The Department of Education yesterday announced a series of changes to “bring borrowers closer” to having their loans forgiven under a pair of programs, which also resulted in the immediate cancellation of student loan debts for 40,000 individuals. An additional 3.6 million individuals will receive at least three years of additional credit toward having their loans forgiven under one of the programs. In total, the changes announced yesterday could lead to an additional $4 billion of student loan debt being wiped out.
The two programs — Income-Driven Repayment and the Public Service Loan Forgiveness — are meant to offer individuals with student loans the chance to have their debts forgiven, under certain circumstances. Under the PSLF, for example, individuals can have their student loan debts forgiven if they make 10 years of payments and work in an eligible public service field. IDR plans reduce the amount that individuals have to pay every month based on their income and other factors, such as the size of their families. Those eligible for IDR plans can have their debts forgiven after 20 years.
Consumer advocates, lawmakers, regulators and others have been publicly called out the Department of Education for not properly administering both programs.
“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 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. These actions once again demonstrate the Biden-Harris administration’s commitment to delivering meaningful debt relief and ensuring federal student loan programs are administered fairly and effectively.”
The Education Department’s Office of Federal Student Aid (FSA) is seeking to end a practice known as “forbearance steering” in which individuals are persuaded to enter forbearance programs, which cause them to be ineligible for IDR or PSLF forgiveness. FSA said it will work with the Consumer Financial Protection Bureau to conduct regular audits of forbearance use among student loan servicers and will prohibit enrolling borrowers in forbearance programs via text messaging and email.
FSA will also review accounts and revise IDR-qualifying payments for all federal student loans. Any months in which a borrower made payments on his or her student loan will count toward IDR, regardless of the repayment plan. If a borrower has made the required number of IDR payments as a result of this revision, he or she will have their loans canceled automatically.
