New student loan forgiveness IF you can prove financial hardship

October 25, 2024

Do you have a financial hardship? If so you may qualify for federal student loan forgiveness under a brand new rule that was just announced by the Dept of Education this morning.

Ok. A couple of things here. One, if you have been following me this shouldn’t be a surprise. I’ve been reporting that this could be coming since last year. I even talked to the dep of education about it back in April. And two you need to understand this will not happen immediately. In fact it may not happen at all. And ill tell you why after I explain how this proposal would work.

According to the new proposed rule there are two paths to qualify under this financial hardship plan. I want to be clear, when they say financial hardship they mean things like unexpected medical bills, high child care costs, significant expenses related to caring for loved ones with chronic illnesses, or devastating economic circumstances from the impacts of a natural disaster. So under path one the secretary of education could without you even applying forgive your loan based on what they call a predictive assessment using existing borrower data to determine that because of this financial hardship you have at least an 80% chance of being in default in the next two years. Some of the factors that this predictive assessment uses to determine this hardship includes household income, assets, types and balances of student loans, debt balances and required payments relative to household income and Pell Grant recipient information. The secretary could then waive those loans to address hardships and prevent the severe consequences of default.

The second path to qualify under this new hardship proposal would be for you to apply for it. You would apply if you don’t qualify for any other existing loan forgiveness program. With this option the department of education could grant forgiveness based on what they call a holistic assessment of your situation and if it is determined that you are in fact under financial hardship and are highly likely to be in default the education secretary could waive the loan.

Now here’s the thing this rule is coming in connection with another new student loan forgiveness program that I told you about in this video in august. That one offers several other new ways you can qualify for forgiveness if you don’t meet the financial hardship qualification like fir example your current federal loan balance exceeds what you originally borrowed because if runaway interest. That plan was supposed to start in the early fall of 2024. But it was temporarily blocked by a federal judge after several Republican led states sued saying that forgiveness program would financially harm their state revenue.

This new proposed financial hardship qualification rule announce today will still need to go through a 30 day comment period. And I fully expect these same GOP led states to challenge this in court too. Plus keep in mind a new president could also shut this down.

Read more about the financial hardship proposal here.