Money & Power
Student loan forgiveness is on the way for more than 800,000 borrowers
More than 804,000 federal student loan borrowers are in for a pleasant surprise.
While the Supreme Court scuttled President Biden’s efforts at widespread debt forgiveness, these borrowers are about to get an email from the U.S. Department of Education, notifying them that their debts will soon be automatically erased.
The forgiveness is the result of a promise made last year by the Biden administration in response to years of complaints, lawsuits and an NPR investigation that found that many long-time borrowers who should have qualified for loan forgiveness under the rules of the government’s income-driven repayment plans (IDR) hadn’t received it because of mismanagement by the department and loan servicers.
“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” said U.S. Secretary of Education Miguel Cardona in a Friday press release announcing the forgiveness.
The move will erase $39 billion in federal student loan debt.
Borrowers, advocates and journalists have warned for years of these IDR failures.
While IDR rules have long promised a borrower’s loan balance will be forgiven after 20 years of payments, a March 2021 report by borrower advocates found that, at the time, 4.4 million borrowers had been repaying their loans for at least 20 years – but only 32 had had debts canceled under IDR.
Why? One huge problem: These IDR plans, meant as a safety net for low-income borrowers, were difficult to enroll in. So loan servicing companies often put financially distressed borrowers into long-term forbearance instead, a process that the companies’ call center workers could more easily navigate over the phone. Forbearance may offer a short-term reprieve from payments, but interest continues to accrue.
In April 2022, an NPR investigation, built on unreleased Education Department documents, revealed yet more problems with the department’s handling of these IDR plans, including that several loan servicing companies weren’t actually tracking borrowers’ progress toward forgiveness (which the department knew) and that payment histories were often damaged and incomplete after borrowers were transferred from one servicer to another, a common practice.
In response, the Biden administration pledged last spring to conduct a one-time “account adjustment” for federal student loan borrowers, giving them retroactive credit towards loan forgiveness for months spent in long-term forbearance. Even borrowers who were never in an IDR plan are now receiving or soon will receive retroactive credit toward forgiveness, “regardless of whether payments were partial or late, the type of loan, or the repayment plan,” according to the department’s release.
This sweeping review of borrower accounts is far from over and will continue into 2024.
Friday’s $39 billion adds considerable heft to the Biden administration’s previous debt relief efforts, now totaling at least $116 billion, and illustrates how the Education Department can offer targeted relief to vulnerable borrowers even after the Supreme Court’s recent rebuke.
9(MDI4MzgyNTA3MDE0NzkwOTg2NTAxYWU0Yg000))
Transcript :
ADRIAN FLORIDO, HOST:
Thirty-nine billion dollars. That is the amount of student loan debt that the U.S. Education Department will erase for borrowers who were denied the benefits of one program. It was designed to help people based on their income. The announcement came earlier today, and it’s part of a promise the Biden administration made last year, in part in response to an NPR investigation. NPR’s Cory Turner led that investigation, and he joins me now. Hi, Cory.
CORY TURNER, BYLINE: Hey, Adrian.
FLORIDO: Cory, tell us about this program. It must have been pretty broken if it needed a $39 billion fix.
TURNER: Yeah. I mean, even Education Secretary Miguel Cardona, in announcing the changes today, used that very word – broken. The problems all stem from a repayment plan that pegs a borrower’s monthly payments to their income, so folks with lower incomes have lower monthly payments, even as low as $0. It was meant to be a safety net in the federal student loan program. These income-driven plans – IDR plans – have also, for years, promised borrowers that if they make these monthly payments for 20 years, Adrian, the government would then forgive whatever’s left after that. Here’s the problem – borrowers were spending 20 years or more in this system, but nobody was getting forgiveness. There was this one incredible review from borrower advocates that came down in 2021, in the spring. Abby Shafroth was part of it. She’s an attorney at the National Consumer Law Center.
(SOUNDBITE OF ARCHIVED RECORDING)
ABBY SHAFROTH: We found that there were over 4 million borrowers who had been in repayment for over 20 years, but that only 32 borrowers had ever had their loans forgiven through the IDR program. That’s 32 borrowers out of more than 4 million.
FLORIDO: Wow.
TURNER: Now, Adrian, at least as part of this fix, 800,000 of them are going to be getting their debts erased, and that includes – this is worth noting – some of the oldest borrowers with some of the oldest loans in the entire system.
FLORIDO: Well, what wasn’t working in this program that made it so hard for borrowers to get this debt relief?
TURNER: Yeah. So first, for years when low-income borrowers would call their loan servicer and say, help, I can’t afford my payment, servicers would often simply put them into forbearance and not an IDR plan. And then in April of 2022, NPR published an investigation that I did with my editor, Nicole Cohen, around a bunch of leaked Ed Department documents that we found that showed even more problems and that the department knew about them for years. So those include several loan servicers weren’t even keeping track of borrowers’ payments, so they had no idea when a borrower actually qualified for forgiveness. We also found that the record system that Ed and its servicers use is so bad that when a borrower is transferred from one servicer to another, which happens fairly often, their payment history can get cut off or even lost. And keep in mind, Adrian, that is a problem when getting forgiveness depends on somebody having 20 years of really good records.
FLORIDO: Sure.
TURNER: So not long after we published our findings, the Biden administration pledged to do a one-time review of millions of borrower accounts, essentially giving them retroactive credit for all sorts of time that should have counted towards forgiveness but didn’t, and that is what we’re seeing right now.
FLORIDO: Cory, does this announcement today have anything to do with the Supreme Court’s recent decision to strike down President Biden’s big debt relief plan?
TURNER: No. It’s a little confusing. It’s just weird timing. It’s also worth noting, though, while we’re talking about the court, Adrian, that this action is likely not vulnerable to a court challenge because it is essentially the Ed Department trying to fix some very serious long-standing problems within the student loan program.
FLORIDO: OK. So is there anything that borrowers will need to do in order to qualify for this relief?
TURNER: For the most part, no. This is an automatic review the department is doing of borrower records, but there is one group that does need to act. They have very old federal loans that are known as FFEL loans. They are not held by the government. They are held by commercial lenders. These borrowers need to consolidate these old FFEL loans into a new federal direct loan in order to qualify. There is time. This review is far from over. Ed says it’s going to take them into 2024, which is important. I think these 800,000 borrowers are really just the beginning.
FLORIDO: That’s NPR’s Cory Turner. Thank you.
TURNER: You’re welcome. Transcript provided by NPR, Copyright NPR.
