Student loan forgiveness: more plans from the Ministry of Education
The Department for Education said it was tackling “historic failures” in how loan officers mishandled income-driven repayment plans.
WASHINGTON — If you’re a federal borrower, you may qualify for government debt forgiveness for up to several years due to new measures announced by the Department of Education.
In a news release Tuesday, the DOE said it estimates 3.6 million student loan borrowers using income-based repayment (IDR) plans would receive at least three years of credit for possible loan forgiveness. debt after multiple investigations revealed systemic problems with IDR programs that meant many people who repaid their loans were not receiving credit for the forgiveness.
The IDR program is offered by the DOE as a payment option for federal student loans. Essentially, private contractors in partnership with the DOE take out a borrower’s loan with the agreement that the borrower will repay it with money taken from their paycheck each month for a period of 20 to 25 years. Once this period is over, the remaining balance on the loan is canceled.
But a 2021 study found that out of 8 million IDR registrants, only 32 people ultimately saw their debt forgiven.
The new changes mean that millions of borrowers who were repaying their monthly loans but did not receive credit for forgiveness will now see those monthly payments qualify as credits for debt forgiveness, with thousands now eligible for immediate forgiveness.
“Student loans were never meant to be a life sentence, but it certainly is for borrowers stuck on the debt relief they are eligible for,” the US Secretary of Education said. Miguel Cardona, in a press release. “Today, the Ministry of Education will begin to address years of administrative failures that effectively denied the promise of loan cancellation to some borrowers enrolled in IDR plans.”
The ministry said these changes will happen automatically but may take some time to reflect in the borrower’s account. Here’s how the DOE plans to fix what it calls “historic failures.”
For long-term forbearance borrowers
When people have financial problems, they have the option of participating in forbearance programs for their student loans through federally contracted private loan companies. These programs reduce or cancel their monthly loan payments. But the interest rates remain the same and capitalize, which means that the interest itself also earns interest.
These services may also offer IDR programs that offer similar or equal reprieve to borrowers while allowing them to work toward forgiveness. But the DOE found that contract loan servicers improperly pushed up to 13% of all borrowers into forbearance programs, despite forbearance being seen only as a measure of last resort for borrowers.
Under the Biden administration, the office of the Department of Federal Student Aid (the FSA) engaged on Tuesday to make a “single account adjustment” to give to borrowers who have been in forbearance for more than 12 consecutive months or under multiple forbearances totaling more than three years. These individuals will receive one month of forgiveness credit for each month of forbearance.
So, for example, if you have participated in an opt-out program in the past 18 months, you will receive a credit of 18 eligible payments for possible cancellation.
You also won’t get as many text messages or emails from servicers advertising forbearance schemes, as the FSA plans to conduct an external review of how these companies target vulnerable borrowers.
For Borrowers Whose Payments Haven’t Been Recorded Correctly
In addition to extending credit to ancestors, the FSA also ensures that loan servicers correctly account for IDR payments.
While some people met their required IDR payments, those payments were not always properly recorded. Under some IDR programs, some borrowers may record a $0 payment and still receive credit for the discount.
But an NPR investigation found that the services did not count monthly IDR payments of $0, meaning borrowers who qualified for those payments were no closer to a possible forgiveness.
In response, the DOE said it is issuing a one-time revision to IDR payments to correct past inaccuracies: Borrowers who have honored prior IDR payments will be guaranteed those months counted, and payments made before consolidation on loans consolidated will also count.
Borrowers who have reached the required amount of IDR payments under this review will have their loans automatically cancelled.
Additionally, the DOE said it is updating requirements for how services track loan payments in an effort to establish a uniform tracking system.
For added reassurance, the FSA also plans to launch a separate IDR payment tracker on StudentAid.gov from 2023.