The Department of Education is making more changes to the federal student loan system that will help bring millions of borrowers – some of whom may have previously been in forbearance – closer to receiving debt forgiveness.
These new actions, announced Tuesday, are the latest moves by the Biden administration to make it easier for federal student loan borrowers to receive forgiveness that they may already be entitled to under existing programs.
By the end of March, more than 700,000 of the 43 million federal student loan borrowers had seen their outstanding debt discharged under President Joe Biden, totaling more than $17 billion in relief. He recently extended a pandemic-related payment pause for federal student loans until August 31.
Tuesday’s actions will bring more than 3.6 million borrowers at least three years closer to receiving forgiveness through what’s known as the income-driven repayment program, or IDR. The program, which offers four types of repayment plans, allows borrowers to avoid loan default by lowering their monthly payments based on their income and family size.
IDR also promises loan forgiveness after 20-25 years of payments are made. Several thousands of borrowers will immediately see forgiveness through the IDR program after Tuesday’s actions are fully implemented, according to the Department of Education.
Another 40,000 borrowers will receive immediate forgiveness through the Public Service Loan Forgiveness program because they will get credit for more of their 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,” said US Secretary of Education Miguel Cardona in a 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.
Democratic senators Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and Dick Durbin of Illinois called on the Department of Education last week to investigate mismanagement of the IDR program and to provide borrowers with debt relief. The lawmakers’ letter cited a recent report from NPR that found that very few borrowers were able to get the loan forgiveness they were promised by the IDR program.
Fixing past errors
The changes announced Tuesday will help federal student loan borrowers who did not get accurate information from their loan servicers about their repayment options and were steered into forbearance – which allows for a temporary stop in payments – when they could have been enrolled in an IDR plan.
Forbearance can be a quick and easy solution to help borrowers struggling to make their monthly loan payments to stay out of default. But sometimes it’s better for borrowers to enroll in an IDR program instead. That way they can make a lower monthly payment while also getting credit toward forgiveness.
A Department of Education review suggests that loan servicers placed borrowers into forbearance in violation of department rules, even when a borrower’s monthly payment under an IDR plan could have been as low as $0.
The Department of Education will be conducting a one-time account adjustment that will count time spent in forbearances of more than 12 consecutive months or for more than 36 months cumulative toward forgiveness under IDR and the Public Service Loan Forgiveness program. PSLF cancels debt after 10 years for eligible public sector workers who make qualifying monthly payments.
The agency will also increase oversight of loan servicers’ use of forbearance going forward.
The Department of Education has also found flaws in the way payments are tracked by both loan servicers and its own office of Federal Student Aid, suggesting borrowers are missing out on progress toward IDR forgiveness. To address past inaccuracies, the agency will conduct a one-time revision of IDR payments and reform the Federal Student Aid’s tracking system.
Biden’s piecemeal approach to loan forgiveness
Biden has resisted pressure from other Democrats to grant broad student loan forgiveness. Instead, his administration has taken several actions to make loan cancellation easier under existing programs.
Last year, the administration temporarily expanded eligibility for the Public Service Loan Forgiveness program until October 31, 2022. So far, the Department of Education has identified more than 113,000 borrowers with about $6.8 billion in loans who are eligible for student debt cancellation due to the waiver.
The department has also been chipping away at a backlog of forgiveness claims filed under a policy known as borrower defense to repayment that allows former students who were defrauded by their colleges to seek federal debt relief. Under that policy, the Biden administration has canceled about $2 billion in debt held by more than 105,000 individuals who attended for-profit colleges and another $1.2 billion for borrowers who attended ITT Technical Institutes before it closed.
The department also improved efforts to reach borrowers eligible for debt relief because of permanent disabilities, canceling $7.8 billion for more than 400,000 borrowers.