Student loan forgiveness take two: A look at Biden's 'Plan B'

Just five months ago, the Supreme Court shut down President Biden's student loan forgiveness plan that would have eliminated an estimated $400 billion worth of debt. But the administration has a "Plan B."

Biden's latest proposal, which will be further ironed out in a two-day session starting Dec. 11 in live-streamed meetings, targets borrowers who owe more than they initially took out in loans due to interest, offering up to $10,000 worth of forgiveness. Borrowers who have been repaying their loans for 20 years or more, borrowers who are eligible for other existing relief programs like Public Service Loan Forgiveness, and borrowers who attended underperforming for-profit colleges may also be eligible for relief. 

Notably, the new plan narrows down who will see debt forgiveness, especially compared to Biden's previous proposal, which could have impacted 90% of borrowers, or 40 million Americans. Now, approximately 10% of Americans may see relief if the proposal survives, according to Mark Kantrowitz, author and publisher of Edvisors, a resource focused on helping people pay for college. But that may be the point: the administration hopes a more focused forgiveness plan will make it past legal challenges in the future.

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"Biden's initial plan proposed up to $20,000 of forgiveness per borrower," says Will Sealy, CEO of Summer, a company that partners with employers to help workers navigate and reduce their student loan debt. "The current proposal is more targeted, focusing on specific groups and offering up to $10,000 relief for some."

Sealy highlights another group that is under discussion, despite not being mentioned in the proposal — borrowers experiencing "financial hardship." Those facing high medical or child care costs as well as borrowers who have declared bankruptcy or received a Pell Grant may become another eligible group for forgiveness. Ultimately, the definitions of eligibility remain unclear.   

Sealy admits that there's no telling whether those new parameters will make a difference, especially to right-wing federal judges, who may take the view that any individual debt forgiveness spearheaded by the president is overstepping of executive power.  

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"The proposal is still in the draft stage and will undergo further discussion and public comment in the coming year," says Sealy. "Political opposition from the Republican Party is highly likely, particularly from those concerned about cost and fairness."

The new plan will be justified by the Higher Education Act (HEA), a 1965 legislation that establishes and administers grants, federal loans and other programs, while also giving the secretary of education the ability to "compromise, waive or release" federal student loans. Previously, the administration had used the Heros Act of 2003, which offered the secretary of education similar abilities in a national emergency; the HEA does not need that stipulation.

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While this new plan may give some Americans hope, borrowers wouldn't see this proposal in action until at least the summer of 2025, leaving them with over a year to keep up with monthly payments. This doesn't account for the legal trouble almost certainly ahead. Sealy advises employers to reconsider if their current financial wellness benefits are truly helping student loan borrowers. If not, this may be a great opportunity for employers to upgrade their benefits and prove their company is worth staying at. According to Summer's data, employee retention rates improve by 20% to 40% when employers implement student loan assistance programs, whether it comes in the form of financial aid, loan navigation resources or both. 

"Employee adoption [of these benefits] outperforms typical financial wellness benefits 5 to 1," says Sealy. "Regardless of how this unfolds, employers can offer student loan repayment assistance as a popular employee benefit to enhance financial well-being, bolster DEI initiatives, attract and retain talent, and improve employee morale and productivity."