Education Department Releases Final Rules to Improve Debt Relief Processes

The U.S. Department of Education (ED) released final regulations that streamline and improve rules for major targeted debt relief in an attempt to further protect borrowers. The rules are effective Jul. 1, 2023.Secretary of Education Dr. Miguel CardonaSecretary of Education Dr. Miguel Cardona

One of the new rules establishes a strong framework for borrowers to raise a defense to repayment if institutions mislead or manipulate them. The rule also prevents institutions in the Direct Loan program from requiring borrowers to engage in pre-dispute arbitration or sign class action waivers.

Another rule will provide an automatic discharge one year after a college’s closure for borrowers who were enrolled at the time of closure or left 180 days before closure and who do not accept an approved teach-out agreement or a continuation of the program at another location of the school.

Other parts of the rules include providing additional discharge pathways for borrowers who have a total and permanent disability and removing certain instances of interest capitalization, which is when borrowers have outstanding unpaid interest added to their principal balance and then are charged greater amounts of interest on that larger principal balance.

“Today is a monumental step forward in the Biden-Harris team’s efforts to fix a broken student loan system and build one that’s simpler, fairer, and more accountable to borrowers,” said U.S. Secretary of Education Dr. Miguel A. Cardona. “These transformational changes will protect students who’ve been cheated by their colleges from the bureaucratic nightmares of the past and ensure that all our targeted debt relief programs live up to the promises made by Congress in the Higher Education Act. We’re also protecting borrowers from higher costs by limiting the practice of tacking unpaid student loan interest onto their principal balances."