Washington (Trends Wide) — The Biden administration took several steps to make it easier for recipients of state student loans to receive the debt forgiveness they may already be entitled to under existing programs.
The latest moves, announced earlier this week, help borrowers enrolled in what’s known as the income-defined repayment, or IDR, program. About 9 million borrowers with more than $500 billion in outstanding federal student loans are currently using an IDR plan to pay off their debt, according to government data.
There are four IDR plans that allow borrowers to avoid default by lowering their monthly payments based on their income and family size, so that the amounts are less than they would be under the standard IDR repayment plan. 10 years. The IDR also promises loan forgiveness after 20 or 25 years of payments, depending on the specific plan.
But reviews by the Department of Education and the Government Accountability Office show the program has been mismanaged. A recent report found that at least 3,000 borrowers potentially had enough qualified payments to be eligible for forgiveness as of September 1, 2020, but only 132 borrowers had received forgiveness by June 2, 2021.
The actions announced this week are aimed at resolving those problems. The Education Department said it will start rolling out the changes immediately, but borrowers may not see an updated account until later this year.
These new movements can potentially help millions of people. The vast majority of borrowers qualify for smaller monthly payments under IDR plans, regardless of their income or amount of debt.
The Department of Education estimates that 3.6 million borrowers will be three years closer to receiving loan forgiveness through the IDR program and thousands will be eligible for forgiveness immediately after the changes are implemented.
Here’s a breakdown of who could benefit:
Borrowers whose payments have been miscounted
The Department of Education found “significant flaws” in the way its Federal Student Aid office and loan servicers track borrowers’ repayment progress on IDR plans. As a result, some borrowers may have made more qualifying payments than they are receiving credit for.
To address the problem, the Department of Education is counting payments from the vast majority of federal student loan borrowers, including all direct loans and Federal Family Education Loan Program loans administered by the federal government.
All payments made, regardless of the repayment plan the borrower was using at the time, will be counted retroactively as an IDR-qualifying payment. Payments made prior to the consolidation of consolidated loans will also count.
Borrowers who have been in forbearance
The changes announced this week will also help federal student loan borrowers who didn’t get accurate information from their loan servicers about their repayment options and were ushered into forbearance — allowing a temporary suspension of payments — when they could. have enrolled in an IDR plan.
Forbearance can be a quick and easy solution to help borrowers struggling to make their monthly loan payments stay out of default. But sometimes it’s better for borrowers to enroll in an IDR program. That way, they can make a smaller monthly payment, which can be as low as $0, and still get credit for forgiveness.
A Department of Education review suggests loan servicers placed some borrowers in forbearance in violation of department rules. The forbearance cannot be granted for more than 12 months at a time or for more than 36 months cumulatively.
But more than 13% of all direct loan borrowers between July 2009 and March 2020 have used forbearance for at least 36 cumulative months, the Department for Education said.
To address this issue, the Department of Education will conduct a one-time account adjustment that will count time spent in forbearance for more than 12 consecutive months or for more than 36 cumulative months for IDR forgiveness.
Borrowers who were directed to short-term forbearances may request an account review by filing a complaint with the Federal Student Aid Ombudsman at StudentAid.gov/feedback.
Borrowers applying for Public Service Loan Forgiveness
The Public Service Loan Forgiveness program cancels the debt of eligible public sector workers after they have made 10 years of qualifying monthly payments.
Those payments must be made through an IDR plan, so the upcoming adjustments will also help move some of those borrowers closer to forgiveness. The Department of Education estimates that 40,000 borrowers will see immediate forgiveness under the Public Service Loan Forgiveness program as a result of the latest changes.
Last year, the Biden administration temporarily extended eligibility for the Public Service Loan Forgiveness Program through October 31, 2022, so that the program now includes borrowers who had loans that did not originally qualify.
Borrowers who do not yet qualify for relief
The vast majority of federal student loan borrowers can make payments through an IDR plan. The new changes will ensure that those who pay for 20 or 25 years receive forgiveness.
Borrowers with very high incomes relative to the amount of their debt may not ultimately benefit from this week’s action because they are more likely to pay off their loans before becoming eligible for forgiveness in 20 or 25 years. years.
Some Democrats are urging President Joe Biden to grant broader loan forgiveness to each of the 43 million federal student loan borrowers, regardless of income, debt amounts or repayment plan.
But the president has so far resisted that pressure. Instead, he has taken a piecemeal approach to fixing problems with the loan repayment system. In addition to the changes announced this week, the administration also made it easier for students who were defrauded by their for-profit colleges to receive debt relief, as well as those who are permanently disabled.
