Biden adds new protections for student borrowers

The Biden administration has completed an overhaul of student loan regulations, making a series of changes to aid borrowers harmed by such behaviours as aggressive and deceptive recruitment, and to compel repayment by their institutions.

The regulatory changes, taking effect next summer, also offer borrowers a range of improvements in areas that include their terms and eligibility for debt relief, increased legal protections, and more favourable interpretations on interest rates.

The administration announced the changes just a week before congressional elections, and two months after President Joe Biden outlined a plan – now halted while it awaits court reviews – to cancel up to $20,000 (£17,000) per person in student debt, at an estimated cost of nearly $380 billion.

The new regulatory changes are the product of a standard months-long federal process that allows such revisions as long as they fit within existing law and endure an extensive ritual of formal public review.

They follow a separate announcement one week earlier of a separate set of regulatory changes to boost federal aid to incarcerated students in prison-based programmes, improve protections for military-affiliated students from predatory recruitment, and toughen student protections in cases of institutional ownership changes.

In a tight set of nationwide races for the control of Congress next year, the election on 8 November is widely expected to turn on economic concerns, including the more than 45 million borrowers together owing more than $1.6 trillion in federal student debt.

“Today is a monumental step forward in the Biden administration’s efforts to fix a broken student loan system, and build one that is simpler, clearer and more accountable,” the US secretary of education, Miguel Cardona, said in announcing the latest set of regulatory changes, due to take effect in July 2023.

The regulatory changes create a new legal framework for borrowers to challenge their loan obligations if their institution misleads or manipulates them, and adds the possibility of the Department of Education acting on behalf of a group of borrowers who face a similar problem.

The new regulation also “lays out a clear process for the department to pursue institutions for the cost of approved” borrower requests for reimbursement, the department said in its announcement.

The new regulatory framework forbids institutions from hindering court action in disputes by requiring borrowers to accept arbitration or sign class-action waivers, provides for automatic loan discharges in instances where institutions close without making adequate arrangements for students, and creates new loan discharge options for borrowers who have severe disabilities.

The Biden change also eliminates all instances of interest capitalisation – the addition of unpaid interest to principal balance – where it is not required by law.

paul.basken@timeshighereducation.com