Millions move closer to student loan forgiveness with one-time government waivers.
In its latest attempt to fix widespread breakdowns in the federal student loan payment system, the Education Department said on Tuesday that it would use one-time waivers and adjustments to retroactively credit millions of borrowers with additional payments toward loan forgiveness.
The credits will help borrowers seeking to have their loans eliminated under the Public Service Loan Forgiveness program and through the use of income-driven repayment plans. The public service program eliminates the debts of government and nonprofit workers after 10 years of qualifying loan payments, and those who enroll in income-driven plans are entitled to have their remaining debt wiped out after 20 to 25 years.
The changes will immediately eliminate the debts of at least 40,000 borrowers through the public service program, and will give 3.6 million borrowers pursuing income-driven repayment at least three years of additional credits, the department said.
“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,” Education Secretary Miguel Cardona said in a written statement. “Today, the Department of Education will begin to remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers.”
The fixes are aimed at addressing several longstanding problems that stuck borrowers with ballooning loan balances or failed to correctly give them credit for the payments they made.
For many years, loan servicers — a group of outside vendors hired by the Education Department to counsel borrowers and collect their payments — steered struggling borrowers into forbearance. Forbearance allowed borrowers to avoid making payments, but their debts kept accumulating interest and increasing their balances. The department said those borrowers often should have been guided toward income-driven repayment, which generally caps payments at no more than 10 percent of a borrower’s income and can reduce monthly payments to zero.
There was another problem. Servicers were supposed to let borrowers stay in forbearance for no more than 12 months at a time, and no more than 36 months in total, but they routinely flouted that rule. More than 13 percent of direct loan borrowers were in forbearance for more than 36 months between 2009 and 2020, the department said.
Servicers also frequently failed to accurately record borrowers’ qualifying payments on income-driven repayment plans, a problem spotlighted in a recent NPR investigation. Several servicers had no system at all for tracking payments and identifying when borrowers qualified for loan forgiveness, NPR found.
The department said its own review of its servicers’ payment tracking procedures had “revealed significant flaws.” In response, it said, a one-time, automatic revision will make several changes.
First, any months in which borrowers made payments will count on the income-driven repayment clock — no matter which payment plan the borrower was in at the time. Second, the department will count months spent on payment deferment before 2013 (except those for which the borrower was still in school) as qualifying payments. It will also count forbearances of more than 12 consecutive and more than 36 cumulative months toward forgiveness under both income-driven repayment and the Public Service Loan Forgiveness program.
The changes will apply to the vast majority of the 45 million borrowers with federal loans, who collectively owe $1.6 trillion. Those with direct loans and in the federally managed Federal Family Education Loan Program qualify for the waivers. Borrowers do not need to be currently enrolled in an income-driven payment program to take advantage of the adjustments, officials said — those who sign up later will still be able to use the credits. The changes will be applied automatically to borrowers’ accounts, the department said.
“We wanted to act as quickly as possible to address these problems, but we expect these figures to only grow as we continue to analyze and implement these solutions,” James Kvaal, the under secretary of education, said Tuesday.
Three trade associations representing loan servicers, in a joint statement, called the waivers “another quick-fix, band-aid approach to complex programmatic issues,” and said they had not been given guidance on how the changes would be carried out.
Student Loans: Key Things to Know
Payments delayed again. President Biden pushed the restart date for federal student loan payments to Sept. 1, extending a pause put in place at the start of the pandemic. Millions of borrowers who have defaulted on their federal student loans will also get a fresh start and have their loans restored to good standing.
The cost of private loans. As the Fed changes its benchmark rate, private student loan borrowers should expect to pay more, as both fixed and variable rate loans are linked to benchmarks that track the federal funds rate.
Companies step in. As employers seek to hire and keep workers in a challenging job market, more are treating student debt repayments as a job benefit: A recent study found that about 17 percent of large employers offered some form of student debt assistance.
A possible source of relief. The Public Service Loan Forgiveness program has been a quagmire since it started in 2007. But recent updates by the Department of Education could alleviate student loan debt for thousands of borrowers.
The department will begin working immediately on the changes, but borrowers may not see them reflected on their accounts until the end of the year, Mr. Kvaal said. Next year, the department will start displaying income-driven repayment counts on its StudentAid.gov website so borrowers can track their progress.
The waivers are the latest in a series of piecemeal fixes the Biden administration has enacted while coming under pressure from progressive Democrats and consumer advocates to make sweeping changes to the government’s long-troubled student loan system. It has made temporary changes to the public service program that have brought full loan discharges to 110,000 people so far, Mr. Kvaal said.
Collectively, recent changes to various relief programs — including those that aid disabled borrowers and people whose schools abruptly closed before they completed their studies — have eliminated $17 billion in debt for 725,000 borrowers, the department said.
Senator Elizabeth Warren, Democrat of Massachusetts, is one of dozens of lawmakers pushing President Biden to go further and use executive action to wipe away thousands of dollars per borrower in debt.
“With one stroke of his pen, President @JoeBiden can lift a crushing burden, unleash a new wave of entrepreneurship, and deliver results that will echo for generations to come. #CancelStudentDebt,” Ms. Warren wrote on Twitter last week.
