WASHINGTON — If you're a federal student loan borrower, you may qualify to have the government forgive up to several years of your debt because of new actions announced by the Department of Education.
In a Tuesday press release, the DOE said it estimates 3.6 million student-loan borrowers using income-driven repayment plans (IDRs) will receive at least three years of credit toward eventual debt cancellation after multiple investigations unveiled systemic problems with the IDR programs that meant many people who were paying their loans weren't actually receiving credit toward forgiveness.
The IDR program is offered by the DOE as a payment option for federal student loans. In essence, private contractors partnered with the DOE take on a borrower's loan with the agreement that the borrower will pay it off with money taken from their paycheck every month for a period between 20 and 25 years. After that period is over, the remaining balance on the loan is forgiven.
But a 2021 study found that out of 8 million enrollees in IDR, only 32 people had their debt eventually canceled.
The new changes mean that millions of borrowers who had been paying off their monthly loans but weren't receiving credit toward forgiveness will now have those monthly payments qualified as credits toward debt cancellation, with thousands now qualifying for immediate forgiveness.
“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,” said U.S. Secretary of Education Miguel Cardona in a 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 enrolled in IDR plans."
The department said that these changes will happen automatically but may take a while to be reflected in a borrower's account. Here's how the DOE plans to address what they called "historical failures."
For borrowers in long-term forbearance
When people have financial problems, they have the option of entering forbearance programs for their student loans through private loan companies contracted by the federal government. These programs either lower or cancel their monthly payments toward loans. But interest rates stay the same and capitalize, meaning the interest itself also gains interest.
These servicers can also offer IDR programs that provide similar or equal reprieve for borrowers while allowing them to work towards forgiveness. But the DOE found that the contracted loan servicers had improperly pushed up to 13% of all borrowers into forbearance programs, despite forbearance only considered a last-resort measure for borrowers.
Under the Biden administration, the department's office of Federal Student Aid (the FSA) pledged Tuesday to conduct a "one-time account adjustment" to give borrowers who have been in forbearance for more than 12 consecutive months or under multiple forbearances that total to more than three years. Those people will receive one month of credit toward forgiveness for each month they've been in forbearance.
So, for example, if you've been in a forbearance program for the past 18 months, you'll be given credit for 18 qualifying payments toward eventual cancellation.
You also won't be getting as many texts or emails from servicers advertising forbearance programs, as the FSA plans to conduct an external review of how these companies target vulnerable borrowers.
For borrowers whose payments weren't counted correctly
In addition to giving credit to forbearers, the FSA is also making sure the loan servicers are properly counting IDR payments.
While some people have been meeting their required IDR payments, these payments have not always been logged correctly. Under some IDR programs, some borrowers can log a payment of $0 and still receive credit toward forgiveness.
But an NPR investigation found that services were not counting IDR monthly payments of $0, meaning that borrowers qualifying for these payments were not coming closer to achieving eventual forgiveness.
In response, the DOE said it is issuing a one-time revision of IDR payments to address past inaccuracies: borrowers who have met past IDR payments will be guaranteed that those months counted, and payments made prior to consolidation on consolidated loans will also count.
Borrowers who have met the required amount of IDR payments under this revision will have their loans canceled automatically.
Additionally, the DOE said it is updating the requirements for how servicers track loan payments in an effort to establish a uniform tracking system.
For extra assurance, the FSA also plans to launch a separate IDR payment tracker on StudentAid.gov starting in 2023.