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Biden administration gives student loan relief to millions following review of DOE's failures

NerdWallet Student Loan Cost
Posted at 12:02 PM, Apr 20, 2022

The U.S. Department of Education announced changes for millions of student loan borrowers who use income-driven repayments.

The Department of Education said 3.6 million borrowers will receive at least three years of credit toward income-driven repayment forgiveness.

This week’s announcement also resulted in 40,000 borrowers having their loans canceled as part of the Public Service Loan Forgiveness Program.

The Biden administration said the actions are an attempt to fix “longstanding failures in student loan programs.” Earlier this month, National Public Radio reported it found failures in how a program meant to cancel loans after 20-25 years have been mismanaged by loan servicers and the U.S. Department of Education.

The NPR report found 4.4 million borrowers had been repaying for at least 20 years but only 32 had had loans canceled under the income-driven-repayment program.

“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,” said U.S. Secretary of Education Miguel Cardona. “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 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 announcement comes amid pressure on the Biden administration from progressives to give federal student loan borrowers forgiveness. The Biden administration has been reticent about student loan forgiveness while progressives have called for as much as $50,000 in debt relief.

The Biden administration has said Congress would have to approve such a measure. The administration has continued to extend a pandemic-era pause on student loan payments through August.

The Department of Education said its review suggested that loan servicers placed borrowers into forbearance in violation of its rules, even when their monthly payments under an income-driven repayment plan could have been as low as $0. The measures announced this week were intended to address forbearance steering.

The Department of Education said that a review from 2009 through 2020 found widespread use of long-term forbearances. The result was that nearly 13% of student loan borrowers used forbearances for at least 36 months cumulatively.

In response to the review, the Department of Education will provide a one-time revision on income-driven repayments for all Direct Student Loans and federally-managed Federal Family Education Loan Program loans.

“Any months in which borrowers made payments will count toward IDR, regardless of repayment plan,” the Department of Education said. “Payments made prior to consolidation on consolidated loans will also count. This fix is necessary to correct for data problems and past implementation inaccuracies. Any borrower who has made the required number of payments for IDR forgiveness based on this payment-count revision will receive loan cancellation automatically.

“Additionally, FSA will count months spent in deferment prior to 2013 toward IDR forgiveness (with the exception of in-school deferment) for this same population of borrowers to address concerns that, prior to that date, its data cannot distinguish IDR-eligible deferments from other deferments.”

Additional details are available on the Department of Education website.