Student Loans: Under a scheme launched on Tuesday to help low-income borrowers and public employees, the US Department of Education has canceled 40,000 people’s student loan debt and offered credits to help another 3.6 million pay off their loans.
“Student loans were never designed to be a life sentence,” Education Secretary Miguel Cardona said in a statement. “But it’s definitely felt that way for borrowers locked out of debt relief they’re entitled to.”
The measures complement earlier actions done by President Joe Biden’s administration, such as a moratorium on practically all student debt collection, but they fall short of demands from the Democratic Party’s radical wing for total student loan forgiveness.
Biden proposed erasing $10,000 in student loan debt for each borrower in his 2020 presidential campaign, a commitment of more than $400 billion. The White House has said since Trump’s election that Congress must act to provide more student loan relief.
The government stated that it was addressing “past inadequacies” in communicating to borrowers all of the federal student loan advantages to which they were entitled.
Under the Public Service Loan Forgiveness (PSLF) Program, at least 40,000 debtors will have their debts forgiven immediately.
Several thousand borrowers with older loans will be forgiven through income-driven repayment (IDR), while another 3.6 million borrowers will get at least three years of extra credit toward IDR forgiveness, according to the Education Department.
Lower-income borrowers’ payments are capped, and the remaining sum is forgiven after a certain number of years.
Student loan debt is considered a drag on the economy, burdening young professionals for years after graduation, while the widespread availability of loans has contributed to tuition increases.
According to the Education Data Initiative, 43.4 million borrowers have $1.6 trillion in outstanding student loans from the Federal Loan Portfolio, averaging more than $37,000 per.
In its first year in office, the Biden administration canceled more than $17 billion in debt for 725,000 students while simultaneously extending a loan repayment moratorium that has provided at least temporary relief for 41 million borrowers, according to the Education Department.
A Recent Report of Widespread Issues With IDR
One argument for broad-based student debt forgiveness, according to a former Obama-era Education Department official, is the flawed income-driven repayment program.
“We were really focused on trying to strengthen income-driven repayment programs, and our expectation was that income-driven repayment would assist solve the student debt crisis under the Obama administration,” said former Education Secretary John King, who is running for governor of Maryland. “However, the reality is that it hasn’t.”
According to a recent NPR investigation, loan servicers have struggled to execute income-driven repayment over the years, and have systemically mismanaged the portfolio. Some service providers didn’t keep track of payments and didn’t recognize when debtors were eligible for forgiveness.
Many people missed out on debt relief as a result of mismanagement.
Despite the fact that millions of student debtors qualify for forgiveness under income-driven repayment terms stipulating that borrowers who pay for 20-25 years can have their debt forgiven, only 32 borrowers have actually had their debt forgiven, according to previous research from the National Consumer Law Center.
The government’s efforts to improve the system piece by piece rather than granting blanket forgiveness have reduced the $1.7 trillion in outstanding student loan debt owned by 41 million Americans.
From improving the Public Service Loan Forgiveness Program to tackling the borrower defense backlog, the Biden administration has canceled more than $17 billion in debt for 725,000 borrowers.
The Education Department is tackling two main issues, according to the notification made on Tuesday. It recognizes borrowers who are in forbearance and have racked up massive interest payments, as well as borrowers whose income-driven payments have been miscounted.
In terms of forbearance, the agency stated that in the past, loan servicers have put borrowers in forbearance even though they might have qualified for an income-driven repayment plan that would have allowed them to make $0 installments. Borrowers’ interest capitalizes as a result of forbearance, and their debt grows significantly.
The department will rectify this by implementing a one-time change in which forbearance of more than 12 consecutive months and more than 36 months cumulatively will be included for forgiveness under income-driven repayment or Public Student Loan Forgiveness.
It will also improve oversight of servicers’ forbearance practices.
For all Direct Loans and federally controlled Federal Family Education Loan Program loans, the Education Department will execute a one-time change of income-driven payment counts. Regardless of payment plan or consolidation status, all months in which debtors have made payments will be counted toward income-driven repayment.
Furthermore, any borrower who reaches the 20- or 25-year mark for monthly payments after this adjustment would have their debts immediately canceled, according to the agency.
“These steps once again underscore the Biden-Harris administration‘s commitment to providing real debt relief and ensuring fair and effective management of federal student loan programs,” he continued.
President Biden has extended a moratorium on student loan payments that began in March 2020 to help reduce the economic impact of the COVID-19 pandemic and response. The freeze was supposed to end on April 30th, but many news outlets have reported that the White House will extend it until August 31st.
The new procedures are intended to fix and make good on “forbearance steering,” a practice in which borrowers are pushed to make tiny payments but the principle is not reduced. The Department of Education is now combating this and other counterproductive methods.
Rep. Ro Khanna is concerned that student loan debt will make it difficult for Americans to establish children or buy homes.
The California Democrat told Fox News, “It leads to young people not wanting to have families.” “This means that young people are unable to purchase homes.”
Opponents of student loan forgiveness, according to Khanna, say that if they or their parents paid for student loans, then everyone else should as well. “I have so much admiration for parents who made those sacrifices for their children,” the congressman remarked.