Biden Admin to Change Student Loan Programs, Cancel Debt for 40,000 Borrowers

U.S. Education Secretary Miguel Cardona delivers remarks in Washington, on Jan. 27, 2022. Chip Somodevilla/Getty Images

New changes to two federal student loan programs will immediately wipe out debts for 40,000 borrowers and bring 3.6 million closer to relief, the Education Department said Tuesday.

The changes will “fix long-standing failures” in the Public Service Loan Forgiveness (PSLF) and income-driven repayment (IDR) programs, department officials said. Once the changes are implemented, 40,000 borrowers will have their debts erased under the PSLF program. More than 3.6 million borrowers will also receive at least three years of additional credit toward IDR forgiveness.

Specifically, the department said it is working to end what it called “forbearance steering,” the practice of loan service companies pushing borrowers into forbearance rather than helping them access an IDR plan.

According to Federal Student Aid (FSA), a borrower is always responsible for paying the interest that accrues during the forbearance period. Unpaid interest is usually added to the loan amount owed when the forbearance period ends, meaning that the borrower will likely pay more than what is originally owed.

By contrast, if a borrower qualifies for IDR, accrued and unpaid interest will be covered by the federal government using tax-payer money. The borrower will have to recertify information such as income and family size each year in order to remain on the repayment plan.

“A borrower advised to choose an IDR plan instead of forbearance can get a reduced payment, stay in good standing, and make progress toward loan forgiveness. A borrower advised to choose forbearance—particularly long-term consecutive or serial uses of forbearance—can see their loan balance and monthly payments grow due to interest capitalization and lead to delinquency or default,” the department said.

To address the issue, Education Secretary Miguel Cardona said he has directed the FSA office to restrict loan service companies’ abilities to enroll borrowers in forbearance by text or email, conduct an external review of how forbearance is being used, and work with the Consumer Financial Protection Bureau to do regular audits of forbearance use.

In addition, the FSA will conduct a one-time adjustment to borrowers’ accounts that will count forbearances of 12 consecutive months and more than 36 cumulative months toward IDR and PSLF loan forgiveness.

The FSA will also do a one-time revision for IDR that will allow any months when borrowers made payments to count toward forgiveness, regardless of the repayment plan, along with counting months in deferment prior to 2013 toward IDR forgiveness.

The department said it has so far canceled more than $17 billion in debt for 725,000 borrowers. That includes $6.8 billion for more than 113,000 public servants through changes to PSLF, $7.8 billion for more than 400,000 people with severe disabilities, $1.2 billion for those who attended now-defunct ITT Technical Institutes, and about $2 billion for 105,000 students who claimed to be defrauded by their school.