The $39 billion in debt relief will come through fixes to mismanagement of the agency’s income-driven repayment plans. Many long-time borrowers, including those who had been making payments for 20 years or more, were denied relief they were eligible for under the repayment plans.
Qualified payments that were made were not accounted for.
“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” U.S. Secretary of Education Miguel Cardona said in a statement.
Starting Friday, the Department of Education will begin to notify those 804,000 borrowers of their forgiveness, and within 30 days their debts will be wiped out.
The plan includes borrowers with Direct Loans or Federal Family Education Loans held by the department (including Parent PLUS loans of either type) who have reached a forgiveness threshold specified by the department.
“By fixing past administrative failures, we are ensuring everyone gets the forgiveness they deserve, just as we have done for public servants, students who were cheated by their colleges, and borrowers with permanent disabilities, including veterans,” Cardona said.
A 2022 NPR investigation found numerous problems with the agency’s handling of IDR plans, which are meant to help low-income borrowers. Loan servicers failed to keep track of borrowers’ progress toward forgiveness and payment histories were not properly transferred from one loan servicer to another.
Under IDR, after 20 years of payments, a borrower’s loan plan should be forgiven. But a 2021 report from the National Consumer Law Center found that more than 4 million borrowers had been making payments for at least 20 years, but only 32 had their debts canceled under the plan.
Because of this issue, the Department of Education announced in 2022 that it would conduct an adjustment and fix past inaccuracies.
The Department of Education in early January announced its plans to overhaul the income-driven repayment plan.
Under the new plan, monthly payments would decline to 5% of a borrower’s income — down from 10% — and the repayment timeline for loan forgiveness would be decreased to 10 years from 20 or 25 if the initial loan is less than $12,000.
The announcement Friday followed the Supreme Court’s decision in late June to strike down the Biden administration’s student debt relief program that would have canceled up to $20,000 in student loan debt for some borrowers.
The Department of Education is now going through a rulemaking process to cancel that student loan debt under the Higher Education Act, an action likely to face the same legal challenges as the initial debt relief program.
Under the Biden administration, the Department of Education has canceled about $116 billion in student loan debt for borrowers who were misled by for-profit institutions, borrowers with disabilities and those with loans through Public Service Loan Forgiveness.