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How to know if you're closer to student loan forgiveness as Biden administration addresses 'historical failures'

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Key Points
  • 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.
  • 40,000 borrowers will immediately see their student loan debt canceled, according to the U.S. Department of Education.
  • A one-time waiver will move more than 3.6 million people closer to student loan forgiveness, the department said.

The Biden administration just announced changes to the federal student loan lending system that will bring millions of borrowers closer to debt forgiveness and cancel tens of thousands of loans.

The U.S. Department of Education said Tuesday that it plans to address "historical failures in the administration of the federal student loan programs." The move will bring as many as 3.6 million people closer to debt forgiveness, and at least 40,000 borrowers will receive immediate debt cancellation under the Public Service Loan Forgiveness Program, according to the statement.

"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," Secretary of Education Miguel Cardona said in the announcement.

The news comes as federal student loan forgiveness and repayment programs have been under scrutiny. Investigations have revealed millions of borrowers were improperly steered into forbearance, rather than relief programs like an income-based repayment plan. As a result, they lost months or even years of progress towards student loan forgiveness since these periods do not count towards the 20- or 25-year income-driven repayment term.

Nearly half of the more than $1 trillion in outstanding federal student loans is repaid through a few different types of income-driven plans. Those are designed to cap monthly payments at a certain percentage of your earnings, with any remaining balances forgiven after 20 or 25 years of payments.

Here's what's behind the move and who could be eligible for forgiveness under the new plan.

An end to 'forbearance steering'

Under the new plan, "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," according to a statement from Cardona.

In 2021, 4.4 million borrowers had been repaying their loans for at least 20 years — but only 32 borrowers had debts canceled under IDR programs, according to a National Consumer Law Center report.

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Part of the problem: Federal student loans are not managed by the federal government, but rather by contracted loan servicers. Some of those servicers have engaged in what's known as "forbearance steering," says Abby Shafroth, director of the NCLC's Student Loan Borrower Assistance Project.

What forbearance steering means is "when borrowers call these contracted companies and say 'I'm having trouble making my payments,' they're supposed to help borrowers understand what their payment options might be and help them access relief programs such as IDR plans," she says.

Instead, "it's really well-documented now that in the past that the servicers were often simply pushing borrowers into forbearances, often for long periods of time, rather then helping them access relief programs, and that has cost borrowers money and left them in debt longer," Shafroth says.

Who's eligible for student loan relief under the new plan

Department of Education officials say they'll credit borrowers for months in which they were in long-term forbearances or any type of deferment before 2013.

It will also make a one-time adjustment to accounts to give a credit toward loan forgiveness under these income-driven repayment plans for any month in which a borrower made a payment. Regardless of whether or not you were actually enrolled in an income-driven repayment plan, you should receive a credit if you were eligible, according to the statement.

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.
Miguel Cardona
Secretary of Education

Anyone who has made the required number of payments for forgiveness under the Public Service Loan Forgiveness Program will receive automatic loan cancellation based on this one-time revision. The changes won't be reflected in eligible borrowers accounts until the end of the year.

Advocates caution that the plan 'lacks clarity'

While the decision is progress, "it lacks clarity," says Travis Hornsby, a chartered financial analyst and founder of financial advisory firm Student Loan Planner.

Student loan advocates are "all trying to get clarification from Department of Education" on how many people this move is going to help, Hornsby says. Right now, the government statement released Tuesday reads: "Several thousand borrowers with older loans will also receive forgiveness through IDR." But that doesn't make sense, Hornsby says.

"This is where the earth-shattering part is," he says. "They say in their press release they're going to give credit to everybody on any repayment program at all. They don't have any date restrictions on that." That could mean several million people qualify, not "several thousand."

For now, Shafroth recommends "raising your hand and asking for an individual review of your account. I would encourage borrowers to request their account and payment history from their servicer."

You can also go to studentaid.gov and use your FSA login information to find out if you quality. "That's where the Department of Education publicly has all of the information about your account, including how much time they have you as being in forbearances versus in repayment," she says. That can help you determine if you're eligible for retroactive relief.

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