More Federal Student Loan Debt Relief is Coming

Federal student loans are considered in default if they are nine months delinquent. Meanwhile, it is a modern fact that lenders have computer programs which can accurately predict whether a borrower will default. It appears that the Department of Education will be creating such a program and will apply it to Federal Student Loan borrowers.

February’s Department of Education’s Negotiated Rulemaking Committee concluded with a consensus giving the Secretary of Education more discretion in forgiving Federal student loans for borrowers who have not only experienced a hardship, but also borrowers who have an 80% chance of defaulting in the next two years.

While the computer program has not been finished yet, it will include up to as many as 17 factors to make that prediction. Some factors are easy to understand such as household income, assets, total debt balance, student loan balances, current employment status, and whether the borrower completed a degree program for which the student received their student loan. Other factors are less personal including “typical student outcomes” at the last program attended by the borrower. The program may also be required to predict the extent the hardship will persist in the future.

When asked on March 20th, the Department could not provide a date when the proposed final Regulation will be published, nor has it disclosed how many borrowers will receive debt relief under this program, but the number of borrowers who receive debt forgiveness could be in the millions.  

According to the Federal Reserve Bank of New York’s Center of Microeconomic Data at the end of 2021, roughly 3 million people owed more than $43 billion in defaulted student loans. That number shrank during the last three years due to the blanket COVID debt relief packages and forbearances. The forbearances have now ended. 

It is not unreasonable to think that the defaulted numbers will climb back to where they were prior to the pandemic. If 3 million borrowers were in default in 2019, the number of borrowers who have an 80% chance of default must be higher.

It is unclear how the new program will be able to weed out deadbeats or those who intentionally default to game the system. But, for the millions of honest borrowers who have long suffered from student loan default, further relief may be on the way.

Scott Waterman
Chapter 13 Bankruptcy Trustee for the Eastern District of Pennsylvania

Scott F.Waterman, Esq. graduated from Tufts University in 1991 with a dual major in history and political science. He received his J.D. from Temple University School of Law in 1994. He is a Chapter 13 Bankruptcy Trustee for the Eastern District of Pennsylvania, and his office is located in Reading, Pennsylvania.  Previously,  he had his own private law practice focusing on consumer bankruptcy and commercial collection matters. Mr. Waterman is a former Chairof the Eastern District of Pennsylvania Bankruptcy Conference and is a Fellow of the American College of Bankruptcy.  He is a member of the National Association of Chapter 13 Trustees and the Berks County Bar Association.  Mr. Waterman volunteers his time as a current board member of the Consumer Bankruptcy Assistance Project which provides free legal assistance to indigent bankruptcy clients.  In 2014 Mr. Waterman was appointed to be a member of the Local Rules Advisory Committee of the United States Bankruptcy Court for the Eastern District of Pennsylvania in helping to draft new and updated local bankruptcy rules. That same year he served on the Bankruptcy Judge Merit Selection Committee for the Eastern District of Pennsylvania to which he was appointed by the United States Court of Appeals for the Third Circuit. Mr. Waterman has two sons and enjoys sailing, playing softball and watching baseball.  He spends his free time driving his kids back and forth to their various sporting activities.

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