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Biden announces $39 billion in student loans for 800,000 borrowers

Biden announces $39 billion in student loans for 800,000 borrowers

More than 800,000 borrowers will pay off $39 billion in federal student loan debt as the government tries to fix years of mistakes by loan servicers who collect payments on the government’s behalf.

Millions more people will have their loans adjusted under the program.

The relief will benefit those who have federal loans directly owned by the Department of Education and who have enrolled in income-based repayment plans. These plans cap the payments owed by borrowers to a percentage of their income. These plans require borrowers to make payments for a term, which is typically 20 or 25 years. At the end of this period, the remaining balance will be waived.

More than eight million people use income-based repayment plans, but for decades many of the companies that bill borrowers have made significant mistakes in tracking payments and guiding borrowers through the payment process. These mistakes cause millions of borrowers to be years behind on their loan repayments.

“For far too long, borrowers have fallen through the cracks of a broken system,” Education Minister Miguel Cardona said on Friday.

The proposed move comes two weeks after the Supreme Court rejected President Biden’s plan to cancel $400 billion in student loan debt for tens of millions of borrowers. The court ruled that the President had no authority to pay off debts on such a large scale without the express authorization of Congress.

But Friday’s far smaller adjustment, which came separately and hasn’t led to court challenges, falls more under the education secretary’s responsibility to administer loan-repayment programs.

The debt reduction — which will come in the next few weeks, the Department of Education said — is part of a plan the Biden administration announced last year to address the problem of service provider failure. The department decided to automatically and retrospectively credit millions of borrowers for late or partial payments and for long periods before the pandemic their payments in forbearance.

The 804,000 borrowers whose balances will be wiped are those who, after the adjustments, made the required 240 or 300 monthly payments (depending on their payment schedule) to get their remaining debt forgiven.

A particularly blatant topic was the so-called “forbearance control”, the ministry announced last year. Low-income borrowers can qualify for $0 monthly bills through income-contingent payment plans, but loan servicers often use leniency on defaulting borrowers — a move that kept their loans in good shape but meant interest continued to accrue, which drove up the balances of borrowers.

The Consumer Financial Protection Bureau sued Navient, then one of the government’s largest student loan providers, in 2017 for such tactics. The litigation is still ongoing, but Navient is no longer servicing federal loans: the company went out of business in 2021.

Borrowers who are eligible for relief do not need to apply – their debts are automatically paid. “By addressing past management failures, we ensure everyone gets the forgiveness they deserve,” Mr Cardona said.

About 45 million borrowers owe a total of $1.6 trillion to the government, the largest lender to higher education in the United States. Their loan payments have been on hold since March 2020 — a move initiated under President Donald J. Trump as a pandemic relief measure and extended several times by Mr. Biden — but that pause will soon end. Borrowers will have to resume payments in October.

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