In an effort to help struggling debtors, the Biden administration unveiled an updated plan following the Supreme Court’s rejection of the $400 billion debt forgiveness plan. The focus of aid is now narrowed to target groups, such as pupils from dubious-quality schools and those with higher-than-initial balances.
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U.S. Department of Education Crafts Plan to Aid Financially Strapped Borrowers Facing Student Loan Hardships
In response to this setback, the U.S. Department of Education plans a rulemaking session on Feb 22-23, exclusively targeting financially strapped borrowers. Defining this category proves challenging, but the department seeks to forgive debt based on enduring hardship after exhausting other benefits.
Borrowers facing “undue hardship” in bankruptcy discharge cases, involving an inability to maintain a minimal living standard, low likelihood of financial improvement, and a history of good faith repayment efforts, might serve as a guide. However, meeting these strict criteria is expected to be difficult for most financially strapped borrowers.
Negotiators explore using government data for eligibility, focusing on Pell Grant recipients, those qualifying for Affordable Care Act health insurance subsidies, student debt-to-income ratios, and older debtors with limited income. The department leans towards identifying eligible financially strapped borrowers through easily obtainable administrative records, possibly from the U.S. Department of Veterans Affairs, Social Security Administration, or the U.S. Department of Health and Human Services.
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Government Reforms Offer Hope for Financially Strapped Borrowers Seeking Student Loan Relief
While considering more relief, the government scrutinizes collection practices on student loans, such as wage and Social Security benefit garnishments, criticized as extreme measures punishing already struggling individuals. Furthermore, recent changes by the Education Department make it easier for distressed financially strapped borrowers to erase student loans in bankruptcy court, a notable shift from previous stringent practices.
In summary, the evolving plan targets financially strapped borrowers through a revised approach, exploring various eligibility criteria and leveraging available government data for a more accessible relief mechanism.
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