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Biden Administration Seeks to Curb Student Loan Interest

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The Education Department is preparing a raft of latest rules for federal student loans that goals to expand access to varied relief programs and undo changes made through the Trump administration.

Essentially the most far-reaching move would affect nearly all of the tens of thousands and thousands of individuals with federal student loans by limiting interest capitalization — which adds unpaid interest to the borrower’s principal, compounding the full amount owed. Under the Biden administration’s proposal, interest would now not be capitalized when a borrower either starts repaying or defaults on a loan, in addition to in certain other situations.

The Education Department can be planning changes to relief programs that profit employees who work for the federal government and at many nonprofit organizations, disabled borrowers, and other people who attended schools that closed abruptly or defrauded their students. The changes for defrauded students, particularly, would reverse restrictions imposed by Betsy DeVos, who tried to gut the help program when she was the education secretary under President Donald J. Trump.

“We’re committed to fixing a broken system,” Education Secretary Miguel A. Cardona said. “If a borrower qualifies for student loan relief, it shouldn’t take mountains of paperwork or a law degree to acquire it.”

The proposed changes will probably be open for public comment for 30 days, after which the department plans to make them final in order that they can take effect next July. The proposals include:

  • More generous standards for borrowers looking for relief on fraud claims.

  • A prohibition on mandatory arbitration agreements that prevent borrowers from suing schools that misled them.

  • Expanded eligibility and streamlined requirements for loan forgiveness for people who find themselves permanently disabled.

  • A provision that might allow public service employees to get credit toward loan forgiveness for months when their loans were deferred due to cancer treatment, economic hardship, or service in AmeriCorps, the National Guard or the Peace Corps.

President Biden faces heavy pressure from borrowers and progressive Democrats to reform the $1.6 trillion federal student loan system.

He has said he’s considering using an executive motion to meet his campaign promise to eliminate $10,000 per borrower in debt, but high inflation and political concerns have left him leery of doing so. Mr. Biden has promised to make a choice before the expiration of a pause on loan payments, which was imposed to offer relief through the pandemic. The pause is scheduled to run out next month.

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