Student debt to be paid off for 40,000 borrowers, 3.6 million nearing termination: Here’s why

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(NEXSTAR) – Tens of thousands of borrowers will have their student debt forgiven as part of newly announced measures by the Department of Education to “fix long-standing flaws in student loan programs.” Another 3.6 million borrowers will receive credit for forgiving their loans.

The Department of Education announced the move on Tuesday, saying the steps being taken aim to bring borrowers closer to receiving the public service loan and waiving income-related repayments.

Federal Student Aid (FSA) estimates that at least 40,000 borrowers will see “instant debt relief” as they now qualify for the Public Service Loan Forgiveness Program (PSLF) under the new changes. Borrowers working as civil servants are eligible for forgiveness under the PSLF once they have made qualifying payments for 10 years.

Thousands of other borrowers with older loans are also being forgiven through income-tested repayment, according to the Department of Education. Another 3.6 million will receive at least three years of additional credit for income-related refund (IDR) waiver.

“Student loans were never meant to be a life sentence, but for borrowers who are not eligible for debt relief, it is certainly felt that way,” Secretary of Education Miguel Cardona said in a press release. “Today, the Department of Education will begin to fix years of administrative errors that have effectively denied certain borrowers enrolled in IDR plans the promise of loan forgiveness. These actions demonstrate once again the commitment of the Biden-Harris administration to provide meaningful debt relief and ensure federal student loan programs are administered fairly and effectively.”

The Department of Education said it would also look at “steering forbearance”. In some cases, the FSA found that borrowers were given leniency at IDR – meaning they didn’t have to make a payment or could temporarily make a smaller payment but couldn’t get any closer to forgiveness or repaying the loan, which could have been more beneficial.

The department now counts forbearances of more than 12 consecutive months and more than 36 months total for loan forgiveness, under either IDR or PSLF. This is a one-off action and borrowers who have been placed on forbearance can lodge a complaint with the FSA here. Going forward, student loan servicers will be limited in their ability to lend borrowers leniency, the Department of Education added.

The FSA will also review payment tracking procedures, having identified deficiencies that are believed to cause borrowers to miss out on progress towards IDR promulgation. According to Tuesday’s release, Cardona has directed the FSA to provide one-off payment revisions to address previous inaccuracies and change payment counting for IDR payment plans.

While the department intends for these changes to take effect immediately, adjustments are dependent on an upgrade to the National Student Loan Data System, NPR reports. For this reason, the loan terminations only begin in the fall.

WHAT ABOUT STUDENT LOAN FORGIVENESS?

Earlier this month, President Biden not only delayed student loan payments for more months, but gave some borrowers a little “forgiveness.” Millions of borrowers will have their defaulting or insolvent status erased, allowing them “to be repaid in good standing,” the Department of Education said in a press release.

Before Biden announced the fourth student loan freeze, however, 96 lawmakers — 21 senators and 75 members of the House of Representatives — called on him to “cancel student debt now,” saying it would “bring long-term benefits to individuals and the economy.” Helping families buy their first homes, start a small business or invest in their retirement. More broadly, student debt relief would add tens of billions of dollars to GDP growth.”

During his campaign, Biden supported forgiving at least $10,000 per person on federal student loans, but made no mention of cancellation in his statement on the latest break.

However, there is confusion over Biden’s authority to call in student loans. House Speaker Nancy Pelosi said he lacked legal authority, instead commenting, “That would be an act of Congress.” Senate Majority Leader Chuck Schumer, on the other hand, has argued that Biden can do so under the same legal provision , which Trump used to delay payments and interest early in the pandemic, reports The Hill.

Earlier this month, White House Press Secretary Jen Psaki said Biden’s cancellation of some state student loan debt remained on the table. According to The Hill, he could even decide in the coming months.

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