Biden administration launches student loan review, says 40,000 borrowers will have debt forgiven

The Department for Education on Tuesday announced a new review of its student debt portfolio, which it says will correct past mistakes that have denied 3.6 million borrowers credit for student loan forgiveness and will lead the immediate cancellation of the debt of approximately 40,000 borrowers.

“Student loans were never meant to be a life sentence, but it certainly is for borrowers stuck on the debt relief they are eligible for,” the US Secretary of Education said. Miguel Cardona, in a press release. “Today, the Ministry of Education will begin to address years of administrative failures that effectively denied the promise of loan cancellation to some borrowers enrolled in [income-driven repayment] plans.”

See also: As Biden extends student loan hiatus, analysts predict another extension closer to November midterm elections

The new initiative aims to end the practice of “steering forbearance” whereby student loan servicing companies encourage a borrower to participate in a forbearance program rather than a repayment plan focused on income, even when such plans might have resulted in a borrower paying $0 per month.

To mitigate the effects of these practices, the Ministry of Education said it will count abstentions for more than 12 consecutive months or 36 cumulative months as payments that count towards a borrower’s eligibility for forgiveness. student loan.

Borrowers enrolled in an income-based repayment plan will have their loan canceled after 20 years, or 240 payments. Borrowers who work in the public service can have their loan canceled after 10 years or 120 qualifying payments.

The Department of Education will also conduct a one-time review of borrowers’ payment history and credit their accounts so that previous payments made under other repayment plans will be considered for forgiveness under the Repayment Program. income-based reimbursement.

Any months borrowers spent in deferment before 2013 will also count as income-tested payments to account for gaps in the government’s data that make it unable to distinguish the reasons for deferrals before that date.

Earlier this month, President Joe Biden announced that his administration would extend the pause in student loan repayments, which was to end from May 1 to August 31. The pause in payments was first initiated by former President Donald Trump as an emergency measure to blunt the economic impact of the COVID-19 outbreak on federal borrowers.

White House press secretary Jen Psaki said last week that the administration would extend the hiatus again or announce a decision on whether the Biden administration would use executive power to permanently cancel part of the federal debt of student borrowers.

Biden has previously said he doubts the Department of Education has the legal authority for such a move and said he would prefer Congress authorize the cancellation of $10,000 in student debt per borrower. The administration is conducting a formal review of its legal powers in this area.

Many congressional Democrats, including Senate Majority Leader Chuck Schumer, a New York Democrat, have called on the president to authorize $50,000 per borrower in administrative student debt relief.

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