More than 800,000 borrowers will have $39 billion in federal student loan debt wiped out under a government effort to remedy years of mistakes by loan servicers collecting payments on behalf of the government.
Millions more people will have their loans adjusted as part of the program. That process will continue through next year.
The relief will go to those who have directly owned federal loans from the Department of Education and who signed up for income-based repayment plans or would have qualified for loan forgiveness if they had. Those plans cap the payments borrowers owe to a percentage of their income. Under these plans, borrowers must make payments over a term that is typically 20 or 25 years. At the end of that period, any remaining balance is forgiven.
More than eight million people use repayment plans based on income, but for decades, many of the companies that bill borrowers made big mistakes in tracking payments and guiding borrowers through the process. payment. Those mistakes set millions of borrowers back years in their quest to repay their loans.
“For too long, borrowers have fallen through the cracks of a broken system,” Miguel Cardona, education secretary, said Friday.
The planned move was announced two weeks after the Supreme Court struck down President Biden’s plan to eliminate $400 billion in student loan debt for tens of millions of borrowers. The court ruled that the president lacked the authority to eliminate debts so broadly without explicit authorization from Congress.
But Friday’s much smaller adjustment, which is independent and has not led to court challenges, falls more squarely within the power of the education ministry to administer loan repayment programs.
The elimination of the debt, which will happen in the coming weeks, the Education Department said, is part of a plan the Biden administration announced last year to address the problem of managerial 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 adjustments, have made the required 240 or 300 monthly payments (depending on their repayment plan) to have their remaining debt forgiven.
So-called leniency steering was a particularly glaring problem, the department said last year. Low-income borrowers can qualify for $0 monthly bills through payment plans based on income, but loan servicers often placed struggling borrowers into forbearance, a move that kept their loans current but it meant that interest continued to accrue, inflating borrowers’ balances.
The Consumer Financial Protection Bureau in 2017 sued Navient, then one of the government’s largest student loan servicers, for such tactics. The lawsuit is still ongoing, but Navient no longer offers federal loans — it went out of business in 2021.
Borrowers eligible for relief will not need to apply; your debts will be canceled automatically. “By repairing past administrative failures, we make sure everyone gets the forgiveness they deserve,” Mr. Cardona said.
Some 45 million borrowers owe the government, the largest lender to Americans’ higher education, a total of $1.6 trillion. His loan payments have been halted since March 2020, a move initiated by President Donald J. Trump as a pandemic relief measure and extended multiple times by Mr. Biden, but that pause will end soon. Borrowers will have to resume payments in October.
