Who is eligible for the new student loan forgiveness?
The White House is taking steps to address past failures in the handling of the federal student loan programs bringing millions closer to debt forgiveness.
The Department of Education announced that a review of how federal student loan programs have been administered found borrowers have been improperly steered into forbearance. Steps will be taken to correct those who have been affected in the past and ensure that future student loan borrowers aren’t sent down the same path.
Federal Student Aid (FSA) will conduct a one-time adjustment that it estimates will result in the immediate debt cancellation for tens of thousands of student loan borrowers. Additionally, millions more will be moved closer to debt forgiveness but borrowers who think they were affected will need to contact the FSA Ombudsman.
Which student loan borrowers will have their debts forgiven?
Student borrowers who were having difficulty making their loan payments and were steered into taking short-term forbearance counter to Department regulations will benefit from the latest debt relief move by the Biden administration. Loan servicers are required under Department rules to give federal student loan borrowers “clear and accurate information” when they are facing delinquency on their payments.
One option that was bypassed according to the FSA Review was entering into the income-driven repayment program, or IDR. The program allows borrowers to avoid loan default by lowering their monthly payments based on their income and family size, which could have put their monthly payments as low as zero dollars.
The consequences of this, especially when continually repeated, were that they saw their loan balance and monthly payments grow as interest accrued while they were in forbearance, later leading to further delinquency or even default. Whereas under IDR, the borrow could have stayed in good standing and made progress toward their debt being forgiven.
Those who think that they were harmed by this policy of being steered into shorter-term forbearances by their loan servicer can have their account reviewed by filing a complaint with the FSA Ombudsman at StudentAid.gov/feedback.
Thousands of student loans to be canceled, millions move closer to debt forgiveness
The FSA estimates that over 3.6 million student loan borrowers will get at least three years closer to seeing their debt forgiven under the IDR program with this latest action. Several thousand with older loans will see them immediately canceled through IDR which promises loan forgiveness after 20-25 years of payments are made.
The Biden administration’s actions will see another 40,000 borrowers receive immediate debt cancellation under the Public Service Loan Forgiveness (PSLF) Program. Those who participate in the program have their remaining balance forgiven after making 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer.