By Eliza Haverstock | Nerd Wallet

Eight million borrowers facing “ongoing financial burdens,” such as those caused by unexpected medical bills, natural disasters or high child care or family care costs, could benefit from federal forgiveness of their student loan – but it’s not a done deal yet.

The Department of Education revealed new details of the financial hardship proposal on Friday, October 25, including eligibility criteria and how borrowers could apply for the relief.

“For too long, our broken student loan system has made it too difficult to access relief for borrowers facing heartbreaking and devastating financial challenges, and that’s not fair,” said the U.S. Secretary of Education , Miguel Cardona, in a press release. statement.

The hardship proposal is part of President Joe Biden’s student loan forgiveness “Plan B,” which is currently facing legal challenges. The president introduced “Plan B” in June 2023, after the Supreme Court blocked his initial plan for student loan forgiveness of up to $20,000. The Department of Education began the rulemaking process in October 2023.

The Department of Education aims to finalize the plan in 2025, but legal action could impact its rollout. The ministry will formally publish the proposed regulations in the coming weeks. Once published, the public will have 30 days to comment regulations.gov.

“While this is another legal way to cancel student debt, setbacks are expected, so it is crucial that we move quickly to provide this much-needed relief,” said Kristin McGuire, executive director of Young Invincibles, a political organization focused on issues affecting young people, in a statement.

Two Paths to Student Loan “Hardship” Cancellation

If the hardship proposal goes into effect, borrowers would have two main paths to this student loan forgiveness:

• Automatic forgiveness. If the Department of Education determines that you have at least an 80% chance of not repaying your student debt within two years, it can automatically cancel your loans one time. Determining factors for hardship may include your income, assets, the type and amount of your student debt, and whether you received a need-based Pell Grant to pay for your education.
• Application-based forgiveness. If you are not eligible for the one-time automatic forgiveness, you can submit an application that comprehensively assesses the likelihood that you will default or experience serious and continuing financial hardship.

Do not yet count on forgiveness of difficulties

For now, borrowers shouldn’t count on Biden’s “Plan B” of student loan forgiveness — especially ahead of the Nov. 5 presidential election. The candidates, former President Donald Trump and Vice President Kamala Harris, occupy very different positions when it comes to student loans.

“I have so little confidence that this real forgiveness program will happen,” says Stanley Tate, a student loan lawyer. “Even if you have what you think is a pro-pardon president, they’re still going to face challenges from groups that have a right to challenge these things. »

On October 3, a federal judge in Missouri temporarily blocked Biden’s “Plan B” for student loan forgiveness, which includes this hardship proposal. A group of Republican-led states, including Missouri, Georgia and Alabama, filed the lawsuit in September.

“Our latest lawsuit challenges (the Biden-Harris administration’s) third and weakest attempt to mass cancel student loans in the dark of night without informing Congress — or the public —,” the statement said. Missouri Attorney General Andrew Bailey in a September statement. .

Forgiveness and Relief Options Available Now

If you’re currently struggling with student debt, consider these existing relief and forgiveness options instead:

• Income-driven repayment (IDR) plans. IDR plans cap your monthly federal student loan bills based on your income and family size, at as low as $0. After 20 or 25 years, your remaining debt will be forgiven.
• SAVE the abstention from the trial. The latest federal IDR plan, SAVE, is currently facing legal challenges. As a result, borrowers enrolled in SAVE receive an interest-free payment break until at least April. If you don’t have SAVE, you can still benefit from this interest-free forbearance if you apply for the plan now. You always have the option to change your plans later.
• Postponement or abstention. You can temporarily defer your federal student loan bills by asking your servicer for a deferral or forbearance. Deferrals are usually the best option, because interest generally doesn’t accrue – but you must meet specific eligibility criteria. If you have private student loans, ask your lender about ways to reduce or temporarily suspend your payments.
• Other forgiveness programs. Depending on where you live and your profession, you may be eligible for other existing student loan forgiveness programs through federal, state, and local governments. Some private organizations and employers also offer reimbursement assistance. Public Service Loan Forgiveness can cancel student debt for government and nonprofit employees.
• Refinancing if you have private student loans. If you have private student loans, your relief options are limited and you do not have access to federal student loan forgiveness. Refinancing your private student loans to get a lower interest rate can lower your monthly payments and the amount you pay overall. However, you can only benefit from the lowest advertised rates if your credit score and finances are strong.

To learn more about your relief options, call your student loan servicer. Your repairer can review your situation and make recommendations. You may also consider contacting approved nonprofit organizations that offer student loan assistance.

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Eliza Haverstock writes for NerdWallet. Email: [email protected]. Twitter: @elizahaverstock.