Thousands of federal student loan borrowers are about to have their debts erased under a new move by the Biden administration.
WASHINGTON (NEXSTAR) — Several thousand borrowers will have their student debt canceled as part of newly announced actions by the Department of Education (DOE) to "fix longstanding failures in the student loan programs." An additional 3.6 million borrowers will be receiving credit toward having their loans forgiven.
DOE announced the move on Tuesday, saying that its intention is bringing borrowers closer to public service loan and income-driven repayment (IDR) forgiveness. Federal Student Aid (FSA) estimates that at least 40,000 borrowers will see "immediate debt cancellation" as they now qualify for the Public Service Loan Forgiveness Program (PSLF) under the new changes. Borrowers working as public servants are eligible for forgiveness under PSLF once they've made 10 years of qualifying payments.
Thousands of other borrowers with older loans will also receive forgiveness through income-driven repayment, according to the Department of Education. Another 3.6 million will receive at least three years of additional credit toward IDR forgiveness.
“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,” Secretary of Education Miguel Cardona said in a release. “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 said it will also be tackling "forbearance steering." In some cases, the FSA found borrowers were placed in forbearance—meaning they didn't have to make a payment, or were able to make a smaller payment temporarily but are unable to get any closer to forgiveness or repaying the loan—when an IDR could have been more beneficial.
Now, the department will count forbearances of more than 12 consecutive months and more than 36 months total toward loan forgiveness, either under IDR or PSLF. This is a one-time action and borrowers who were sent into forbearance can file a complaint with the FSA. Moving forward, student loan servicers will be restricted in their ability to put borrowers into forbearance, the Education Department added.
After flaws believed to be causing borrowers to miss out on progress toward IDR forgiveness were found, the FSA will also be reviewing the payment-tracking procedures. According to Tuesday's release, Cardona has directed the FSA to provide one-time revisions of payments to address past inaccuracies and amend the payment counting for IDR payment plans.
While the department intends these changes to take effect immediately, adjustments are dependent on an upgrade to the National Student Loan Data System, NPR reports. Because of this, loan cancellations won't begin until fall.
Earlier this month, Pres. Joe Biden not only delayed student loan payments for another few months, but gave some borrowers a bit of "forgiveness." Millions of borrowers will have their delinquent or default status erased, allowing them to “reenter repayment in good standing,” the Education Department explained in a release.
Before Biden announced the fourth freeze on student loans, though, 96 lawmakers—21 Senators and 75 members of the House—called on him to “cancel student debt now,” saying it would “provide long-term benefits to individuals and the economy, helping families buy their first homes, open a small business, or invest in their retirement. More broadly, canceling student debt would add tens of billions of dollars in GDP growth.”
During his campaign, Biden supported forgiving at least $10,000 in federal student loans per person but didn’t mention any cancellation in his statement on the latest pause.
There is, however, confusion regarding Biden’s power to cancel student loans. House Speaker Nancy Pelosi has said he lacks legal authority, instead commenting “That would be an act of Congress.” Senate Majority Leader Chuck Schumer, on the other hand, has argued Biden could do it under the same legal provision Trump used to delay payments and interest accrual at the start of the pandemic, The Hill reports.
Earlier this month, White House Press Secretary Jen Psaki said Biden canceling some federal student loan debt remains on the table. He could even decide in the coming months, according to The Hill.
