More than 800,000 borrowers will have $39 billion of federal student loan debt forgiven thanks to a government effort to correct years of error by the loan managers who collect payments on behalf of the government.
Millions more people will have their loans adjusted as part of the program. That process will continue until next year.
The aid will go to those who have federal loans owned directly by the Department of Education who have enrolled in means-tested repayment plans or would have qualified for loan forgiveness had they done so. Those plans limit the payments borrowers owe to a percentage of their income. Under those plans, borrowers must make payments for a term that is typically 20 or 25 years. At the end of that period, the remaining balance will be forgiven.
More than eight million people use means-tested repayment plans, but for decades many of the debtor billing companies have made major mistakes in tracking payments and guiding borrowers through the payment process. Those mistakes caused millions of borrowers to fall years further behind in their quest to pay off their loans.
“For far too long, borrowers fell through the cracks of a broken system,” Miguel Cardona, the education secretary, said Friday.
The planned move was announced two weeks after the Supreme Court struck down President Biden’s plan to cancel $400 billion in student debt from tens of millions of borrowers. The court ruled that the president had no authority to abolish debt so broadly without explicit congressional authorization.
But Friday’s much smaller adjustment, which is separate and has not led to court challenges, falls more within the education secretary’s authority to administer loan repayment programs.
The debt cancellation — which will take place in the coming weeks, the Department of Education said — is part of a plan the Biden administration announced last year to address the problem of administrators’ errors. The department decided to automatically and retroactively credit millions of borrowers for late or partial payments and for long periods of forbearance before the pandemic.
The 804,000 borrowers whose debts will be eliminated are those who, after the adjustments, have made the required 240 or 300 monthly payments (depending on their payment plan) to clear their remaining debt.
So-called forbearance steering was a particularly glaring issue, the department said last year. Low-income borrowers can qualify for $0 monthly bills through income-related payment plans, but loan managers often placed troubled borrowers on forbearance — a move that kept their loans in good standing but meant interest rates continued to rise, pushing balances out of balance. of the borrowers were blown up.
The Consumer Financial Protection Bureau in 2017 sued Navient, then one of the government’s largest student loan managers, over such tactics. The lawsuit is still ongoing, but Navient no longer makes federal loans: it stopped in 2021.
Borrowers who qualify for an exemption do not need to apply – their debts are automatically forgiven. “By resolving past clerical errors, we ensure everyone gets the forgiveness they deserve,” said Mr Cardona.
About 45 million borrowers owe the government, Americans’ largest lender to higher education, a total of $1.6 trillion. Their loan payments have been suspended since March 2020 — a move initiated under President Donald J. Trump as a pandemic emergency measure, and extended several times by Mr. Biden — but that pause will soon come to an end. Borrowers must resume payments in October.
