40,000 student borrowers are eligible for debt cancellation
The U.S. Department of Education announced steps to bring millions of student borrowers closer to debt forgiveness — and to offer immediate debt forgiveness to 40,000 borrowers.
The agency said it was addressing “historic failures in administering the federal student loans program,” according to an April 19 press release from the U.S. Department of Education.
“Student loans were never meant to be a life sentence, but it certainly is for borrowers stuck on the debt relief they are eligible for,” the US Secretary of Education said. Miguel Cardona, in the press release. “Today, the Ministry of Education will begin to address years of administrative failures that effectively denied the promise of loan forgiveness to some borrowers enrolled in IDR (income contingent repayment) plans.”
Here’s what the new changes mean for borrowers.
Education Department aims to end ‘forbearance direction’
One of the goals of the US Department of Education is to end so-called abstention.
Borrowers who are struggling to make their loan payments can often qualify for forbearance, which means temporarily suspending payments or reducing monthly payment amounts, according to the federal student aid office.
However, the agency said these borrowers often have other options available — such as income-driven repayment (IDR) plans — that could reduce monthly payments to zero dollars and could allow them to progress toward cancellation. of the loan.
In many cases, where lenders have “inappropriately steered or placed” borrowers into forbearance instead of these other options, interest will continue to accrue during the forbearance period, meaning that borrowers end up paying more in the end. For those hoping for loan forgiveness, any forbearance has not factored into the forgiveness requirements and could set them back years.
Between 2009 and 2020, more than 13% of borrowers used forbearance for more than three consecutive years. The agency said it “will make a single count adjustment that will count abstentions over 12 consecutive months and over 36 cumulative months toward forgiveness.”
About 3.6 million borrowers will receive at least three years of credit for their loan forgiveness through the IDR program or the Public Service Loan Forgiveness (PSLF) program, according to the agency.
In addition, the department said it will now restrict the ability of loan providers to register borrowers for forbearance.
Thousands of people will see loan forgiveness after the changes
Most borrowers are eligible for forgiveness after 20 years of payments, according to the department.
But about 2 million federal student borrowers have been repaying their loans for more than 20 years and still owe money, according to a March 2021 report from the nonprofit National Consumer Law Center.
Of the millions eligible, only 32 people have had their loans canceled through the IDR program since its launch 25 years ago, the report said.
Education officials said a review of the agency’s procedures found “significant flaws” that prevented many borrowers from working to cancel the loan for which they were eligible.
“The Department is committed to resolving this issue promptly and permanently,” education officials said in the statement, adding that “any borrower who has made the required number of payments for IDR remission based on this revision of the number of payments will automatically receive the cancellation of the loan. ”
With the changes to the IDR program and adjustments to the forbearance account, the agency estimated that about 40,000 borrowers will have their debt forgiven immediately through the Civil Service Loan Forgiveness Program. Many thousands more borrowers with older loans will see them forgiven through the income-tested repayment program.
The office will implement these changes immediately, but the agency said borrowers may not see changes to their accounts until late 2022.
And starting in 2023, the federal office of student aid will begin displaying payment counts so borrowers can more accurately track their progress toward forgiveness, the statement said.
On April 6, President Joe Biden’s administration announced an extension of the pause on student loan payments until August 31, 2022. In a briefing that day, press secretary Jen Psaki said that Biden had not “ruled out” a large-scale student cancellation. debt.
This story was originally published April 19, 2022 5:30 p.m.