The Department of Education announced on Tuesday that thousands of borrowers could see immediate forgiveness under changes the agency said it will be making to address long-standing failures in federal student loan programs.
As part of the changes, the agency said at least 40,000 borrowers will be set for debt cancellation under the Public Service Loan Forgiveness (PSLF) program, under which full-time public service workers are eligible for forgiveness after a certain number of qualifying payments.
Additionally, the agency said thousands of borrowers with older loans will receive forgiveness through income-driven repayment (IDR) plans and more than 3.6 million borrowers will “receive at least three years of additional credit toward IDR forgiveness.”
The actions, the agency said, will be the result of new “corrective” steps it will be taking immediately to provide relief to borrowers harmed in the past by historic failures in the programs and to improve the system for future borrowers.
The changes include ending so-called forbearance steering by conducting an account adjustment to count long-term forbearances toward IDR and PSLF forgiveness and increasing oversight of servicers’ forbearance use.
In announcing the changes, the agency said reviews by Federal Student Aid (FSA) suggested that loan servicers put borrowers into forbearance in violation of federal rules, even in instances when “their monthly payment under an IDR plan could have been as low as zero dollars.”
The agency said borrowers advised to enter an IDR plan “can get a reduced payment, stay in good standing, and make progress toward loan forgiveness,” while borrowers advised to choose forbearance “can see their loan balance and monthly payments grow due to interest capitalization and lead to delinquency or default.”
The agency also announced changes to how it tracks borrowers’ payments in IDR plans, under which many are eligible for forgiveness after 20 years. Those changes span from conducting a revision of qualifying IDR payments to address past inaccuracies and issuing “new guidance to student loan servicers to ensure accurate and uniform payment counting practices.”
The office said next year that the FSA will also start to display IDR payment counts online, allowing borrowers to see their progress when they access their federal student aid accounts.
The news comes weeks after a bombshell NPR investigation uncovered glaring weaknesses in the loan program, particularly how loan servicers and the Education Department failed to efficiently keep track of when borrowers were eligible for IDR forgiveness after years of payments.
In a statement on Tuesday, Education Secretary Miguel Cardona said the office will begin to “remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers enrolled in IDR plans.”
“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,” Cardona said, adding that the new efforts “again demonstrate the Biden-Harris administration’s commitment to delivering meaningful debt relief and ensuring federal student loan programs are administered fairly and effectively.”
Sen. Patty Murray (D-Wash.), who previously called on the agency to extend the current pandemic freeze on federal student loan payment until 2023 to adopt reforms to the IDR system, commended the office on Tuesday for issuing a retroactive payment correction.
“This is pretty simple: our income-driven repayment system should make sure borrowers have a monthly payment that doesn’t break the bank and provide borrowers a reliable path to getting their loans discharged,” she said.
But while she acknowledged the changes will help correct past administrative failures in student loan programs, she renewed her call for the moratorium on student loan payments to be continued through the end of the year to continue to reform the system before borrowers resume payments.
“Next, we’ve got to fix the income-driven repayment system once and for all—so I continue to urge the Biden Administration to finalize a new, more generous IDR plan for all borrowers, and to extend the payment pause until 2023 to get this done,” she said.
For the latest news, weather, sports, and streaming video, head to The Hill.