economic studies of
individuals experiencing poverty. We believe estimates of persistent
poverty provide an important perspective on borrowers who may have
enduring negative economic conditions, even if it is not the perfect
comparison. Poverty by itself may not lead to relief under proposed
Sec. 30.91(d), but people in poverty often face challenges such as not
being able to afford necessary expenses. In addition, other available
payment relief options might address episodic spells of poverty. As
described earlier, the Department expects that a borrower would need to
have indicators showing a high likelihood of persistent hardship rather
than a short-term hardship to receive relief under this provision. On
the other hand, it is also possible that borrowers could be facing
persistent hardship and receive relief, even if they are not considered
in poverty. Even acknowledging these limitations, we believe estimates
of persistent poverty are a reasonable consideration for estimates
under proposed Sec. 30.91(d).
Studies suggest that a meaningful, but small, share of the
population experience persistent poverty, defined in many studies as
having an income below the Federal Poverty Level. For example,
longitudinal studies of families experiencing poverty, using the Panel
Study of Income Dynamics suggest that between about 3 to 5 percent of
adults are exposed to instances of poverty that last five years or more
across their adult lifetimes.\93\ Therefore, if we applied the
persistent poverty rate of 3 percent to 5 percent to the number of ED-
managed borrowers in the current portfolio, we might expect somewhere
between 1 and 2 million borrowers in the current portfolio to
experience persistent economic hardship at some point in their
adulthood that would meet the eligibility requirements under Sec.
30.91(d).
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\93\ Other estimates suggest a rate of 10 to 15 percent over
three years, and that rates can vary by education level, age, and
other characteristics. See, for a review, Cellini, S.R., McKernan,
S.M., & Ratcliffe, C. (2008). The dynamics of poverty in the United
States: A review of data, methods, and findings. Journal of Policy
Analysis and Management: The Journal of the Association for Public
Policy Analysis and Management, 27(3), 577-605, as well as evidence
from Sandoval, D.A., Rank, M.R., & Hirschl, T.A. (2009). The
increasing risk of poverty across the American life course.
Demography, 46, 717-737. and from Hoynes, H.W., Page, M.E., &
Stevens, A.H. (2006). Poverty in America: Trends and Explanations.
The Journal of Economic Perspectives, 20(1), 47-68. https://www.jstor.org/stable/30033633.
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This range of 1 to 2 million borrowers from the current portfolio
is corroborated through other data sources. In Department data, as of
December 2023, there were about 9 million borrowers who were recorded
as past due in their payments.\94\ Solely being behind on student loan
payments would not lead to eligibility for a waiver under Sec.
30.91(d). Therefore, the Department also reviewed information that was
reported in the Federal Reserve Board's Survey of Household Economics
and Decisionmaking (SHED).\95\ The SHED provides information about
borrowers and their personal finances, and indicates whether borrowers
who were behind on student loan payments also reported some other
condition that could indicate hardship, such as being unemployed or
underemployed due to a health or medical limitation or a disability or
living with parents or adult children to provide help with child or
medical care.\96\ Those data indicate that about 13 to 25 percent of
borrowers who are behind on student loan payments also reported one of
these other indicators. Applying those percentages to the current
portfolio of borrowers implies that between 1 to 2 million borrowers
may be experiencing some
[[Page 87155]]
substantial economic hardship and report being behind on payments. We
would expect that borrowers reporting a greater number of economic
challenges in survey data might be more indicative of the type of
hardship that would qualify for a waiver under Sec. 30.91(d). In the
SHED data, about 40 percent of the student loan borrowers who are
behind on payments experience both conditions described above, which
would imply an estimate of the number of borrowers in the current
portfolio in the range of 0.4 to 0.8 million borrowers. These ranges
are based on a single point in time. Under Sec. 30.91(d), borrowers
would need to face hardship consistently in order qualify for a waiver,
so estimates based on an isolated observation likely overestimates the
number of borrowers who are facing persistent challenges on these
factors. On the other hand, a point in time observation would not count
borrowers who may experience struggles in the future, even if not
showing such markers at the time of the survey.
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\94\ https://blog.ed.gov/2024/04/an-update-on-the-first-months-of-the-return-to-repayment/. This does not include borrowers in
default. This figure is likely to be a high-water mark, given the
challenges and policy context of returning to repayment after the
pandemic, and would be expected to decline in the future.
\95\ For the analyses of SHED data, we stacked five years of
SHED surveys (2018 to 2022) and used survey weights. We include data
only for those who report student debt but are not currently
enrolled in school. The SHED data likely undercounts borrowers who
only hold Parent PLUS loans, and the survey does not distinguish
between Federal student loans specifically and other types of
student loans.
\96\ In the SHED survey, roughly 18 percent of those with
education debt indicated being behind on payments. Among all
borrowers who are behind on student payments, about 25 percent of
borrowers report being unemployed or underemployed due to a health
or medical limitation or a disability, and 13 percent of borrowers
live with parents or adult children to provide help with child or
medical care. These forms of hardship are indicative of the types of
circumstances that may make borrowers eligible to apply for a waiver
under Sec. 30.91(d).
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For our base assumptions, we take the high end of the range
suggested by available evidence and assume that about 2 million
borrowers from the current portfolio would potentially have
characteristics that might make them highly likely to be in default or
experience similarly severe negative and persistent circumstances at
some point in their remaining repayment. As we discuss later, other
payment relief options might sufficiently address the hardship for some
of these borrowers, not all borrowers who might be eligible will apply
for relief, and most borrowers will not have sufficient data already in
the Department's possession that would be necessary for any non-
application-based relief.
We assume a take up rate of 75 percent among the 2 million
borrowers from the current portfolio that we estimate would be
potentially eligible for relief. This take up rate is blended across
borrowers who might meet the standard for relief under proposed Sec.
30.91(d), described above, based on the Department conducting holistic
assessments that may either rely on data already in the Secretary's
possession, data submitted by the borrower through an application, or a
combination of both. This borrower estimate assumes that, as noted
above, the Department 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 have sufficient data available to determine whether
a borrower meets the eligibility standard. Borrowers for whom the
Department possesses sufficient information to conduct the holistic
review without data acquired from an application would not need to
apply (implying a take up rate of 100 percent), but the Department
anticipates that the number of such borrowers based on future data
matches or data collections would be small. Ample evidence suggests
that borrowers do not always apply for benefits for which they are
eligible for many reasons, including because of the burden associated
with application and lack of knowledge about the benefits. Evidence
from other settings--none being perfect analogies--including from SNAP,
the Earned Income Tax Credit (EITC), and Unemployment Insurance,
suggest a range of take-up rates that differ across benefit amounts,
salience, and eligible populations.\97\ Many of the programs with high
take-up rates, such as SNAP and EITC, which have take-up rates at or
above 80 percent, are well known and have been around for a long time,
and some programs have infrastructures that help beneficiaries apply.
Other researchers have reported take up of Unemployment Insurance of 42
percent to 55 percent.\98\ There are reasons to believe that the take-
up rate for forgiveness proposed under Sec. 30.91(d) could be lower
than those for SNAP or EITC, since this would be a new program,
benefits would be uncertain, and many borrowers do not engage with
student loan programs that can be beneficial to them. In sensitivity
analyses below, we assume a lower take-up rate.
---------------------------------------------------------------------------
\97\ See, e.g., U.S. Government Accountability Office. College
Closures: Many Impacted Borrowers Struggled Despite Being
Financially Eligible for Loan Discharges. (September 2021). Accessed
at https://www.gao.gov/products/gao-21-105373. See the review in Ko
& Moffit (2022). Take-up of Social Benefits. NBER Working Paper
30148. Also see various articles in ``Administrative Burdens and
Inequality in Policy Implementation'' Part I and Part II in RSF: The
Russell Sage Foundation Journal of the Social Sciences, volume 9,
issues 4 and 5, 2023 and Currie, Janet (2006). The Take-up of Social
Benefits. In Public Policy and the Income Distribution. Russell Sage
Foundation. Herd & Moynihan (2018). Administrative Burdens.
\98\ Kuka and Stuart (2022). Racial Inequality in Unemployment
Insurance Receipt and Take Up. NBER Working Paper 29595.
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We also assume that about one-third of these remaining borrowers
would benefit from other payment relief options that could sufficiently
address their hardship. Some estimates suggest that payment relief
options available from the Department can benefit large swaths of
borrowers; \99\ however, not all borrowers who benefit from existing
payment relief options will have their hardship sufficiently addressed.
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\99\ For example, see https://budgetmodel.wharton.upenn.edu/issues/2023/7/17/income-driven-repayment-modeling-take-up-rates.
---------------------------------------------------------------------------
This leads to an estimate of 1 million borrowers, or about 2.5
percent of the current portfolio, who we expect could, at the
Secretary's discretion, be approved for relief under proposed Sec.
30.91(d) in the period after this regulation is implemented and
throughout the remainder of the borrowers' repayment periods. We also
estimate that an additional 1 million borrowers who could, at the
Secretary's discretion, be approved among the next 10 cohorts of
borrowers. To arrive at estimates of borrowers who would be affected in
the next ten future cohorts, we assume that 5 percent of each cohort
could, at the Secretary's discretion, be approved for a waiver under
proposed Sec. 30.91(d) at some point in their repayment. This is
double the share of borrowers estimated in the current portfolio
because borrowers in the current portfolio would receive waivers on a
one-time basis under proposed Sec. 30.91(c), whereas borrowers in
future cohorts would not. Using an assumption of roughly 2 million new
borrowers each year for the next ten years, this leads to an estimate
of roughly 100,000 borrowers per cohort, and 1 million borrowers over
these cohorts.
In addition to our primary estimate, we include low and high
estimates to bound the range of reasonable possible waivers under
proposed Sec. 30.91(d). Our low estimate assumes that the take-up of
application-based relief is 50 percent (instead of 75 percent), but
still assumes that one-third of eligible borrowers benefit from other
payment relief options. This results in a total of 1.33 million
borrowers who could, at the Secretary's discretion, be approved for
relief, 0.67 million among the current portfolio, and 0.67 million from
future borrower cohorts. In our high estimate, we assume a larger share
of borrowers would qualify for relief. Specifically, we assume that 10
percent of borrowers in the current portfolio could be approved for a
waiver under proposed Sec. 30.91(d). This larger share aligns with
estimates from research suggesting that 10 percent of adults experience
spells of poverty that last at least three years, whereas the 5 percent
in our base estimate was based on five-year spells.\100\ Similar to our
[[Page 87156]]
base case, we assume a take-up rate of 75 percent and that \1/3\ of
borrowers get relief through another option. In this high scenario, we
estimate that 2 million borrowers in the current portfolio, and 2
million borrowers in future cohorts would qualify. We note that overall
estimates could be reduced once they account for other, anticipated
regulatory actions that provide relief to borrowers with education
debt.
---------------------------------------------------------------------------
\100\ Rates can vary by education level, age, and other
characteristics. See, for a review, Cellini, S.R., McKernan, S.M., &
Ratcliffe, C. (2008). The dynamics of poverty in the United States:
A review of data, methods, and findings. Journal of Policy Analysis
and Management: The Journal of the Association for Public Policy
Analysis and Management, 27(3), 577-605, as well as evidence from
Sandoval, D.A., Rank, M.R., & Hirschl, T.A. (2009). The increasing
risk of poverty across the American life course. Demography, 46,
717-737. and from Hoynes, H.W., Page, M.E., & Stevens, A.H. (2006).
Poverty in America: Trends and Explanations. The Journal of Economic
Perspectives, 20(1), 47-68. https://www.jstor.org/stable/30033633.
---------------------------------------------------------------------------
We also consider the possibility that the Department could
potentially use data aligned with the factors listed in Sec. 30.91(b)
that was not obtained through an application (e.g. from additional or
refined data to which the Department has access in the future). In such
potential cases, a borrower could receive a waiver 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
under proposed Sec. 30.91(d) (e.g., the borrower must be highly likely
to be in default or experience similarly severe and persistent negative
circumstances, and other payment relief options would not sufficiently
address the borrower's persistent hardship). Such cases would be
considered rare since the data that the Department may possess would
have to sufficiently establish eligibility, sufficiently show that
other options for payment relief did not address the borrower's
hardship, and sufficiently distinguish such borrowers from otherwise
similar borrowers who would not be deemed to qualify for relief.
We interpret the potential for such waivers to occur on the margin
of the take-up rate that we have built into our overall estimates.
Changes to the assumptions about the total number of borrowers who
could be approved because of the potential for non-application waivers
would not be due to differences in the applicable eligibility standard,
but rather assumptions about the precision with which various data
sources could identify borrowers who were experiencing hardship that
could qualify under the standard for relief in proposed Sec. 30.91(d).
Our base case assumption includes a 75 percent take-up rate, and we
believe this already generously incorporates a high implied take-up
rate for a small share of borrowers who might receive waivers under
proposed Sec. 30.91(d) without an application. However, we consider
the possibility that there could be a higher take-up rate, for example,
80 percent. We also consider that a greater number of borrowers could
potentially be approved. Assuming that 5 percent more borrowers could
be approved, and a take-up rate of 80 percent, our primary estimates of
who would receive relief under proposed Sec. 30.91(d) would increase
from 1 million borrowers in the current portfolio to about 1.1 million.
We do not formally run a new budget scenario below with these different
assumptions, as we believe those estimates would be below the high
scenario already discussed above.
The Department also considered how to estimate how many
applications it would receive, and the rate at which an application for
waiver would be likely to be approved at the Secretary's discretion. As
with the discussion above, there is no perfect comparison on which to
rely. However, considering that some borrowers who are ineligible will
apply, and that for other borrowers, other options for payment relief
would sufficiently address the borrower's hardship, we assume that for
every borrower who is approved at the Secretary's discretion, there
would be one that is rejected, i.e., we assume an approval rate of 50
percent.
For estimating the potential application rates, the Department
considered situations that might be closely analogous to the
application-based approach contemplated by proposed Sec. 30.91(d),
whereby the Secretary would conduct a holistic assessment of the
borrower's factors indicating hardship to determine if the borrower met
the standard for waiver described in proposed Sec. 30.91(d). We
identified few comparative situations. Applications similar to the ones
for IDR, Public Service Loan Forgiveness, or the prior pandemic-related
student debt relief plan under the HEROES Act were not closely relevant
for this estimation, because they generally only involve completing
straightforward background questions and checking certain boxes, and
there is no meaningful open response required from the borrower. By
contrast, the Department expects that the application for relief under
proposed Sec. 30.91(d) would solicit a range of qualitative and
quantitative information from the borrower to inform the Department's
determination of whether the borrower satisfies the hardship standard.
We also considered using the rate of approvals when borrowers
submit applications to use a different payment amount when seeking to
rehabilitate their loans, but that information is not readily tracked
by the Department's contractor. Even if an approval rate were
available, that form may still not be an appropriate comparison, since
it only affects borrowers in default and those borrowers have
particular characteristics in terms of postsecondary completion, type
of institution, and debt balance that might be different than the
broader population of borrowers. Another approval rate we considered
was borrower defense to repayment. Borrower defense also is not a
perfect comparison because it tends to have disproportionate numbers of
applications from borrowers who attended private for-profit colleges
than might be expected to occur here, and there are significant
differences between the factors that justify borrower defense to
repayment and the waivers proposed here.
Unless specified otherwise in the above discussion, estimates of
borrowers who would be eligible for relief under proposed Sec.
30.91(d) do not account for potential overlap with relief that may be
provided by any other proposed regulations that are not yet final as of
the publication of the NPRM, or of waivers through other provisions
that were not yet implemented as of April 30, 2024.
We invite feedback from the public about how to refine these
estimates.
Administrative Costs
The proposed regulations could result in significant administrative
costs for the Department. These costs would be relatively small for
immediate relief granted under proposed Sec. 30.91(c). For that type
of relief, the Department would expend one-time resources on developing
the predictive assessment contemplated in proposed Sec. 30.91(c) that
would predict the likelihood that a borrower will be in default within
two years after the publication of these proposed regulations. But the
Department would not need to expend significant further resources to
apply the predictive assessment to a borrower's information and would
not need to expend any resources developing an application,
disseminating the application, and reviewing and processing the
application.
For relief granted under the application-based pathway described in
proposed Sec. 30.91(d), however, the Department would incur
significant costs to create, disseminate, and process applications to
complete a holistic assessment of the information submitted by the
borrower related to hardship. The Department would need to either
repurpose or hire additional staff for this purpose. This would create
expenses for systems to accept and track the status of applications as
well as call-
[[Page 87157]]
center staffing costs to address inquiries related to the application
process. The degree of these costs would vary based upon the number of
applications the Department has the capacity to process in a year.
Increasing the Department's capacity to holistically assess
applications would require hiring more staff, either directly or
through subcontractors. Greater initial costs for staff could result in
lower long-term costs, however, as we anticipate that most borrowers
who are initially interested in the application-based process would do
so soon after such process is available. We anticipate that future
applications would come from newer borrowers or those with a
significant change in their circumstances such that they have now
decided to seek a hardship waiver.
The Department has developed estimates of the administrative costs
for the application-based pathway specified in proposed Sec. 30.91(d)
by considering existing analogous administrative processes,
particularly the costs related to reviewing applications for borrower
defense to repayment. Those processes share some similarities,
particularly that borrowers submit applications that may reveal
information and evidence that is not otherwise available to the
Department and must be reviewed. There are also some key differences.
First, borrower defense requires conducting fact-finding related to an
institution. That can be a significant upfront investment of time, but
any findings from that work can then be applied to multiple
applications. Second, the review of borrower defense applications is
generally carried out by attorneys. This reflects the legal standards
used for borrower defense approvals, which often include making
determinations about the nature of misrepresentations and meeting
certain evidentiary bars that are grounded in concepts similar to those
used by States in their unfair and deceptive acts and practices (UDAP)
laws.
The proposed application-based approach for hardship waivers under
proposed Sec. 30.91(d) would be different. First, we do not anticipate
that the fact-finding related to institutional conduct would apply to
the Department's review of applications under proposed Sec. 30.91(d).
Second, we do not anticipate that the individuals reviewing hardship
applications would need to be attorneys. That means the typical
staffing cost could be lower than it is for borrower defense.
Based upon these considerations, the Department modeled the
possible administrative costs of the application-based pathway
described in proposed Sec. 30.91(d) in the following manner. First, we
assumed that the cost per hour to review was $50. This is based on the
current hourly rate used by subcontractors for the Office of Federal
Student Aid in the Department of Education, which is roughly half the
hourly rate were Department staff hired for the same process. We then
assumed that it would take each reviewer on average 30 minutes to
review an application and render a recommended decision to the
Secretary. The 30-minute estimate is similar to how long Department
contractors typically take to review a form where borrowers submit
detailed income and expense information when seeking to rehabilitate a
defaulted loan (information collection 1845-0120). We expect that some
applications would be faster while others that include significant
additional information might take longer. The overall administrative
cost would then depend on how many applications the Department
anticipates receiving annually as well as how many we anticipate being
able to review in a year. The number would also be higher or lower
depending on the number of applications processed each year, the total
number of anticipated applications, and the average time to review the
application. If we expect a total of 4 million applications, at the
current hourly rate and expected review time, the personnel costs for
application review is estimated at about $100 million. We will continue
to refine these estimates based upon comments received from the public.
In addition to staffing costs, the Department also anticipates
incurring some administrative costs for updating and maintaining data
systems to process the intake of applications from borrowers seeking
hardship waivers, staffing call centers for questions, and costs to
train system users. We estimate this amount to be approximately $9
million in the first year, and an additional $1.7 million each year
thereafter.
4. Net Budget Impact
Table 4.1 provides an estimate of the net Federal budget impact of
these proposed regulations that are summarized in Table 2.1 of this
RIA. This includes both costs of a modification to existing loan
cohorts and costs for loan cohorts from 2025 to 2034. A cohort reflects
all loans originated in a given fiscal year. Consistent with the
requirements of the Federal Credit Reform Act of 1990 (FCRA), budget
cost estimates for the student loan programs reflect the estimated net
present value of all future non-administrative Federal costs associated
with a cohort of loans. The baseline for estimating the cost of these
final regulations is the President's Budget for 2025 (PB2025) as
modified for changes to debt management policies. The baseline \101\
does not include any changes related to the student debt relief
provisions described in the NPRM published April 17, 2024.\102\ Should
such debt relief provisions be finalized as proposed in the April NPRM
and should the Department provide waivers under such provisions, the
Department expects that the estimated costs of these regulations would
decrease.
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\101\ The Department notes that the baseline also includes the
existence of the final regulations published in July 2023 that made
various changes to the Department's pre-existing income contingent
repayment plan (known as the Revised Pay As You Earn, or REPAYE,
plan) and to the Department's other income contingent repayment
plans. Those regulations also changed the name of the REPAYE plan to
the Saving on a Valuable Education (SAVE) plan. See 88 FR 43820.
Several states have challenged the SAVE regulations as part of
ongoing litigation. See generally Missouri v. Biden, No. 24-2332
(8th Cir.); Alaska v. Department of Education, Nos. 24-3089, 24-3094
(10th Cir.). Because the SAVE regulations have not been permanently
enjoined, it is appropriate to include them in the baseline. The
Department recognizes that if the SAVE regulations are permanently
enjoined, this could increase the estimated costs for these
regulations because there may be more borrowers who are eligible for
relief. For example, in the absence of provisions under SAVE or
other ICR plans, the Department expects there would be more
borrowers eligible for relief under proposed Sec. 30.91(d) since
more borrowers would be likely to be in default or experience
similarly severe negative and persistent circumstances, and existing
payment relief options would not sufficiently address their
persistent hardship. The Department notes that even if the estimated
costs increased in such a manner, the Department believes the
benefits of these proposed regulations would still outweigh the
costs since the proposed regulations would authorize providing
waivers to borrowers who are unlikely to fully repay their loans
and, relatedly, the waivers would discharge debt that the Department
is unlikely to fully collect in a reasonable period of time.
\102\ 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.
[[Page 87158]]
Table 4.1--Estimated Net Budget Impact of the NPRM for Direct Loans and ED-Held Loans
[$ in millions]
----------------------------------------------------------------------------------------------------------------
Modification Outyear score Total (1994-
Section Description score (1994-2024) (2025-2034) 2034)
----------------------------------------------------------------------------------------------------------------
Sec. 30.91(c)..................... Immediate relief for 70,200 .............. 70,200
borrowers likely to be
in default.
Sec. 30.91(d)..................... Application-based 29,600 12,100 41,700
relief for borrowers
experiencing hardship.
----------------------------------------------------------------------------------------------------------------
It is possible that a borrower who is eligible for immediate relief
under proposed Sec. 30.91(c) may also be inclined to apply for relief
under proposed Sec. 30.91(d). For budgeting purposes, however, we
assume that all relief would be full relief, and that if a borrower
qualifies for and receives a waiver under proposed Sec. 30.91(c) then
they would not also receive a waiver under proposed Sec. 30.91(d).
Accordingly, the primary budget estimate stacks the scores in the order
shown on the assumption that immediate relief under proposed Sec.
30.91(c) would be provided to eligible borrowers prior to any
additional relief under proposed Sec. 30.91(d) to different borrowers.
The Department believes this stacked estimation is appropriate for the
primary estimates of the proposed regulations.
Methodology for Budget Impact
The Department estimated the budget impact of the proposed
provisions in this NPRM through changes to the Department's Death,
Disability, and Bankruptcy (DDB) assumption that handles a broad range
of loan discharges or adjustments, the collections assumption to
reflect balance changes on loans that ever defaulted, and the IDR
assumption for effects on borrowers in those repayment plans. The DDB
assumption is used in the Student Loan Model (SLM) to determine the
rate and timing of loan discharges due to the death, disability,
bankruptcy, or other discharge of the borrowers (this model is not the
same as the predictive assessment that is described for determining
whether a borrower may be eligible for a waiver under proposed Sec.
30.91(c)). The SLM is designed to calculate cash flow estimates for the
Department's Federal postsecondary student loan programs in compliance
with the FCRA and all relevant Federal guidance. The SLM calculates
student loan net cost estimates for loan cohorts where a cohort
consists of the loans originated in a given budget (fiscal) year. The
model operates with input data obtained from historical experience and
other relevant data sources. The SLM cash flow components range from
origination fees through scheduled principal and interest payments,
defaults, collections, recoveries, and fees. The cash flow time period
begins with the fiscal year of first disbursement and ends with the
fiscal year of the events at the end of the life of the loan:
repayment, discharge, or forgiveness.
For each loan cohort, the SLM contains separate DDB rates by loan
program, population (Non-Consolidated, Consolidated Not From Default,
and Consolidated From Default), loan type, and budget risk group (Two-
Year Proprietary, Two-Year Public and Not-for-Profit, Four-Year
Freshman and Sophomore of all institution types, Four-Year Junior and
Senior of all institution types, and Graduate Student of all
institution types). The DDB rate is the sum of several component rates
that reflect underlying claims data and assumptions about the effect of
policy changes and updated data on future claims activity. In general,
DDB claims are aggregated as the numerator by fiscal year of
origination and population, program, loan type, risk group, and years
from origination until the DDB claims. Zeros are used for any missing
categories in the numerator. Net loan amounts are aggregated as the
denominator by fiscal year of origination and population, program loan
type, and risk group. The DDB rate is simply the ratio of the numerator
to the denominator. Because the SLM only allows for DDB rates to be
specified up to 30 years from origination, DDB claims occurring more
than 30 years after origination are included in the year 30 rate. DDB
rates for future cohorts are forecasted using weighted averages of
prior year rates and have a number of additions and adjustment factors
built into them to capture policies or anticipated discharges that are
not reflected in the processed discharge data yet, including
adjustments for anticipated increased borrower defense and closed
school activity.
For estimates related to waivers granted to borrowers enrolled in
IDR repayment plans, the Department has a borrower and loan type level
submodel that generates representative cashflows for use in the SLM.
This IDR submodel contains information about borrowers' time in
repayment, the use of deferments and forbearances, estimated incomes
and filing statuses, and annual balances. Therefore, we are able to
identify or assign the borrowers in the IDR submodel who would be
eligible for one of the waivers in proposed Sec. 30.91 and incorporate
that effect by ending the payment cycle for borrowers who would be
eligible to receive a waiver under proposed Sec. 30.91(c) or (d).
The estimated cost of waivers under proposed Sec. 30.91(c) or (d)
varies depending on whether the borrower is in IDR, as well as whether
the waiver is a full or partial discharge of the loan. Partial waiver
of balances for borrowers already modeled to be on an IDR plan could
have three different effects depending upon whether the borrower was
expected to get IDR forgiveness prior to these waivers, and whether the
waiver changes that anticipated outcome. These potential effects would
be:
1. Before and after the waiver is applied, borrowers are expected
to receive some IDR forgiveness at the end of their repayment term. For
these borrowers, the waivers would affect the amount ultimately
forgiven, but because payments are based upon income and the amount of
time borrowers would be expected to repay is unchanged, there would be
no effect on the amount of anticipated future payments.
2. The borrower was expected to receive IDR forgiveness before the
waiver's application, but afterward is now expected to pay off their
balance before receiving IDR forgiveness. Because these borrowers would
now be expected to repay in less time, there would be some reduction in
the amount of anticipated future payments.
3. Before applying the waiver, the borrower was expected to retire
their loan balance prior to receiving IDR forgiveness, but as a result
of the policy would now be expected to retire their balance sooner.
Because these borrowers would now be expected to repay in less time,
there would be some reduction in the amount of anticipated future
payments.
[[Page 87159]]
Generally, we project that most partial waivers for borrowers
modeled to be on IDR would end up in the first group. Since these
borrowers would not see a change in the amount they pay before
receiving forgiveness, we do not assign a cost to the waivers for these
borrowers. Any costs for waivers granted to borrowers who are modeled
to be on IDR come from either full waivers or the minority of borrowers
in the second and third groups, for whom the waivers would reduce the
number of payments needed to fully repay their loan.
For estimates related to the effects of the proposed waiver
provisions on borrowers with loans not in IDR plans, the Department's
approach would be to: (1) estimate the potential waiver amounts
borrowers would be eligible for and aggregate them by loan cohort, loan
type, and budget risk group used in the SLM; (2) add the waiver amounts
for non-defaulted, non-IDR borrowers to the Department's baseline DDB
assumption in FY 2025; and (3) remove the amounts associated with the
waiver provisions from defaulted, non-IDR borrowers from the baseline
collections assumption. The revised IDR, DDB and collections groups are
run in a SLM scenario for each provision to generate the estimates in
Table 4.1. To produce the potential waiver amounts in Step 1 of this
process, the Department developed a loan-level file based on the FY2023
sample of NSLDS information used for preparing budget estimates, with
balance information supplemented by redrawing key loan information as
of June 13, 2024, to account for the discharges and waivers that
occurred in FY2024 and reduced borrower's balances to zero. Information
from this file would allow the evaluation of times in repayment that
would qualify for one of the provisions and anticipated future balances
for use in calculating the amount that the Secretary might waive for
borrowers who have experienced changes in balance.
These estimates are all based on the same random sample of
borrowers that the Department uses for all other budget estimation
activity related to Federal student loans. Currently, the most recent
sample available is from the end of FY2023, which is the best currently
available data that maintains the Department's consistent scoring
practices.
The Department followed two different approaches for modeling the
estimated cost of the provisions in proposed Sec. 30.91(c) and (d).
For proposed Sec. 30.91(c), the Department considered the output of
the model developed to project the likelihood that a borrower would be
in default within two years. We used that model to estimate the number
of borrowers by risk group as well as repayment status (e.g., in
default or in repayment) and estimated the cost of forgiving those
loans. For the outyear cohorts, we randomly assigned borrowers to
default based on default rates by cohort, risk group and loan type
assumed in the President's Budget for FY2025 baseline. This approach
reflects that under proposed Sec. 30.91(c), the Secretary may identify
borrowers eligible for relief based on a predictive assessment, without
requiring any action by those borrowers.
The Department took a different approach for proposed Sec.
30.91(d). That proposed provision describes an application-based
pathway for relief whereby the Secretary may conduct a holistic
assessment of the borrower's factors indicating hardship based on
information obtained through an application process in addition to
potentially supplementing that data with information already in the
Department's possession. To model this approach, the Department
generated assumptions of the number of borrowers who would be eligible
for a waiver. Of this number of assumed eligible applicants, we then
calculated the distribution of borrowers across risk group (e.g., 2-
year proprietary, graduate borrowers, and 4-year nonprofit or public
institutions), and by cohort year. We describe this process in greater
detail below.
First, as described earlier, the Department considered multiple
potentially comparable situations it has dealt with in the past to
estimate the number of applications from borrowers seeking proposed
waivers related to hardship. We examined the volume associated with
borrowers on IDR plans, those who applied for student debt relief under
the HEROES Act, and those who applied for economic deferment or
hardship from a period prior to the payment pause. With no perfect
analog but based on the best available data, we use a base estimate
that about 1 million borrowers in the current portfolio would be
approved for relief. The estimate of borrowers who would be affected in
future cohorts over the next ten years is 1 million.
To reduce the possibility in the net budget impact estimate that
borrowers who might be otherwise captured under proposed Sec. 30.91(c)
and could potentially be double counted in both proposed Sec. 30.91(c)
and proposed Sec. 30.91(d), we estimated the cost of the waivers
proposed in proposed Sec. 30.91(d) after accounting for the cost of
proposed Sec. 30.91(c) and only allowed borrowers to receive a waiver
under one of the proposed provisions. The Department seeks feedback
about the assumed number of borrowers who would be approved for a
waiver under proposed Sec. 30.91(d), and we will continue to refine
this estimate.
Next, to estimate the distribution of approved applicants across
risk group and cohort year, the Department consulted the closest past
situations that might operate similarly to the proposed waivers. This
included looking at the distribution of borrowers across risk group and
cohort year who submitted applications for relief under the HEROES Act
Plan that was announced in August 2022, borrowers who ever defaulted on
loans based on Department data, and borrowers who had a qualifying
economic hardship forbearance or deferment. While not exact
corollaries, these data nonetheless provide useful information on which
types of borrowers might choose to apply. We believe these are better
comparisons for thinking about the distribution of approved borrowers
than other types of existing information. For instance, we do not think
closed school loan discharges would be a good comparison, because those
borrowers only come from colleges that closed, which would largely
exclude public institutions. We also chose not to use borrowers who
documented income and expense information when seeking a loan
rehabilitation, because these borrowers are disproportionately likely
to have not finished their postsecondary programs, whereas the hardship
applications could come from borrowers who graduated but who are
struggling on their loans in ways beyond just being in default.
Specifically, to estimate the distribution of approved applicants
across cohort years, the Department equally weighted the distributions
observed under submitted applications for relief under the HEROES Act
Plan that was announced in August 2022 and borrowers who ever defaulted
on loans based on Department data. To calculate the distribution of
borrowers across risk groups, the Department equally weighted the
distributions observed under submitted applications for relief under
the HEROES Act Plan that was announced in August 2022 and borrowers who
had a qualifying hardship forbearance or deferment. If a cell reached
100 percent of sampling in current Department data, the excess approved
applicants were distributed within the respective cohort range row by
weight. The resulting estimated
[[Page 87160]]
distribution of approved applicants is shown in Table 4.2.
Table 4.2--Estimated Percentage Distribution of Approved Applicants by Cohort and Risk Group
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total
Non- Consolidated Consolidated -------------------------------------------------------------------------------
consolidated non-default default 2-Yr 4-Yr PubPri 4-Yr PubPri
Proprietary 2-Yr Public FrSo JrSr Grad
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1994-2004....................................................... 0.6 0.2 1.3 1.3 1.4 3.5 0.9 9.1
2005-2009....................................................... 0.7 0.7 2.1 3.2 1.6 2.5 0.6 11.5
2010-2014....................................................... 2.3 2.4 6.9 10.5 5.1 8.3 2.1 37.4
2015-2019....................................................... 1.8 1.8 5.2 7.9 3.8 6.3 0.9 27.6
2020-2024....................................................... 0.9 0.9 2.8 4.2 2.0 3.3 0.1 14.3
-------------------------------------------------------------------------------------------------------------------------------
Total....................................................... 6.3 6.0 18.2 27.1 13.8 23.9 4.6 100.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Next, we randomly identified non-defaulted, non-IDR borrowers
within each risk group and cohort year cell, based on the percentages
shown in Table 4.2, to be in the approved applicant pool. We then
waived the assumed future balances in the sample to generate the
estimated increase in DDB claims or reduction in collections associated
with the hardship application provisions. To provide a maximally
conservative budget estimate, we assumed all of these approvals would
result in full relief. Lesser amounts of relief would reduce the
estimated cost.
Table 4.3 shows the outstanding loan balances by risk group for
approved borrowers from existing cohorts that entered repayment by
2024.
Table 4.3--Outstanding Loan Balances by Risk Group
[$ Millions]
------------------------------------------------------------------------
Outstanding
Risk group loan balances
------------------------------------------------------------------------
2-Yr Proprietary........................................ 835
2-Yr Public............................................. 1,103
4-Yr PubPri FrSo........................................ 6,099
4-Yr PubPri JrSr........................................ 5,680
Grad.................................................... 5,034
Consol.................................................. 7,523
---------------
Total............................................... 26,275
------------------------------------------------------------------------
The sampling process described above generated the estimated
forgiveness for borrowers from existing cohorts for loans that entered
repayment by 2024. For future cohorts and loans that enter repayment in
2025 and later from existing cohorts, we calculated the percent of net
volume that was associated with borrowers that entered repayment by
2024 assigned to receive forgiveness by origination cohort,
consolidation status, budget risk group, and time to receiving hardship
forgiveness from entering repayment (offset). We then took the average
forgiveness percentage of volume across origination cohorts by risk
group, consolidation status, and offset to estimate the percent of
volume that will enter repayment from 2025 and out that we estimate
will receive hardship forgiveness. As we expect it will take borrowers
some years in repayment to demonstrate persistent hardship, we have
distributed forgiveness in the outyears evenly from years 5 to 15 in
repayment. This estimated forgiveness is then summarized by origination
cohort, consolidation status, budget risk group, loan type, and offset
and added to the baseline estimate for the discharge assumption to
generate the cost of Sec. 30.91(d).
The Department also considered how to estimate how many
applications it would receive, and the rate at which an application for
waiver would be likely to be approved.
As described previously, we assume that for every two borrowers who
are eligible, there is one that is rejected because their needs are met
via other Department payment relief options, such as IDR plans. We also
assume that there would be borrowers who apply but do not meet the
standard. On net, we assume that for every eligible applicant, there is
also one ineligible applicant, for an effective approval rate of 50
percent. The Department seeks feedback about these assumed approval
rates, and we will continue to refine this estimate.
5. Accounting Statement
As discussed in OMB Circular A-4, we have prepared an accounting
statement showing the classification of the expenditures associated
with the provisions of these proposed regulations. Table 5.1 provides
our best estimate of the changes in annual monetized transfers that may
result from these proposed regulations.
Expenditures are classified as transfers from the Federal
government to affected student loan borrowers.
Table 5.1--Accounting Statement: Classification of Estimated
Expenditures
[In millions]
------------------------------------------------------------------------
------------------------------------------------------------------------
Reduction in loans that are unlikely to be repaid in
full in a reasonable period............................
Increased ability for borrowers to repay loans on which
they have or are experiencing hardship.................
Reduced administrative burden for Department due to
reduced servicing, default, and collection costs.......
Category:
Paperwork Reduction Act burden on borrowers to $11.14
complete applications..............................
Administrative costs to Federal government to update $2.5
systems and contracts to implement the proposed
regulations........................................
Administrative costs of staff reviews............... $12.1
Reduced transfers from borrowers due to waivers:.... 2%
Based on high likelihood of being in default........ $7,657
Based on applications............................... $4,432
------------------------------------------------------------------------
[[Page 87161]]
6. Alternatives Considered
The Department considered the option of not proposing these
regulations, as the Secretary has existing waiver authority under
sections 432(a)(6) and 468(2) of the HEA. However, we believe these
regulations are important to inform the public about how the Secretary
would exercise this longstanding discretionary waiver authority in a
consistent and transparent manner. The Department believes that
foregoing these proposed regulations would reduce transparency about
the Secretary's discretionary use of waiver. For all the reasons
detailed above, hardship waivers would produce substantial, critical
benefits for borrowers and the Department. Overall, as discussed above
in the context of the relevant Executive Orders, the Department's
analysis suggests that the benefits of the proposed regulations will
outweigh their costs.
As part of the development of these proposed regulations, the
Department engaged in a negotiated rulemaking process in which we
received comments and proposals from non-Federal negotiators
representing numerous impacted constituencies. These included higher
education institutions, legal assistance organizations, consumer
advocacy organizations, student loan borrowers, civil rights
organizations, State officials, and State attorneys general. Non-
Federal negotiators submitted a variety of proposals relating to the
issues under discussion. Information about these proposals is available
on our negotiated rulemaking website at https://www2.ed.gov/policy/highered/reg/hearulemaking/2023/.
Because the negotiators reached consensus on the proposed
regulations in this NPRM, the Department did not consider alternative
regulations in the drafting of this NPRM. We did, however, consider
some alternatives during the negotiated rulemaking process.
The Department considered including the issue of borrowers affected
by servicer errors as a potential sign of hardship. However, we decided
not to explicitly include that as a factor under proposed Sec.
30.91(b) because the Department has existing procedures to address
administrative errors without needing these specific regulations for
them.
The Department also considered using an exclusive list of factors
indicating hardship in proposed Sec. 30.91(b) but concluded that a
non-exhaustive list would provide necessary flexibility to consider
unanticipated factors indicating hardship and to incorporate new types
of data as they become available.
As noted above, the Committee reached consensus on the regulatory
language proposed in this NPRM.
7. Regulatory Flexibility Act
The Secretary certifies, under the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), that this final regulatory action would not have a
significant economic impact on a substantial number of ``small
entities.''
These regulations will not have a significant impact on a
substantial number of small entities because they are focused on
arrangements between the borrower and the Department. They do not
affect institutions of higher education in any way, and those entities
are typically the focus on the Regulatory Flexibility Act analysis. As
noted in the Paperwork Reduction Act section, burden related to the
final regulations will be assessed in a separate information collection
process and that burden is expected to involve individuals.
8. Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department provides the general public and Federal agencies
with an opportunity to comment on proposed and continuing collections
of information in accordance with the Paperwork Reduction Act of 1995
(PRA) (44 U.S.C. 3506(c)(2)(A)). This helps make certain that the
public understands the Department's collection instructions,
respondents can provide the requested data in the desired format,
reporting burden (time and financial resources) is minimized,
collection instruments are clearly understood, and the Department can
properly assess the impact of collection requirements on respondents.
Proposed Sec. 30.91 in this NPRM contains information collection
requirements. Under the PRA, the Department would, at the required
time, submit a copy of these sections and an Information Collections
Request to the Office of Management and Budget (OMB) for its review.
A Federal agency may not conduct or sponsor a collection of
information unless OMB approves the collection under the PRA and the
corresponding information collection instrument displays a currently
valid OMB control number. Notwithstanding any other provision of law,
no person is required to comply with, or is subject to penalty for
failure to comply with, a collection of information if the collection
instrument does not display a currently valid OMB control number. In
the final regulations, we would display the control numbers assigned by
OMB to any information collection requirements proposed in this NPRM
and adopted in the final regulations.
Section 30.91--Waiver due to likely impairment of borrower ability
to repay or undue costs of collection.
Requirements: The NPRM proposes to add a new Sec. 30.91 to 34 CFR
part 30 in which the Secretary would consider granting a waiver for
borrowers experiencing hardship. To implement proposed Sec. 30.91(d),
the Department would use an ``additional relief'' process using a
holistic assessment approach, where the Department would consider
information provided by a borrower through an application, based on a
non-exclusive list of factors in proposed Sec. 30.91(b), indicating
that they are experiencing hardship. Information would include items
such as a borrower's household income and assets, payments on debt
relative to household income, and exceptional amounts of costs for
caretaking.
While some of the information in proposed Sec. 30.91(b) could be
obtained from the Department's administrative data, other information
must be obtained from the borrowers themselves through an application.
The information collected on the application would be used to assess
eligibility for a hardship determination. The Department expects that
the application for relief under proposed Sec. 30.91(d) would solicit
a range of qualitative and quantitative information from the borrower
to inform the Department's determination of whether the borrower
satisfies the hardship standard.
Burden Calculations:
Sec. 30.91 Waiver due to likely impairment of borrower ability to
repay or undue costs of collection.
The proposed regulatory changes would add burden to borrowers and
would require a new information collection. As discussed in the net
budget impact section, we estimate that between 2.67 million and 8
million borrowers would submit hardship applications. The costs are
estimated using the median hourly wage of $23.11 reported by the Bureau
of Labor Statistics for all occupations.\103\ We estimated the number
of hours needed to complete the proposed application based upon
discussions with Department staff that have worked on similar processes
in the past. Through those conversations, we estimate that it
[[Page 87162]]
would take a typical borrower 1 hour to complete the application form
to indicate they want to pursue the application-based process. The
Department's two closest analogous types of application forms are the
one that borrowers submit when filing a borrower defense to repayment
application and the one that borrowers fill out to document their
income and expenses when seeking to rehabilitate a defaulted loan. For
borrower defense forms, the Department estimates that it takes a
borrower 30 minutes (0.5 hours) to complete, while the rehabilitation
form takes an estimated 60 minutes (1 hour) per borrower. We anticipate
that the application form for the proposed hardship waiver would likely
take as long as the rehabilitation form to fill out. We came to this
conclusion because borrowers who want to provide information about
indicators of hardship from their finances or assets may need to
provide supplemental financial information. Applicants may have to put
together documentation related to high essential expenses, such as
health care or dependent care costs. They may also need to provide
information about how they are experiencing hardship as a result of the
items identified and why it is likely to persist.
---------------------------------------------------------------------------
\103\ https://www.bls.gov/oes/current/oes_nat.htm#00-0000.
---------------------------------------------------------------------------
Because we do not want to double count borrowers who may qualify
for and receive relief under proposed Sec. 30.91(c), the estimate for
proposed Sec. 30.91(d) illustrated below does not include borrowers
who would be expected to receive full relief under proposed Sec.
30.91(c).
These figures and considerations are the basis for the following
estimations.
Sec. 30.91 Hardship Application--OMB Control Number 1845-NEW
----------------------------------------------------------------------------------------------------------------
Cost $22.31
Affected entity Applications Burden hours per hour
----------------------------------------------------------------------------------------------------------------
Individual low scenario......................................... 2,667,000 2,667,000 59,500,770
Individual medium scenario...................................... 4,000,000 4,000,000 89,240,000
Individual high scenario........................................ 8,000,000 8,000,000 178,480,000
Average Total............................................... 4,889,000 4,889,000 109,073,590
----------------------------------------------------------------------------------------------------------------
Consistent with the discussions above, the following chart
describes the sections of the proposed regulations involving
information collections, the information being collected and the
collections that the Department would submit to OMB for approval and
public comment under the PRA, and the estimated costs associated with
the information collections. The monetized net cost of the increased
burden for borrowers using wage data was developed using Bureau of
Labor Statistics (BLS) data. For individuals, we have used the median
hourly wage for all occupations, $23.11 per hour according to BLS.\104\
---------------------------------------------------------------------------
\104\ https://www.bls.gov/oes/current/oes_nat.htm#00-0000.
Collection of Information
----------------------------------------------------------------------------------------------------------------
Estimated cost
Regulatory section Information collection OMB control number and $23.11 per
estimated burden hour
----------------------------------------------------------------------------------------------------------------
Sec. 30.91.......................... Would allow the Secretary to 1845-NEW 4,889,000 $109,073,590
receive applications that average hours.
provide information for the
Secretary to conduct hardship
determinations..
-----------------------------------------
Total............................. .............................. 1845-NEW 4,889,000...... 109,073,590
----------------------------------------------------------------------------------------------------------------
If you wish to review and comment on the Information Collection
Requests, please follow the instructions in the ADDRESSES section of
this notification.
Note: The Office of Information and Regulatory Affairs in OMB and
the Department review all comments posted at www.regulations.gov.
In preparing your comments, you may want to review the Information
Collection Request, including the supporting materials, in
www.regulations.gov by using the Docket ID number specified in this
notification. This proposed collection is identified as proposed
collection 1845-NEW.
We consider your comments on these proposed collections of
information in--
Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use.
Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions.
Enhancing the quality, usefulness, and clarity of the
information we collect; and
Minimizing the burden on those who must respond.
Consistent with 5 CFR 1320.8(d), the Department is soliciting
comments on the information collection through this document. Between
30 and 60 days after publication of this document in the Federal
Register, OMB is required to make a decision concerning the collections
of information contained in these proposed priorities, requirements,
definitions, and selection criteria. Therefore, to make certain that
OMB gives your comments full consideration, it is important that OMB
receives your comments on these Information Collection Requests by
December 2, 2024.
9. Intergovernmental Review
This program is subject to Executive Order 12372 and the
regulations in 34 CFR part 79. One of the objectives of the Executive
Order is to foster an intergovernmental partnership and a strengthened
Federalism. The Executive order relies on processes developed by State
and local governments for coordination and review of proposed Federal
financial assistance.
[[Page 87163]]
This document provides early notification of our specific plans and
actions for this program.
10. Assessment of Education Impact
In accordance with section 411 of the General Education Provisions
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on
whether these final regulations would require transmission of
information that any other agency or authority of the United States
gathers or makes available.
11. Federalism
Executive Order 13132 requires us to provide meaningful and timely
input by State and local elected officials in the development of
regulatory policies that have Federalism implications. ``Federalism
implications'' means substantial direct effects on the States, on the
relationship between the National Government and the States, or on the
distribution of power and responsibilities among the various levels of
government. The proposed regulations do not have Federalism
implications.
Accessible Format: On request to the program contact person(s)
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Miguel Cardona,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary of
Education proposes to revise part 30 of title 34 of the Code of Federal
Regulations as follows:
List of Subjects in 34 CFR Part 30
Claims, Income taxes.
For the reasons discussed in the preamble, the Department of
Education proposes to amend 34 CFR part 30 to read as follows:
PART 30--DEBT COLLECTION
0
1. The authority citation for part 30 continues to read as follows:
Authority: 20 U.S.C. 1221e-3(a)(1), and 1226a-1, 31 U.S.C.
3711(e), 31 U.S.C. 3716(b) and 3720A, unless otherwise noted.
0
2. Add subpart G, consisting of Sec. 30.91 to read as follows:
Subpart G--Waiver of Federal Student Loan Debts
Sec. 30.91 Waiver due to likely impairment of borrower ability to
repay or undue costs of collection.
(a) Standard for waiver due to hardship. The Secretary may waive up
to the outstanding balance of a loan owed to the Department arising
under the Federal Family Education Loan Program authorized under title
IV, part B, of the HEA, the William D. Ford Federal Direct Loan Program
authorized under title IV, part D, of the HEA, the Federal Perkins Loan
Program authorized under title IV, part E, of the HEA, and the Health
Education Assistance Loan Program authorized by sections 701-720 of the
Public Health Service Act, 42 U.S.C. 292-292o, when the Secretary
determines that a 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.
(b) Factors that substantiate hardship. In determining whether a
borrower meets the conditions described in paragraph (a) of this
section, the Secretary may consider any indicators of hardship related
to the borrower, including but not limited to--
(1) Household income;
(2) Assets;
(3) Type of loans and total debt balance owed for loans described
in paragraph (a) of this section, including those not owed to the
Department;
(4) Current repayment status and other repayment history
information;
(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 FAFSA
form;
(8) Type and level of institution attended;
(9) Typical student outcomes associated with a program or programs
attended;
(10) Whether the borrower has completed any postsecondary
certificate or degree program for which they received title IV, HEA
financial assistance;
(11) Age;
(12) Disability;
(13) Age of the borrower's loan based upon first disbursement, or
the disbursement of loans repaid by a consolidation loan;
(14) Receipt of means-tested public benefits;
(15) High-cost burdens for essential expenses, such as healthcare,
caretaking, and housing;
(16) The extent to which hardship is likely to persist; and
(17) Any other indicators of hardship identified by the Secretary.
(c) Immediate relief for borrowers likely to default. The Secretary
may consider any indicators of hardship related to the borrower,
including but not limited to the factors described in paragraph (b) of
this section 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 October 31, 2024.
(d) Process for additional relief. In exercising the authority
described in paragraph (a) of this section, 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 the conditions
described in paragraph (a) of this section.
[FR Doc. 2024-25067 Filed 10-30-24; 8:45 am]
BILLING CODE 4000-01-P
