The Biden administration announced Tuesday it will implement a student loan rule change that it says will eliminate student debt for roughly 40,000 borrowers while an additional 3.6 million will see significant forgiveness.
The Department of Education (DOE) is changing how payments are distributed through the income-driven repayment (IDR) plan, a repayment program that allows borrowers to pay off their loans based on their income if their debt is higher than their annual earnings, the DOE announced in a press release. Certain borrowers may see their loans entirely forgiven after 20 to 25 years of monthly 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,” Secretary of Education Miguel Cardona said in a press release. “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.”
The changes will impact at least 3.6 million borrowers who will see three years of credit toward loan forgiveness, the DOE estimated, while 40,000 borrowers will see their debt entirely cancelled.
“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,” Cardona added.
The Biden Administration previously said it was considering a pause on student loan payments through Aug. 31, extending the moratorium which would impact 43 million Americans who owe a combined $1.6 trillion.
The DOE will also end “forbearance steering,” which is when borrowers are forced into forbearance without being informed about other alternative payment systems, like IDR, according to the press release. Student loan forbearance allows users to temporarily suspend or lower loan payments within a one-year time frame.
The DOE will consider how the IDR repayments are distributed and will give an IDR credit to those borrowers who ended up in forbearance, according to the press release.
“These actions are part of the Department’s commitment to address historical failures in the administration of the federal student loan program and support student loan borrowers through the pandemic,” the press release read. “They also help address the impact of the COVID-19 pandemic on borrowers with lower incomes and high debt loads.”
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