Ed Dept reviews payments for student loan forgiveness to fix ‘forbearance steering’

Higher Ed Dive

Jeremy Bauer-Wolf

April 19, 2022

Dive Brief:

• U.S. Department of Education officials on Tuesday announced fixes to what they described as “inexcusable” pitfalls with the student loan system, saying they will cancel debts of tens of thousands of borrowers.

• The agency focused on income-driven repayment, or IDR, which locks borrowers into a 20- or 25-year plan that has them pay off debt based on the amount they earn. Any remaining balance on a borrower’s tab is wiped away after a plan’s payment period ends. The Education Department said Tuesday all borrowers’ past payments on Direct Student Loans and Federal Family Education Loan Program loans will now qualify toward having loan debt forgiven under IDR, regardless of their type of repayment plan.

• The department also said borrowers who entered forbearance — which temporarily allows for no or small monthly payments — for more than 12 months consecutively, or 36 months total, will have that forbearance period count toward IDR. It said forbearance will also count toward Public Service Loan forgiveness, or PSLF, which cancels the debt of certain workers who make 10 years of on-time payments.

Dive Insight:

The Education Department under President Joe Biden has made patching the troubled student financial aid system a priority and tried to ensure vulnerable borrowers receive loan forgiveness.

While the Trump administration frequently opted not to cancel loan debt, Biden’s Education Department has moved to loosen requirements around such programs as PSLF.

Congress constructed PSLF in 2007 to allow those entering government or nonprofit work the opportunity to have their debts erased if they made a decade of qualifying payments. Yet the program has historically been an administrative horror, with borrowers often rejected from loan cancellation because of bureaucratic flaws.

The Biden administration has wiped out $6.8 billion in debt for more than 113,000 borrowers under PSLF.

Typically, borrowers pursue PSLF relief through income-driven plans. But they too have come under fire. In March 2021, the National Consumer Law Center, a nonprofit group, published data indicating that despite IDR plans existing for more than 25 years, at the time only 32 borrowers ever had their debts canceled through the program.

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