Government Initiative eliminates $39 billion in Federal Student Loan Debt for over 800,000 Borrowers
In a significant effort to rectify years of mistakes made by loan servicers, the government is set to eliminate $39 billion in federal student loan debt for more than 800,000 borrowers. This relief program aims to address the long-standing errors committed by loan servicers responsible for collecting payments on behalf of the government.
Apart from these borrowers, millions more individuals will benefit from loan adjustments under this program, with the process expected to continue into next year. The debt relief will specifically target individuals with federal loans directly owned by the Education Department. It will apply to those who have enrolled in income-driven repayment plans or would have qualified for loan forgiveness under such plans. These repayment plans set a cap on borrowers’ payments as a percentage of their income, requiring them to make payments for a predetermined term, typically ranging from 20 to 25 years. At the conclusion of this period, any remaining balance is forgiven.
For decades, numerous loan billing companies have made extensive mistakes in tracking payments and guiding borrowers through the payment process. These errors have significantly hindered millions of borrowers in their efforts to repay their loans, putting them further behind in their repayment journey. Miguel Cardona, the education secretary, expressed his concerns, stating, “For far too long, borrowers fell through the cracks of a broken system.”
This debt elimination plan comes just two weeks after President Biden’s proposal to eradicate $400 billion in student loan debt for millions of borrowers was struck down by the Supreme Court. The court ruled that the president lacked the authority to eliminate debts on such a broad scale without explicit authorization from Congress. However, the current initiative, which is separate and unrelated, falls within the jurisdiction of the education secretary to administer loan repayment programs.
The Education Department plans to implement this debt elimination program within the next few weeks. The move is part of the Biden administration’s strategy to address the issues caused by loan servicers’ mistakes. The department has decided to automatically and retroactively credit millions of borrowers for late or partial payments and for extended periods of forbearance prior to the pandemic.
The 804,000 borrowers set to have their debts eliminated have successfully made the required 240 or 300 monthly payments, depending on their payment plan, to qualify for debt forgiveness after the adjustments.
One particularly concerning issue highlighted by the department last year was the practice of “forbearance steering.” This tactic involved placing struggling borrowers on forbearance instead of providing them with the option for monthly bills of $0 through income-driven payment plans. While forbearance kept loans in good standing, it allowed interest to continue accruing, effectively inflating borrowers’ overall balances. The Consumer Financial Protection Bureau filed a lawsuit against Navient, one of the government’s largest student loan servicers, in 2017 for employing such tactics. Although the lawsuit is ongoing, Navient has since ceased servicing federal loans.
Borrowers eligible for relief will not need to apply for the debt discharge. The elimination of their debts will be automatic. Mr. Cardona emphasized the importance of rectifying past administrative failures, stating, “By fixing past administrative failures, we are ensuring everyone gets the forgiveness they deserve.”
Approximately 45 million borrowers owe the government a total of $1.6 trillion, making it the largest lender for higher education in the United States. The repayment pause initiated by President Donald J. Trump in March 2020 as a pandemic relief measure and repeatedly extended by President Biden will soon come to an end. Borrowers will be required to resume their loan payments starting in October.