Alex Padilla U.S. Senator for California

WASHINGTON, D.C. — U.S. Senators Alex Padilla (D-Calif.), Elizabeth Warren (D-Mass.), Majority Leader Chuck Schumer (D-N.Y.), and Senate Health, Education, Labor and Pensions Committee Chair Bernie Sanders (I-Vt.), along with Representatives Ayanna Pressley (D-Mass.-07), Ilhan Omar (D-Minn.-05), and Frederica Wilson (D-Fla.-24) urged U.S. Secretary of Education Miguel Cardona to leverage his authority under the Higher Education Act to provide expanded student debt relief to working and middle-class borrowers. The letter comes in response to an initial draft of the proposed rule — and ahead of the final session of the negotiated rulemaking (“neg-reg”) process — that would limit student debt relief to four specific subsets of borrowers.

“This regulation has the potential to improve the financial security of tens of millions of hard-working Americans who are currently trapped by crushing student debt,” wrote the lawmakers. “However, we are concerned that the latest draft of the rule would fall short of providing the full scale of debt relief that low and middle-income Americans urgently need.”

“This rulemaking process presents a significant opportunity to address pervasive problems within the student loan system by fortifying the authority to waive debt, in order to ensure that postsecondary education becomes accessible to all students,” continued the lawmakers. “We urge you to leverage this authority to its fullest extent, maximizing relief for the greatest number of borrowers facing financial hardship.”

Following the Supreme Court’s June 2023 ruling that struck down President Biden’s initial student debt relief plan, President Biden swiftly implemented two measures to expedite debt relief for a wide range of borrowers, while simultaneously supporting them during the repayment process. The first was the Saving on a Valuable Education (SAVE) Plan, an income-driven repayment plan that prevents balances from growing because of unpaid interest and lowers borrower monthly payments. The second was the initiation of a negotiated rulemaking procedure to establish an alternative debt forgiveness pathway for a number of working and middle-class borrowers, leveraging the authority granted under the Higher Education Act. 

The Department of Education is currently in the midst of three sessions of this student debt neg-reg process. In advance of the second session, the Department issued an initial draft of the rule that would make four subsets of borrowers eligible for student debt relief: (1) borrowers with outstanding federal student loan balances that exceed their original principal balance due to interest; (2) borrowers with loans that have been in repayment for 25 years or more; (3) borrowers who are eligible for forgiveness under an enumerated repayment plan or loan program but have not enrolled; and (4) certain borrowers who took on loans to attend programs that provide insufficient financial value (including career-training programs with unreasonably high debt or low earnings for graduates, and programs at institutions with high loan default rates). 

The letter includes the following actions to strengthen the proposed student debt relief rule and provide more relief to vulnerable borrowers:

• Eliminate all debt that exceeds the original principal balance of the loan.
• Provide full cancellation, not just a waiver of excess interest, for borrowers who have repaid enough to cover their original principal.
• Eliminate the sudden cliff that would give full relief to borrowers whose loans first entered repayment at least 25 years ago and no relief to similarly situated borrowers.
• Extend relief to additional categories of borrowers with financial hardship and create a catch-all category for unforeseen forms of hardship.
• Extend relief to borrowers who have been victims of student loan servicer misconduct or error.
• Eliminate the need for borrowers to submit burdensome applications by basing eligibility for relief on information that the Department of Education already has or that it can acquire from other agencies.

In August, Senators Padilla, Warren, Schumer, and Raphael Warnock (D-Ga.), as well as Representatives Pressley, Omar, Wilson, and Jim Clyburn (D-S.C.-06) led 79 other lawmakers in a letter to President Biden, urging him to swiftly deliver on his promise to deliver student debt cancellation to working and middle-class families by early 2024.

Full text of the letter is available here and below:

Dear Secretary Cardona:

We are writing in support of the Department of Education’s (the Department or ED) ongoing efforts to pursue student loan relief through the negotiated rulemaking (“neg-reg”) process. This regulation has the potential to improve the financial security of tens of millions of hard-working Americans who are currently trapped by crushing student debt. However, we are concerned that the latest draft of the rule would fall far short of providing the full scale of debt relief that low- and middle-income Americans urgently need. As the negotiating committee prepares for its final session, we urge ED and the committee to consider six recommendations for maximizing the impact of the proposed rule for vulnerable borrowers.

We are pleased that ED is taking steps to provide debt relief to millions of struggling borrowers, especially in the wake of the Supreme Court’s disappointing and unjustified decision to strike down the Biden Administration’s initial student debt relief plan. In light of that goal, the draft regulatory text emerging from the neg-reg should act to deliver meaningful relief to these borrowers. Under the Higher Education Act of 1965 (HEA), the Secretary of Education has the clear authority to “enforce, pay, compromise, waive, or release” federal student loans. This rulemaking process presents a significant opportunity to address pervasive problems within the student loan system by fortifying the authority to waive and compromise debt, in order to ensure that postsecondary education becomes accessible to all students. We urge you to leverage this authority to its fullest extent, maximizing relief for the greatest number of borrowers facing financial hardship.

Student loan debt is a burden carried on the shoulders of 43.6 million borrowers who collectively owe an astronomical $1.65 trillion in federal student loans. This debt crisis impedes millions of families from achieving financial security; student debt delays homeownership, reduces savings, hinders payment of medical bills, and casts a long shadow of financial anxiety. While the average borrower carries a staggering $37,338 in federal student loan debt, the weight of student loan debt is not evenly distributed. Among undergraduate-degree holders, Black students are more likely to borrow federal loans and hold an average of $25,000 more debt than White borrowers. Four years after graduation, 48 percent of Black borrowers owe more than they initially borrowed, compared to just 17 percent of their White counterparts. As of 2021, 40 percent of Latino borrowers defaulted on their loans at some point, as compared to only 29 percent of White borrowers. Furthermore, a shocking third of Americans with student loans have no degree at all. Indeed, as ED has acknowledged, student debt can be so crushing that “[s]ome borrowers are left worse off than if they had never attended college at all.” These disparities underscore the urgent need to tackle the student loan crisis as a matter of racial and economic justice.

We celebrated President Biden’s August 2022 announcement that he would use his authority under the HEROES Act to cancel up to $20,000 in student loan debt for over 40 million Americans. While the President’s decision fell short of our calls for more extensive cancellation of student debt, it was an important step in the right direction. Within just weeks of the program’s launch, nearly 26 million borrowers had submitted applications for relief and 16 million had been approved. However, extremist judges halted the program based on dubious legal challenges, and in June 2023 the conservative majority of the Supreme Court overturned the program, unjustly denying relief to millions of struggling borrowers.

In response to the Supreme Court’s ruling, the Biden Administration swiftly initiated two steps to provide debt relief for “as many borrowers as possible, as quickly as possible.” First, recognizing the urgent need to support student loan borrowers, the Department of Education finalized the Saving on a Valuable Education (SAVE) Plan, the newest income-driven repayment (IDR) plan, which eliminates monthly debt payments for borrowers below 225 percent of the federal poverty line, cutting payments on undergraduate loans in half, and more. As of November 2023, nearly 5.5 million borrowers had enrolled in SAVE, including 2.9 million who qualify for $0 monthly payments.

Second, the Secretary of Education exercised authority under the HEA to initiate a negotiated rulemaking process “aimed at opening an alternative path to debt relief for as many working and middle-class borrowers as possible.” ED may pursue the neg-reg process in order to issue a new regulation for programs authorized under Title IV of the HEA. This process brings together ED and stakeholders from the higher education community for a series of negotiations to develop a Notice of Proposed Rulemaking (NPRM), which then becomes available for public comment. In the words of Education Undersecretary James Kvaal, this rulemaking process has the potential to help “tackle pervasive problems in the [student loan] system, and help ensure that postsecondary education is a path to opportunity for more students.”

ED is currently in the midst of three sessions of this student debt neg-reg process. In advance of the third session, the Department issued a draft of the rule that would make four subsets of borrowers eligible for student debt relief: (1) borrowers with outstanding federal student loan balances that exceed their original principal balance, due to interest; (2) borrowers with loans that have been in repayment for over 20 or 25 years; (3) borrowers who are eligible for forgiveness under an enumerated repayment plan or loan program but have not enrolled; and (4) certain borrowers who took on loans to attend programs that provide insufficient financial value, lost Title IV eligibility, or were found to have committed misconduct.

ED has also released an issue paper indicating the potential need for the rule to address a fifth category: “those experiencing hardship that is not otherwise addressed by the existing student loan system.” The paper lists examples of other forms of hardship that the rule could capture and poses questions for negotiators to consider, including which indicators would minimize the application burden for borrowers, and would extend relief to borrowers not already covered by existing programs.

These actions build on the work the Biden Administration has already done to improve the student loan program and make higher education more affordable, including approving $127 billion in relief for more than 3.6 million borrowers. While we commend the Biden Administration for taking keys steps to fix the broken student loan system through the regulatory process, we believe that the regulatory text could be improved to better take advantage of the Department’s full authority under the HEA. The new rule should fulfill the Administration’s original goal following the Supreme Court’s decision, of creating an alternative that would “provid[e] for as many borrowers as possible with debt relief,” and provide meaningful relief for families struggling to pay their bills. As we lend our support to your diligent efforts to provide debt relief through regulatory procedures, we urge you to consider several recommendations to strengthen the Department’s debt relief rule. Specifically, we propose the following actions:

• Eliminate all debt that exceeds the original principal balance of the loan.

Millions of borrowers have a student loan balance that is higher than their original balance was when they entered repayment. This negative amortization occurs when a borrower cannot “pay even the accumulating interest on their debt, let alone make progress on the principal.” In recent years, roughly 50-60 percent of outstanding student loans have had a higher balance than when they were first issued. Women and people of color disproportionately struggle to pay down their balances over time.

The current draft of the rule states that the Secretary may waive the amount by which a borrower’s total outstanding balance exceeds the original principal balance of the loan (“excess interest”), subject to strict limitations: certain borrowers on the SAVE Plan or IDR could access up to $20,000 in excess-interest relief and other borrowers — including low-income borrowers not enrolled in an IDR plan — could access up to only $10,000 in relief. These limits unnecessarily deprive ED of discretion to provide more extensive relief under compelling circumstances, such as for the teacher or nurse who cannot keep up with debt payments due to an expensive degree and a modest salary and faces a cascade of negative consequences as a result. Instead, the proposed rule should, at a minimum, permit ED to eliminate all debt that exceeds the initial principal due to runaway interest. This approach would acknowledge that the existence of any student loans in repayment with balances that grow over time reflects a failure of the student loan system. These failures include student loan servicers’ predatory practices and plain negligence, such as steering borrowers into forbearance and away from IDR plans, as well as misrepresenting loan and program terms, which have contributed to unmanageable student loan burdens. This problem also stems from a key policy failure; while the new SAVE plan prevents balances from increasing due to unpaid interest, previous IDR plans historically did not; they permitted balances to balloon over time when a borrower’s monthly loan payments were insufficient to cover the interest, perpetuating the growth of the debt over time. Capping relief from this excess interest would inadequately address the systemic failures that have led to runaway accumulation of student loan interest.

• Provide full cancellation, not just a waiver of excess interest, for borrowers who have repaid enough to cover their original principal.

Many borrowers have paid enough over time to cover the entire amount of their original principal balance, yet remain in debt due to the accumulation of interest. Indeed, the average public university student borrower pays an extra $7,800 over the standard 10-year repayment period in interest alone. The current draft rule does not extend relief to borrowers who have diligently repaid enough to cover their original principal; instead, it leaves them in the same precarious position as interest continues to accrue. ED could extend relief to the class of borrowers who have already repaid the principal amount they borrowed yet are still trapped in debt. For those borrowers, the Department should provide full cancellation, not just a waiver of excess interest.

• Eliminate the sudden cliff that would give full relief to borrowers whose loans first entered repayment at least 20 or 25 years ago, and no relief to similarly situated borrowers.

The draft regulatory text states that “[t]he Secretary may waive the outstanding balance of a loan if the loan first entered repayment on or before July 1, 2005” (for undergraduate loans) and “on or before July 1, 2000” (for non-undergraduate loans). In other words, only undergraduate borrowers who entered repayment at least 20 years before July 1, 2025 (or 25 years for graduate borrowers) would qualify for relief. However, a borrower who hits the 20- or 25-year mark on July 2, 2025 would be ineligible for relief. ED should remove the cutoff date for relief for borrowers who have been in repayment for decades, and instead permit borrowers to become eligible for this relief on a rolling basis. Alternatively, if ED decides that a cutoff date is necessary in order to limit the universe of borrowers who could access relief, a fairer cutoff date could be set such that any borrower who enrolled in the student loan portfolio by July 1, 2024 can become eligible once in repayment for 25 years (i.e. permit borrowers to become eligible on a rolling basis until July 2049).

• Extend relief to borrowers with financial hardship and create a catch-all category for unforeseen forms of hardship.

ED has a unique opportunity to extend relief to borrowers who are experiencing financial hardship but who may not be eligible for any other source of student debt relief. But as drafted, the rule would leave many such borrowers in their same precarious financial position, shortchanging the President’s core goal of making higher education a ticket to the middle class rather than a source of burdensome debt that “deprives them of that opportunity.” The Department is already considering addressing forms of hardship that could qualify a borrower for relief. ED should ensure that the rule permits relief for borrowers whose student debt creates serious financial hardship, and should consider using student-debt-to-income ratios as an indicator of hardship. Research from the University of California found that middle-income borrowers with a student-debt-to-income ratio over 30% are likely to face serious financial hardship, while low-income households making below $71,000 typically face hardship repaying student loans regardless of their ratio. In addition to the debt-to-income ratios, ED can look to other indicators of hardship, such as whether a borrower has filed for bankruptcy, did not complete their degree, owns Parent PLUS loans while still repaying their own loans, has chronically been in default, or is over a certain age and has limited income. ED should also extend relief based on whether a borrower was a Pell grant recipient or had an Expected Family Contribution of $0 when applying for loans, given evidence that a borrower’s need when entering school is correlated with the degree of hardship faced in paying off debt. Finally, the rule should also include a catch-all provision to capture other forms of hardship in the interest of justice, while steering away from historically restrictive criteria for relief eligibility. This would give the Secretary the flexibility to waive debt for other unanticipated forms of financial hardship that justify relief, without having to return to the neg reg process as new needs emerge.

• Extend relief to borrowers who have been victims of student loan servicer misconduct or error.

The rule should also capture victims of student loan servicer misconduct or error. The draft text does not yet build in protections for borrowers who have faced predatory loan servicer practices, such as forbearance steering, overcharging, or failing to enroll borrowers in IDR plans for which they were eligible, upon their request. As a result of such servicer errors, many borrowers are now struggling to repay their loans, and some have even defaulted, exposing them to severe consequences such as wage garnishment, treasury offsets, collection fees, loss of professional licenses, and notation on credit reports. Even ED has acknowledged the long history of forbearance steering by student loan servicers. The Department should extend relief to borrowers who have been victims of student loan servicer misconduct or error. This change would be consistent with ED’s extension of relief to borrowers who have been victims of misconduct by educational institutions and would acknowledge the role of servicers in similarly causing many of the systemic harms that borrowers currently face.

• Eliminate the need for borrowers to submit burdensome applications by basing eligibility for relief on information that ED already has or that it can acquire from other agencies.

The rule should extend relief to borrowers automatically, without requiring them to submit applications. ED’s past experiences with debt cancellation have revealed that burdensome applications depress the number of eligible borrowers who actually access relief. ED can largely base relief on information already in its possession through payment history databases, Free Application for Federal Student Aid (FAFSA) applications, and more. Such information could include whether a borrower has Parent PLUS loans while still repaying their own loans, received a Pell grant, or has paid enough to cover their initial principal. Additionally, ED can provide hardship relief based on information from other federal agencies. ED could enter a new Memorandum of Understanding (MOU) with the IRS or other agencies to access — with borrowers’ consent — up-to-date information to determine which borrowers are below 225 percent of the federal poverty line or receive means-tested benefits, and to calculate debt-to income ratios. ED has taken steps to streamline the FASFA and IDR application processes in the past, and it should implement similar streamlining efforts here. Automatically granting relief would ensure that assistance reaches borrowers promptly and without unnecessary hurdles.

We are encouraged by the Department’s critical efforts to provide student debt relief through negotiated rulemaking. However, we believe more must be done to improve the draft regulatory text to meet President Biden’s objective of “provid[ing] student debt relief to as many borrowers as possible as quickly as possible.” The Biden Administration should take every opportunity to use the authority Congress has already given it to deliver on the promises made to student loan borrowers.

Sincerely,

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