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Saturday December 4th

Department of Education revisits student loan forgiveness policy

The U.S. Department of Education released a request for information Feb. 21, seeking public comment on how to assess if student loan borrowers have met the undue hardship standard required to have their loans forgiven.

Student loan borrowers have few options to get their loans forgiven. In 1998 under the undue hardship clause, borrowers lost the ability to seek forgiveness by declaring bankruptcy after the seventh year of repayment. 

The Department of Education is revisiting the policy and what it means to experience hardship. 

The policy permits a borrower to discharge student loans if repayment would constitute an undue hardship, as judged by a bankruptcy court. Prior to the Higher Education Amendments of 1998, borrowers could discharge student loans if they had been repaying for seven years, without having to pass the undue hardship test.

The bankruptcy code does not define undue hardship. Critics argue the courts decide this standard arbitrarily, which may result in inequity in how undue hardship is assessed, according to the Chronicle of Higher Education.

The reassessment is in line with the Department of Education's 2015 guidance, issued to direct the mission of the department. The guidance was part of former President Barack Obama's charge for federal agencies to change the way Americans repay their student loans.

Clare McCann, the deputy director for higher education policy at New America, a U.S. nonprofit that considers public-policy issues, said the department is building on an already generous mandate.

"The federal student loan program is already very generous in the benefits it provides to borrowers in repayment – including allowing them to repay $0 per month if they are unemployed … (the department) doesn't necessarily need to broaden borrowers' eligibility for dischargeability," McCann said in an email.

McCann said some Democrats would be in favor of broadening the undue hardship standard.

U.S. Sen. Elizabeth Warren, D-Mass., has introduced legislation that would allow student loans to be discharged through bankruptcy. The Bank on Students Emergency Loan Refinancing Act would provide the refinancing of certain Federal student loans. Warren has introduced the act four times on the Senate floor. 

The move to reassess the undue hardship clause comes after the Department of Education's statement on the president's budget request. The fiscal 2019 budget includes $15.5 billion to maintain Title I grants for local educational agencies to provide assistance to local school districts and their low-income students.

The Federal Student Aid Office said in a statement that in order to address future loan servicing needs, it is in the process of researching how financial service organizations design and operate their customer service engagement practices.

McCann said she does not know why the department did this now.

Borrowers owe about $1.4 trillion in student loans, according to Debt.org 

"The Next Gen Financial Services Environment will mark a new milestone in the evolution of federal student aid," Wayne Johnson, chief operating officer of U.S. Department of Education's Office of Federal Student Aid, said in a statement. "Without question, the future of FSA is upon us."

To submit a comment to the Department of Education, visit http://bit.ly/2F3zr9V. Responses must be received by May 22. 

@DTHStatNat

state@dailytarheel.com

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