Washington (Trends Wide) — The Department of Education is making more changes to the federal student loan system that will bring millions of borrowers — some of whom may have previously been in forbearance — closer to having their student debt forgiven.
These new actions, announced Tuesday, are the latest moves by the Biden administration to make it easier for federal student loan borrowers to receive the forgiveness 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 had their outstanding debts canceled under the help of President Joe Biden, of more than $17 billion. He recently extended the payment pause on federal student loans through August 31, related to the pandemic.
Thanks to Tuesday’s actions, more than 3.6 million borrowers will be three years closer to receiving forgiveness through what is known as the income-based repayment, or IDR, program. The program, which offers four types of payment plans, allows borrowers to avoid default by lowering their monthly payments based on their income and family size.
The IDR also promises loan forgiveness after 20-25 years of payments. Several thousand 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 certainly feels that way for borrowers who don’t have access to the debt forgiveness 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.
Last week, Democratic Senators Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and Dick Durbin of Illinois called on the Department of Education to investigate mismanagement of the IDR program and provide debt relief to borrowers. The lawmakers’ letter cited a recent NPR report that found too few borrowers were able to get the loan forgiveness promised by the IDR program.
Correction of past errors
The changes announced Tuesday will help federal student loan borrowers who didn’t get accurate information from their loan servicers about their repayment options and were placed into forbearance — which allows for a temporary suspension of payments — when they could have signed up for 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 borrowers are better off enrolling in an IDR program. That way, they can make a lower monthly payment while still getting credit for forgiveness.
A Department of Education review suggests loan servicers placed borrowers in 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 conduct a one-time account adjustment that will count time spent in forbearances of more than 12 consecutive months or for more than 36 cumulative months toward forgiveness under IDR and the Public Service Loan Forgiveness program. PSLF pays off 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 in the future.
The Department of Education also found flaws in the way loan servicers and its own Federal Student Aid office track payments, suggesting borrowers are missing out on progress toward IDR forgiveness. To address the above inaccuracies, the agency will conduct a one-time review of IDR payments and reform the Federal Student Aid tracking system.
Biden’s phased approach to loan forgiveness
Biden has resisted pressure from other Democrats to grant broad student loan forgiveness. Instead, his administration has taken several steps to make it easier to pay off loans under existing programs.
Last year, the administration temporarily extended eligibility for the Public Service Loan Forgiveness program through October 31, 2022. So far, the Department of Education has identified more than 113,000 borrowers with about $6.8 billion on loans that are eligible for student debt discharge because of the exemption.
The department has also been clearing a backlog of forgiveness claims filed under a policy known as borrower’s defense for repayment that allows alumni who were defrauded by their colleges to seek federal debt relief.
Under that policy, the Biden administration has written off about $2 billion in debt from more than 105,000 people who attended for-profit colleges and another $1.2 billion for borrowers who attended ITT Technical Institutes before they closed.
The department also enhanced efforts to reach eligible borrowers for debt reduction due to permanent disabilities, canceling $7.8 billion for more than 400,000 borrowers.