On Tuesday, the Biden administration announced plans to address “failures” in the federal student loan programs, and the coming changes are likely to result in immediate debt forgiveness for about 40,000 people.
The announcement comes less than two weeks after Biden announced he would extend the national pause on student debt repayment until August.
Changes are expected to impact more than 3.6 million borrowers, with at least 40,000 borrowers receiving immediate student loan forgiveness.
Income-driven repayment (IDR) plans, including Income-Based Repayment (IBR) and Revised Pay As You Earn (REPAYE), are meant to provide borrowers with more affordable monthly payments. Those payments are tied directly to their income. After 20 or 25 years, depending on the plan, borrowers qualify for student loan forgiveness on any remaining balance.
However, millions of U.S. borrowers were wrongfully guided into forbearance rather than an income-based repayment plan. This caused borrowers to lose months or years of progress toward student loan forgiveness since the forbearance periods do not count towards the 20- or 25-year IDR repayment term.
According to the DoE, just over 13% of all borrowers between July 2009 and March 2020 used forbearance for at least 36 months.
Another program called Public Service Loan Forgiveness (PSLF) allows borrowers to obtain student loan forgiveness in as little as ten years if employed in qualifying public service careers. Similar to IDR, periods of forbearance do not count towards PSLF benefits.
By enacting the change and fixing the issues in the available programs, the Biden administration hopes to provide some debt relief to Americans.
U.S. Secretary of Education Miguel Cardona said, “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” to receive.
He went on to say that “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.”