Over 800,000 borrowers are set to receive student loan forgiveness

US Department of Education to automatically erase $39 billion student loan debt.

Over 804,000 federal student loan borrowers are in for a remarkable surprise. Despite President Biden's unsuccessful attempt at widespread debt forgiveness, these borrowers will soon receive an email from the U.S. Department of Education, informing them that their debts will be automatically wiped out.

This forgiveness is the direct result of a promise made by the Biden administration last year, in response to numerous complaints, lawsuits, and an NPR investigation. The investigation revealed that many long-time borrowers who should have qualified for loan forgiveness under the government's income-driven repayment plans (IDR) were denied due to mismanagement by the department and loan servicers.

U.S. Secretary of Education Miguel Cardona, in a press release issued on Friday, expressed his frustration with the broken system that failed to accurately track borrowers' progress towards forgiveness. He stated, "For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness."

This move will eliminate a staggering $39 billion in federal student loan debt.

Advocates, borrowers, and journalists have been sounding the alarm on these IDR failures for years. While IDR rules have always promised loan forgiveness after 20 years of payments, a report by borrower advocates in March 2021 revealed that, at the time, 4.4 million borrowers had been repaying their loans for at least 20 years, yet only 32 had their debts canceled under IDR.

One major issue contributing to this disparity is the difficulty in enrolling in IDR plans, which were intended to provide a safety net for low-income borrowers. Loan servicing companies often opted to place financially distressed borrowers in long-term forbearance instead. This option was easier for the companies' call center workers to navigate over the phone. While forbearance provided temporary relief from payments, interest continued to accrue.

In April 2022, an NPR investigation, based on unreleased Education Department documents, uncovered further problems with the department's handling of IDR plans. It was revealed that several loan servicing companies were not actually tracking borrowers' progress towards forgiveness, despite the department's knowledge of this issue. Additionally, payment histories were frequently damaged and incomplete when borrowers were transferred from one servicer to another, a common practice.

In response to these revelations, the Biden administration made a commitment last spring to conduct a one-time "account adjustment" for federal student loan borrowers. This adjustment would give borrowers retroactive credit towards loan forgiveness for the months they spent in long-term forbearance. Even borrowers who were never enrolled in an IDR plan will now receive or soon receive retroactive credit towards forgiveness, regardless of the type of loan, repayment plan, or whether payments were partial or late.

The comprehensive review of borrower accounts is still ongoing and will continue until 2024.

The recent $39 billion forgiveness significantly bolsters the Biden administration's previous efforts in debt relief, which now total at least $116 billion. This demonstrates the Education Department's ability to provide targeted relief to vulnerable borrowers, even in the face of the Supreme Court's recent rejection.

Share With Others