40,000 people to get their student loan debt canceled. Do you qualify for forgiveness?
The U.S. Department of Education announced steps to bring millions of student loan borrowers closer to debt forgiveness — and to offer immediate debt cancellation to 40,000 borrowers.
The agency said it is addressing “historical failures in the administration of the federal student loan program,” according to an April 19 news release from the U.S. Department of Education.
“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,” U.S. Secretary of Education Miguel Cardona said in the release. “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 (income-driven repayment ) IDR plans.”
Here are what the new changes mean for borrowers.
Education Dept. aims to end ‘forbearance steering’
One of the U.S. Department of Education’s goals is to end so-called forbearance steering.
Borrowers who are struggling to pay their loan payments often qualify for forbearance — meaning 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 bring monthly payments down as low as zero dollars and could allow them to still make progress toward loan forgiveness.
In many cases, when loan providers have “steered or inappropriately placed” borrowers into forbearance instead of these other options, interest will keep accruing during the forbearance period — meaning borrowers end up paying more in the end. For those hoping for loan forgiveness, any forbearance period has not counted toward the forgiveness requirements and could set them back years.
Between 2009 and 2020, more than 13% of borrowers used forbearance for over three years in a row. The agency announced that it will “conduct a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness.”
About 3.6 million borrowers will receive at least three years of credit toward 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 loan providers’ ability to enroll borrowers in forbearance.
Thousands to see loan forgiveness after changes
Most borrowers are eligible for forgiveness after 20 years of payments, according to the department.
But about 2 million federal student loan borrowers have been making payments on their loans for over 20 years and still owe money, according to a March 2021 report from the nonprofit National Consumer Law Center.
Out of the millions eligible, only 32 individuals have gotten their loan canceled through the IDR program since it was started 25 years ago, the report shows.
Education officials said a review of the agency’s procedures found “significant flaws” that hindered many borrowers in working toward the loan forgiveness they qualified for.
“The Department is committed to fixing this problem swiftly and permanently,” Education officials said in the release, adding that “any borrower who has made the required number of payments for IDR forgiveness based on this payment-count revision will receive loan cancellation automatically.”
With the changes to the IDR program and forbearance account adjustments, the agency estimated that about 40,000 borrowers will get their debt canceled immediately through the Public Service Loan Forgiveness program. Several thousand more borrowers with older loans will have them forgiven through the income-driven repayment program.
The office will implement these changes immediately, but the agency said borrowers may not see changes in their accounts until the end of 2022.
And starting in 2023, the Federal Student Aid office will start showing payment counts so borrowers can more accurately track their progress toward forgiveness, according to the release.
On April 6, President Joe Biden’s administration announced an extension of the pause on student loan payments until Aug. 31, 2022. In a briefing that day, Press Secretary Jen Psaki said that Biden had not “ruled out” a wide scale cancellation of student debt.
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