Several thousand borrowers under the Public Service Loan Forgiveness Program (PSLF) will receive immediate debt cancellation under the Department of Education’s (DoE) actions to “address historical failures in the administration of the federal student loan programs”.
The DoE announced on Tuesday that more than 3.6 million borrowers will receive at least three years of additional credit toward income-driven repayment (IDR) forgiveness. The DoE said these steps intend to bring borrowers closer to public service loans and IDR forgiveness.
Federal Student Aid (FSA) estimates that these changes will bring “ immediate debt cancellation” for at least 40,000 borrowers under the Public Service Loan Forgiveness (PSLF) Program. According to the DOE, borrowers working as public servants are eligible for forgiveness under PSLF if they made 10 years of qualifying payments.
“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. “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. These actions once again demonstrate the Biden-Harris administration’s commitment to delivering meaningful debt relief and ensuring federal student loan programs are administered fairly and effectively.”
The DoE said these actions also “address the impact of the COVID-19 pandemic on borrowers with lower incomes and high debt loads” and that it will “ help restore the promise of IDR plans by ensuring that borrowers have an affordable and effective path out of debt”.
Forbearance steering will be tackled by the DoE under its new actions. Department regulations require that borrowers who are facing difficulty making their loan payments get clear and accurate information from servicers about their options. The FSA found borrowers were placed in forbearance, even when their monthly payment under an IDR plan could have been as low as zero dollars.
A borrower advised to choose forbearance – particularly long-term consecutive or serial uses of forbearance – can see their loan balance and monthly payments grow due to interest capitalization and lead to delinquency or default.
Safeguards are now in place to include a 12-month limit for any single use of forbearance, and a 36-month cumulative limit on discretionary forbearance either under IDR or PSLF. Borrowers steered into shorter-term forbearances will be able to seek account review by filing a complaint with the FSA Ombudsman at StudentAid.gov/feedback.
The DOE said its actions “complement steps the Administration has already taken within its first year to cancel more than $17 billion in debt for 725,000 borrowers in addition to extending the student loan payment pause, saving 41 million borrowers billions of dollars in payments each month”.
These actions comes after the Biden administration called for increased college affordability or current and future students. Congress has included in bipartisan legislation a $400 increase in the maximum Federal Pell Grant—the largest increase in the maximum award in over a decade.
The Department has also restored the FSA Office of Enforcement and started efforts to strengthen key rules including borrower defense to repayment and gainful employment, to “protect students and taxpayers from predatory or low-value colleges”.