More than 804,000 federal student loan borrowers are in for a pleasant surprise.
As the Supreme Court has scuttled President Biden’s efforts for widespread debt relief, these borrowers are about to receive an email from the US Department of Education, informing them that their debts will soon be automatically canceled.
The forgiveness is the result of a promise made last year by the Biden administration in response to years of complaints, lawsuits and an NPR investigation that found that many longtime borrowers who should have been eligible for loan forgiveness under the Government Income Rules-Guided Repayment Plans (IDRs) had not received it due to mismanagement by the department and loan managers.
« For too long, borrowers have fallen through the cracks of a broken system that has failed to accurately track their progress toward forgiveness, » US Education Secretary Miguel Cardona said in a Friday press release. proclaimed forgiveness.
The move will cancel $39 billion in federal student loan debt.
Borrowers, lawyers and journalists have been warning about these IDR failures for years.
While IDR rules have long promised that a borrower’s loan balance will be forgiven after 20 years of payments, in March Report 2021 by borrower advocates found that, at the time, 4.4 million borrowers had repaid their loans for at least 20 years, but only 32 had had debts canceled under the IDR.
Why? One big problem: These IDR plans, intended as a safety net for low-income borrowers, were hard to join. So loan service companies often put financially distressed borrowers through a long-term forbearance, a process the companies’ call center workers could more easily navigate over the phone. Forbearance may offer a short-term respite from payments, but the interest still accrues.
In April 2022, an NPR investigation, based on unreleased documents from the Department of Education, revealed further problems with the department’s handling of these IDR plans, including that several loan service companies weren’t actually monitoring borrowers’ progress toward forgiveness (which the department knew) and that payment histories were often corrupted and incomplete after borrowers were transferred from one servicer to another, a common practice.
In response, the Biden administration pledged to conduct a one-time “bill adjustment” last spring for federal student loan borrowers, giving them retroactive loan forgiveness credit for months spent in long-term forbearance. . Even borrowers who have never been in an IDR plan are now receiving or will soon receive a retroactive credit for forgiveness, « regardless of whether payments were partial or late, loan type or repayment schedule, » according to the department’s statement.
This sweeping review of borrower accounts is far from over and will continue into 2024.
Friday’s $39 billion adds considerable weight to the Biden administration’s previous debt relief efforts, which now total at least $116 billion, and illustrates how the Education Department can offer targeted relief to vulnerable borrowers even after the recent rebuke by the Supreme Court.