Biden's Education Department just wiped out $1.74 billion of student debt for 22,000 borrowers through a major overhaul of a loan-forgiveness program

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  • The Education Dept. announced major reforms to the Public Service Loan Forgiveness program.

  • PSLF has rejected 98% of applicants, and these changes will bring 550,000 of them closer to relief.

  • One change includes a waiver allowing any federal student-loan payment to count toward the program.

  • See more stories on Insider's business page.

The Public Service Loan Forgiveness program is supposed to wipe out student debt for public servants after 120 qualifying monthly payments, but deep flaws in the program have caused it to reject 98% of applicants.

The Education Department on Wednesday announced major reforms to the program to bring thousands of borrowers closer to debt relief.

According to the department's press release, it will implement a limited-time waiver through October 31, 2022, that will allow borrowers to count payments from any federal-loan programs or repayment plans toward loan forgiveness through PSLF, including programs and plans that were not previously eligible.

The department said this waiver alone would bring 550,000 borrowers closer to student-debt relief automatically, including 22,000 borrowers who will be immediately eligible for relief without any action on their part, totaling $1.74 billion in forgiveness, according to the department. An additional 27,000 borrowers could also qualify for $2.82 billion in forgiveness if they certify additional periods of employment.

"Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness. The system has not delivered on that promise to date, but that is about to change for many borrowers who have served their communities and their country," Education Secretary Miguel Cardona said in a statement. "Teachers, nurses, first responders, servicemembers, and so many public service workers have had our back especially amid the challenges of the pandemic. Today, the Biden Administration is showing that we have their backs, too."

Here are the other major changes to the PSLF that the Education Department will implement, according to a fact sheet:

  • Make it easier for payments to qualify for the program, ensuring borrowers do not miss out on credit because of a late payment or wrong amount;

  • Allow months spent on active duty for service members to count toward payments, even if the loans were on deferment or forbearance;

  • Automatically give service members credit for PSLF without them having to submit paperwork themselves;

  • Review all denied PSLF applications to identify and address errors, and borrowers who believe there was a mistake in processing their applications can receive another review next year;

  • Improve outreach to PSLF-eligible borrowers;

  • Simplify the application process, like exploring allowing employers to sign certification forms for their employees;

  • And make long-term improvements to the program through the rulemaking process.

The reforms for service members follow through on a bill introduced by Republican Sen. Marco Rubio of Florida and Democratic Sen. Maggie Hassan of New Hampshire in April, which called for service members to be able to count the months their payments were in deferment or forbearance toward PSLF.

"This is a commonsense fix that will support public servants and ensure that they are able to give back without the worry of student debt," Hassan said in a Wednesday statement. "This is a positive step forward, and I'll keep working to make sure that we address the student loan crisis and support our public service workforce."

The Education Department plans to roll out these changes in the coming months, which would bring the total student-debt cancellation under President Joe Biden so far to over $11.5 billion for over 580,000 borrowers.

Biden campaigned on reforming PSLF. Insider reported earlier this month that if the program had continued on its current track, it might see minor improvements but still only approve 20% of borrowers for forgiveness by 2026; this overhaul will likely set borrowers on a much better track.

Along with these reforms, the department is in the process of implementing changes to not only PSLF, but a variety of loan-forgiveness programs, and negotiations began this week on what those reforms should look like. Over 45,000 borrowers had submitted comments to the Federal Register on how PSLF should be improved.

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