Millions closer to student debt forgiveness under new Biden administration changes

The Department of Education on Tuesday announced changes estimated to move millions of people closer to clearing their student debt, and at least an estimated 40,000 borrowers will see their federal student debt immediately canceled.  

Officials say the 40,000 borrowers under the Public Service Loan Forgiveness Program will see “immediate debt cancellation,” as part of the changes, according to a Tuesday news release from the Department of Education. PSLF cancels federal student loans for some public sector workers after 10 years of payments.   

Several thousand additional borrowers will also see debt forgiveness through income-driven repayment programs. Income-driven repayment plans qualify for forgiveness after a borrower makes 20-25 years of payments.  

“Student loans were never meant to be a life sentence, but it’s certainly felt that way for borrowers locked out of debt relief they’re eligible for,” Secretary of Education Miguel Cardona said in the statement.  

“Today, the Department of Education will begin to remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers enrolled in IDR plans,” he added. 

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The Department on Tuesday said it will take steps to end “forbearance steering,” in which a borrower is guided by loan servicers to choose forbearance to pause their federal student loan payments instead of other repayment plans.  

“Reviews suggest that loan servicers placed borrowers into forbearance in violation of Department rules, even when their monthly payment under an (income-driven repayment) plan could have been as low as zero dollars,” the Department said in the Tuesday news release.  

“A borrower advised to choose forbearance – particularly long-term consecutive or serial uses of forbearance – can see their loan balance and monthly payments grow due to interest capitalization and lead to delinquency or default,” the department added.  

But now, officials will give borrowers credit for time spent in long forbearances, those more than 12 consecutive months or more than 36 cumulative months. Borrowers will receive credits for the time they spent under these forbearances, and the department estimates that at least 3.6 million borrowers will receive at least three years of credit toward canceling student debt.

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Additionally, officials noted that the Education Department has found “significant flaws” in income-driven repayment tracking that “suggest borrowers are missing out on progress toward IDR forgiveness.” A recent NPR investigation found that income-driven repayments have been mismanaged for borrowers by both department officials and loan servicing companies.  

In response, officials said they will do a “one-time revision” of qualifying payments for a slate of loans. That means “any months in which borrowers made payments will count toward” income-driven repayments, regardless of their repayment plan. Also, officials will count some months borrowers spent on payment deferment prior to 2013 toward repayment.  

President Joe Biden has extended the student loan freeze through August 31. It marks the seventh extension since the pause took effect at the beginning of the coronavirus pandemic.

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