Education Department eases student loan forgiveness rules

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On Tuesday, April 19, 2022, the United States Department of Education announced several changes to federal student loan programs that will bring borrowers closer to public service loans and income-contingent repayment (IDR) forgiveness. More than 3.6 million borrowers are granted a minimum of three years of IDR cancellation credit, while Federal Student Aid (FSA) expects at least 40,000 be immediately eligible for debt cancellation under the Public Service Loan Cancellation Program (PSLF). Additionally, several thousand borrowers with older loans will also receive a rebate via IDR.

These changes are part of the U.S. Department of Education’s commitment to support student borrowers impacted by the ongoing COVID-19 pandemic, especially those with lower incomes and higher debt loads, and to fix the administrative problems that have plagued the federal student loans program for years. In addition to these immediate changes intended to provide relief to previously harmed borrowers, the FSA will ensure that these benefits remain available to future borrowers as well.

Key points to remember

  • More than 3.6 million borrowers are on at least three years of income-contingent repayment (IDR) waiver credit, while Federal Student Aid (FSA) expects at least 40,000 people are immediately eligible for debt cancellation under the Public Service Loan Cancellation Program (PSLF). .
  • The three actions the U.S. Department of Education will take will end “steering forbearance,” improve tracking of progress toward canceling IDR, and directly tackle student debt.
  • The FSA will start implementing these changes immediately, but borrowers may not see the effect on their accounts until the last quarter of 2022.

The three big changes

Below are the three actions taken by the US Department of Education to address the aforementioned issues:

  • End of “Forbearance Direction”: Current regulations require borrowers who are having difficulty repaying their loan to obtain clear and specific information from loan servicers on their options to avoid defaults and the financial consequences of choosing short-term options such as forbearance, which could result in their loan balance and monthly payments increasing due to interest compounding. Conversely, IDR plans could result in reduced payments and steady progress toward loan forgiveness. Yet the FSA found that service agents often “steer” borrowers into forbearance, despite the possibility that their monthly IDR plan payments may have been as low as zero dollars. The Consumer Financial Protection Bureau (CFPB) and state attorneys general have raised similar concerns in the past. The U.S. Department of Education plans to counteract forbearance steering by making a one-time account adjustment so that certain long-term forbearances are considered in IDR and PSLF plans, in addition to increasing their monitoring of the use of forbearance by repairers.
  • Tracking progress towards IDR forgiveness: As mentioned earlier, IDR plans have the potential to significantly reduce monthly payments for most borrowers, in addition to possibly causing debt cancellation after no more than 25 years of payments. As such, loanees depend on the FSA and loan servicers to accurately track their progress towards discharge. However, a review of procedures for tracking IDR payments by the U.S. Department of Education revealed significant flaws, such as data issues and implementation inaccuracies, that caused borrowers to miss progress toward the cancellation of the IDR. The FSA has been tasked to rectify this issue by conducting a one-time review of IDR payments to correct any past inaccuracies, in addition to permanently fixing the count of IDR payments by reforming its IDR tracking.
  • Tackling student debt: All of the above changes are in line with recent actions taken by the Biden-Harris administration, such as canceling more than $17 billion in debt for 725,000 borrowers as well as extending the student loan payment pause. , to make student loan relief programs work for everyone. borrowers. To further tackle student debt, the U.S. Department of Education approved approximately $6.8 billion for over 113,000 public servants through PSLF improvements, $7.8 billion for over 400,000 borrowers totally and permanently disabled, $1.2 billion to borrowers who attended ITT Technical Institutes before it closed, and nearly $2 billion to 105,000 borrowers who were defrauded by their school.

In addition, the U.S. Department of Education also announced the restoration of the FSA’s Office of Enforcement and began to strengthen key rules, such as borrower defense against repayment and employment. paid, to protect both students and taxpayers from predatory or low-value colleges.

Previous difficulties

IDR plans consider the borrower’s income and family size when setting their monthly student loan payment to ensure it is affordable. The FSA offers four plans: the Revised Pay-As-You-Go (REPAYE) Plan, the Pay-As-You-Go (PAYE) Repayment Plan, the Income-Based Repayment (IBR) Plan and the Income-Based Repayment (ICR) Plan. . PAY, RPAYE (if all loans under the plan were received for undergraduate studies) and IBR (if loanee is a new borrower on or after July 1, 2014) plans have repayment periods of 20 years . Meanwhile, ICR, REPAYE (if all loans under the plan were received for college or vocational education), and IBR (if the lender is not a new borrower on or after July 1, 2014) have periods 25 year repayment period. At the end of the repayment period, any remaining loan balance is canceled, even if the loans are not fully repaid.

However, as mentioned earlier, many borrowers have been forced into forbearance, causing them to miss out on a substantial amount of progress towards student loan forgiveness, as periods of forbearance do not count towards the repayment period. of an IDR loan. There is a maximum allowable amount of 36 months of discretionary forbearance that a borrower can use for a particular loan under applicable regulations and loan officer agreements. According to the US Department of Education, more than 13% of all direct loan borrowers between July 2009 and March 2020 used forbearance for at least 36 cumulative months.

Additionally, the PSLF program offers borrowers the opportunity to receive debt forgiveness in just 10 years, as long as they are qualified full-time government workers. Unfortunately, it suffers from the same limitation as IDR plans, in that time spent in forbearance does not count towards debt cancellation under the PSLF program. The FSA plans to immediately begin implementing the previously mentioned changes to address the damage caused by these limitations, although borrowers may not see the effect on their accounts until the last quarter of 2022.

“Student loans were never meant to be a life sentence, but it certainly is for borrowers stuck on the debt relief they’re eligible for,” the US Education Secretary said. Miguel Cardona. “Today, the Ministry of Education will begin to address years of administrative failures that effectively denied the promise of loan cancellation to some borrowers enrolled in IDR plans. These actions once again demonstrate the commitment of the Biden-Harris administration to deliver meaningful debt relief and to ensure that federal student loan programs are administered fairly and efficiently.

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