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The Biden administration has announced new steps that will hopefully improve and expand the public service loan and income-driven repayment forgiveness programs for millions of borrowers.
On April 19, the Department of Education announced that several thousand borrowers with older loans would be eligible to receive forgiveness through the Income-Driven Repayment Plan (IDR). Individuals experiencing financial hardship can request to enroll in an IDR plan to make their monthly student loan payments affordable, based on their primary income and family size. Borrowers are typically eligible to receive forgiveness after 20 to 25 years and can pay as little as $0 a month depending on their personal circumstances. Under the new terms, more than 3.6 million borrowers will now receive at least three years of additional credit toward IDR forgiveness.
“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 in a statement on Tuesday.
“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,” he added.
Federal Student Aid (FSA) estimated that the historic changes will lead to immediate debt cancellation for at least 40,000 borrowers under the IDR and Public Service Loan Forgiveness (PSLF) Program. The Department also hopes to address historical failures in the administration of the federal student loan programs and show support as borrowers struggle to stay afloat financially throughout the pandemic.
Remember! The student loan moratorium is still in place until August 2022, so if you’re looking to get one step closer to loan forgiveness, now might be your chance.
Here’s everything we know about the new initiative.
The Department will end “Forbearance Steering”
The reform will put an end to a misleading practice called “Forbearance Steering” which is when loan servicers encourage borrowers to opt into a forbearance program over an income-driven plan. Borrowers who enroll under IDR can get a reduced payment, allowing them to stay in good standing and make significant progress toward eventual forgiveness. While forbearance programs, which are typically long-term, often come with hefty interest capitalization and could lead to delinquency or default if a borrower opts in more than once.
One-Time Account Adjustment to Count Certain Long-Term Forbearances toward IDR and PSLF Forgiveness
Borrowers steered or inappropriately placed into long-term forbearances miss out on critical progress toward IDR and PSLF forgiveness; this can set them back years. Normally loan service providers should educate borrowers on the forbearance program’s 12-month limit for any single use of forbearance, and its 36-month cumulative limit on discretionary forbearance. Research conducted by the department found that more than 13 percent of all Direct Loan borrowers between July 2009 and March 2020 had used forbearance for at least 36 months cumulatively, which is well past the term limitations. To make up for past wrongdoings, FSA will conduct a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness under IDR and PSLF. Borrowers should see these changes applied automatically to their accounts later this year.
Tracking Progress Toward IDR Forgiveness
In the past, student loan servicers have done a poor job of tracking payments for those under IDR plans. Now, the FSA will conduct a one-time revision of all IDR -qualifying payments for borrowers who have either Direct Student Loans or federally-managed Federal Family Education Loan programs (FFEL). Students will also be able to log into their accounts on StudentAid.gov to track their IDR payments online.
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