Changes to the student loan program could bring millions closer to deleveraging
The Department for Education on Tuesday announced fixes to several student loan programs, providing thousands of borrowers with immediate student loan debt relief and bringing millions more years closer to having their student loans forgiven. . It comes as the Biden administration continues to consider canceling student loan debt for millions of Americans.
The changes are being made to public service loan forgiveness programs and income-contingent repayment plans. According to the Ministry of Education, the patches will provide immediate forgiveness to 40,000 borrowers and bring at least 3.6 million borrowers closer to relief by at least three years through income-driven repayments.
“Student loans were never meant to be a life sentence, but it certainly is for borrowers who are barred from the debt relief they are entitled to,” the secretary told the Education, Miguel Cardona, in a press release. He said the move begins to “address years of administrative failures” and that the actions demonstrate the administration’s commitment to providing “meaningful debt relief and ensuring that federal student loan programs are administered fairly and efficiently”.
A review by the federal student aid office found some services placed borrowers facing financial hardship in forbearance in violation of regulations requiring borrowers to get clear and specific information about their options to avoid delinquency. This happened even when monthly payments under income-driven repayment plans could have reduced their payments to zero dollars, the Department of Education said.
To address the issue, the Department of Education will make a one-time account adjustment to account for certain long-term abstentions in income and civil service pardons. The changes will automatically be applied to borrower accounts later this year. Borrowers who have been directed to short-term forbearances will also be able to request account reviews. At the same time, the administration will strengthen oversight of managers’ abilities to register borrowers for forbearance, including working with the Consumer Financial Protection Bureau to conduct regular audits of forbearance use.
Meanwhile, in its review of the income-based repayment scheme, the Department for Education found ‘significant flaws’ suggesting borrowers were lacking progress towards forgiveness. The Federal Office of Student Aid will conduct a one-time income-based payment review so that each month a borrower makes counts toward forgiveness, regardless of the repayment plan they are in. This includes payments made before consolidating the loan. For those who have made the required number of payments – usually 120 – the loans will be automatically cancelled.
In an effort to permanently fix the problem, the Department of Education will issue new guidelines for repairers. Starting next year, borrowers will be able to log into their accounts through the federal student aid office to view their own progress toward the income-based repayment waiver online. In addition, the Department of Education plans to take steps to further simplify payment counting by allowing more loan statuses to be considered for the income-based discount.
The efforts announced Tuesday come as the Biden administration has already written off more than $17 billion in debt for some 725,000 borrowers since President Biden took office.
Earlier this month, the White House also announced an extension of the federal student loan payment pause until August 31. White House press secretary Jen Psaki recently said that the the administration would make a decision by then on canceling student loan debt, otherwise the break would be further extended.
First published on April 19, 2022 / 5:49 PM
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