Biden Administration Announces Sweeping Fixes To Income Based Repayment And Student Loan Loan Forgiveness Programs

Finance

The Biden administration on Tuesday announced sweeping, historic reforms for student loan forgiveness and income based repayment programs. Over 3.6 million borrowers are expected to benefit, according to the Department of Education, with at least 40,000 borrowers receiving immediate student loan forgiveness.

Here’s a breakdown.

Student Loan Forgiveness and Repayment Programs Plagued by Problems

The administration’s announcement follows increasing scrutiny of federal student loan forgiveness and repayment programs.

Income-driven repayment (IDR) plans, which include Income Based Repayment (IBR) and Revised Pay As You Earn (REPAYE), are supposed to provide borrowers with affordable monthly payments tied to a their income. After 20 or 25 years (depending on the plan), the borrower is entitled to student loan forgiveness for any remaining balance.

But IDR plans like IBR and REPAYE have been plagued by problems for years. Millions of borrowers were improperly steered into forbearance, rather than an income based repayment plan, causing them to lose months or years of progress towards student loan forgiveness since these periods do not count towards the 20 or 25-year IDR repayment term. According to the Department, more than 13% of all Direct Loan borrowers between July 2009 and March 2020 used forbearance for at least 36 months cumulatively — the maximum allowable amount of forbearance that a borrower can use towards a particular loan.

The Public Service Loan Forgiveness (PSLF) program, which can allow borrowers to obtain student loan forgiveness in as little as 10 years if they work full-time in qualifying public service employment, has suffered from similar problems. Just like IDR, periods of forbearance do not count towards PSLF. The Biden administration recently created a series of PSLF fixes, but did not address the forbearance issue.

In addition, a recent bombshell report from NPR indicated that the Department of Education and its contracted loan servicers were failing to keep track of borrowers’ progress towards their IDR loan forgiveness, raising doubts about whether borrowers would ever actually receive the student loan forgiveness they are entitled to under federal law.

But through a series of fixes announced today, the Biden administration will try to correct these historic problems.

“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.”

Biden Administration Will Count Certain Deferment and Forbearance Periods Towards Student Loan Forgiveness

One of the administration’s major fixes announced today will allow the Department to initiate a one-time adjustment to automatically count certain deferments and long-term forbearance periods towards loan forgiveness under both PSLF and IDR.

“To mitigate the harms of inappropriate steering into long-term forbearance, FSA will conduct a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness under IDR and PSLF,” said the Department in its announcement. In addition, FSA “will count months spent in deferment prior to 2013 toward IDR forgiveness (with the exception of in-school deferment).” The Department also indicated it would take steps to improve guidance and increase oversight of loan servicers moving forward to reduce future instances of forbearance steering.

Notably, the Department’s announcement suggests that shorter-term forbearances will not be automatically adjusted to count towards student loan forgiveness. But borrowers can request relief on a case-by-case basis. “Borrowers who were steered into shorter-term forbearances will be able to seek account review by filing a complaint with the FSA Ombudsman,” said the Department.

Biden Administration Will Make Adjustments To Count More Payments Towards Student Loan Forgiveness

The Education Department also announced a series of fixes to count more payments towards student loan forgiveness.

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“FSA will do a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans. Any months in which borrowers made payments will count toward IDR, regardless of repayment plan,” said the Department. These adjustments will be made automatically by reviewing borrowers’ repayment status history through the National Student Loan Data System at StudentAid.gov. This is similar to the Limited PSLF Waiver program first announced last year.

The Education Department also indicated that it will count payments towards loan forgiveness under PSLF and IDR programs that were made prior to federal loan consolation. This could have huge implications for borrowers, since consolidation typically “restarts the clock” on a borrower’s IDR loan repayment term. Hundreds of thousands of borrowers may ultimately get advanced much closer to loan forgiveness as a result.

The Department also indicated it would be completely overhauling the IDR payment counting system. By next year, FSA will display a borrower’s ongoing progress towards their IDR repayment term at StudentAid.gov — a feature that is presently unavailable (in contrast, borrowers can track their PSLF progress both through their loan servicer and at StudentAid.gov). “FSA will issue new guidance to student loan servicers to ensure accurate and uniform payment counting practices, and it will track payment counts in its own modernized data systems,” said the Department.

Thousands Of Borrowers Will Get Student Loan Forgiveness

The Education Department expects at least 40,000 federal student loan borrowers to receive immediate student loan forgiveness under the new changes — some through PSLF, and others under IDR programs. Another 3.6 million borrowers will receive at least three years of additional credit toward IDR student loan forgiveness, according to the Department.

“We expect these figures to only grow” as the administration reviews borrower accounts in the coming months, said Under Secretary of Education James Kvaal during a press call on Tuesday. And the administration continues to work on the creation of a new income-driven repayment plan for borrowers going forward, which may expand relief even further.

The Education Department expects adjustments to borrower accounts to be implemented “later this year.”

Further Student Loan Reading

Biden Administration Cancels $7 Billion In Student Loans Through Data-Sharing Initiative

Will Student Loan Repayment Ever Actually Resume Again? Probably Not For Awhile — Here’s Why

Student Loan Forgiveness By Executive Action Is Still On The Table, Says Top Biden Official

4 Options For Biden To Legally Enact Student Loan Forgiveness Without Congress

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