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

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. 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 § 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 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.

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. 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 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.
• 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.

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 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 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 § 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 § 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 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.

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. 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. 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.

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.

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. 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). 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 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,” 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. The Department has viewed its waiver authority as permitting the Secretary to waive the Department's right to require repayment of a debt. 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 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.

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 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. 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 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.

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 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 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/index.html.

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/index.html.

On August 31, 2023, the Department published a document in the Federal Register 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.

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.
• 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. 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 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:

• 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/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 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.

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 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, and it may be contrary to 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 borrowers. 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 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.

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;
• 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 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, 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.

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. Homeownership, for example—whether by the borrower or the borrower's parents—appears to be correlated with lower likelihood of default. 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 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 payments on their loans or having defaulted on a debt.

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. 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.

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.

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. 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. 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.

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. 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. 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. 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-to-income ratios were associated with higher rates of default. 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 lower share of income. 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. 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.

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 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. 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.

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. 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. Evidence also suggests that having medical collections is associated with student loan repayment struggles.

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. 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 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. 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. 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.

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 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. 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.

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, 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. 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. 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.

Borrowers are eligible for a discharge of their student loans if they qualify for a total and permanent disability (TPD) discharge. 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.” 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. 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 medical condition was relatively common.

Data and surveys indicate that borrowers with a disability tend to have a higher probability of default, with variation across conditions. Half of borrowers who reported a disability in a 2021 Pew survey were in default, compared to a third of those without a disability.

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. 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 § 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. 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. Further, students enrolled in two-year schools, or vocational schools, were more likely to default relative to students enrolled in four-year institutions. And students who enroll in non-selective four-year institutions were more likely to default than those who enroll in selective four-year institutions.

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.

Research also has shown that there can be differential financial returns to programs of study. Certain programs are also more likely to produce graduates with high amounts of debt, relative to typical earnings, which may affect loan repayment outcomes. 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. 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. These factors are relevant 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 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.

§ 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.

Current Regulations: None.

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. 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. 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. 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,” 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, 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.

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. 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. 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 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 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 § 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 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.