Student loan debt to be canceled for 40,000
The U.S. Department of Education announced steps to bring millions of student loan borrowers closer to debt forgiveness — and to offer immediate debt cancellation to 40,000 borrowers.
The agency said it is addressing “historical failures in the administration of the federal student loan program,” according to an April 19 news release from the U.S. Department of Education.
“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,” U.S. Secretary of Education Miguel Cardona said in the release. “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 (income-driven repayment) plans.”
One of the U.S. Department of Education’s goals is to end so-called forbearance steering.
Borrowers who are struggling to pay their loan payments often qualify for forbearance — meaning temporarily suspending payments or reducing monthly payment amounts, according to the Federal Student Aid office.
However, the agency said these borrowers often have other options available — such as income-driven repayment or IDR plans — that could bring monthly payments down as low as zero dollars and could allow them to still make progress toward loan forgiveness.
In many cases, when loan providers have “steered or inappropriately placed” borrowers into forbearance instead of these other options, interest will keep accruing during the forbearance period. For those hoping for loan forgiveness, any forbearance period has not counted toward the forgiveness requirements and could set them back years.
Between 2009 and 2020, more than 13% of borrowers used forbearance for over three years in a row. The agency announced that it 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.”
In addition, the department said it will now restrict loan providers’ ability to enroll borrowers in forbearance.
Most borrowers are eligible for forgiveness after 20 years of payments, according to the department. But about 2 million federal student loan borrowers have been making payments on their loans for over 20 years and still owe money, according to a March 2021 report from the nonprofit National Consumer Law Center.
Out of the millions eligible, only 32 individuals have gotten their loan canceled through the IDR program since it was started 25 years ago, the report shows.
Education officials said a review of the agency’s procedures found “significant flaws” that hindered many borrowers in working toward the loan forgiveness they qualified for.
“The Department is committed to fixing this problem swiftly and permanently,” Education officials said in the release, adding that “any borrower who has made the required number of payments for IDR forgiveness based on this paymentcount revision will receive loan cancellation automatically.”