Millions of loan borrowers get more relief in sweeping plan to fix student loan system

Cardona: 'Student loans were never meant to be a life sentence, but it’s certainly felt that way.'

More than 3.5 million borrowers will be credited with three years of payments on their student loan plans and another 40,000 will have their debt immediately canceled through Public Service Loan Forgiveness as the Department of Education overhauls income-driven repayment plans that failed to do what they promised.

The Department announced on Tuesday that thousands of borrowers with old loans would get retroactive relief as it continues its to fix a punitive federal student aid system. The goal is to get loan holders closer to paying off debts, by giving them the credits they’ve earned while lowering payments for other borrowers.

“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. “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.”

So far, the Biden Administration has wiped out nearly $17 billion in debt for hundreds of thousands of students and has given 41 million borrowers an extended reprieve on payments during the COVID-19 pandemic. President Joe Biden just recently lengthened that forgiveness until September 1.

In the meantime, the Department is trying to “help restore the promise of IDR plans” and has launched two big steps to remedy the harm inflicted on borrowers, who have amassed more than $32 trillion in loan debts.

The first is to eliminate forbearance steering, after seeing that borrowers were not being properly advised of their financial options when they fell into hardship but rather were placed illegally into forbearance plans “even when their monthly payment under an IDR plan could have been as low as zero dollars.” Instead of forbearance, borrowers can enter into IDR plans with lower payments and remain on track to pay off their loans and avoid costly defaults.

“A review of past forbearance use shows that long-term use of forbearance was remarkably widespread,” the Department said. “More than 13% of all Direct Loan borrowers between July 2009 and March 2020 have used forbearance for at least 36 months cumulatively. These changes will be applied automatically to borrowers’ accounts later this year.” Those borrowers who were pushed into forbearance can have their accounts reviewed. Servicers also will no longer be able to enroll borrowers into forbearance via email or text, and the Consumer Financial Protection Bureau will be monitoring and auditing their actions.

The second is to give borrowers who have paid into the system for 20 years a new audit by the FSA, which will be revising their loans to include monthly payments that were improperly processed. Those include monies given before the consolidation loans process. “Any borrower who has made the required number of payments for IDR forgiveness based on this payment-count revision will receive loan cancellation automatically,” ED said. If deferments were made more than nine years ago, those months also will count toward forgiveness.

One of the biggest changes borrowers will see is their updated IDR payments on, as FSA and loan servicers strive to do better in tracking payments under the watchful eye of the Department.

“We applaud the Department for its efforts to correct long-standing administrative failures and inappropriate practices that have prevented thousands of borrowers from making progress toward repaying their loans, or having their remaining balances forgiven,” said Justin Draeger, CEO of the National Association of Students Financial Aid Administrators (NASFAA). “The tangled web of repayment options confuses borrowers, and financial aid administrators have long advocated for ways to improve the repayment process, including by strengthening the PSLF program, standardizing loan servicing policies and procedures, and providing standard consumer protections for federal student borrowers that are in line with other consumer financial products, to name a few.”

Chris Burt
Chris Burt
Chris is a reporter and associate editor for University Business and District Administration magazines, covering the entirety of higher education and K-12 schools. Prior to coming to LRP, Chris had a distinguished career as a multifaceted editor, designer and reporter for some of the top newspapers and media outlets in the country, including the Palm Beach Post, Sun-Sentinel, Albany Times-Union and The Boston Globe. He is a graduate of Northeastern University.

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