(Washington D.C.) - The Biden administration made an announcement on Friday stating that approximately 804,000 borrowers will have their student debt eliminated in the coming weeks. This amounts to a total of $39 billion in debt relief. The decision was made to rectify issues in accurately tracking qualified monthly payments under existing income-driven repayment plans.
Education Secretary Miguel Cardona expressed in a written statement that borrowers have suffered due to a flawed system that failed to accurately monitor their progress towards debt forgiveness.
Currently, there are multiple income-driven repayment plans available to borrowers with federal student loans. These plans determine payments based on the borrower's income and family size, regardless of the total outstanding debt. Once a borrower reaches a forgiveness threshold of either 20 or 25 years, the remaining balance is wiped clean.
Cardona added that by addressing past administrative failures, the administration aims to ensure that everyone receives the debt forgiveness they deserve. This aligns with previous actions taken by the administration to provide relief to public servants, students who were deceived by their colleges, and borrowers with permanent disabilities, including veterans.
The Department of Education stated that Friday's action aims to rectify historical failures and administrative errors that resulted in miscounted qualifying payments made by borrowers. Those affected by this decision will include Americans with Direct Loans or Federal Family Education Loans held by the department.
This announcement comes as student loan repayments are set to resume in October, following a pause during the pandemic. It is part of the ongoing efforts of the Biden administration to fulfill President Biden's promise of providing debt relief to millions of Americans. Since taking office, Biden's administration has approved $116.6 billion in student debt relief for over 3.4 million individuals, according to the Department of Education.
Despite the Supreme Court striking down Biden's loan forgiveness program, which aimed to provide one-time federal student debt relief of up to $20,000 to millions of borrowers, the administration has continued to explore alternative avenues for debt cancellation and easier access to loan forgiveness. Biden responded to the Supreme Court's decision by pledging to find a new approach to debt relief.
While today's actions do not encompass the aforementioned plans, the Department of Education is also progressing with a significant change to the federal student loan system. This change will enable Americans to enroll in a new income-driven repayment plan. The details of this plan have not yet been announced, and it will undergo a formal rule-making process, which may take several months.
In addition, Biden's administration will facilitate a smoother transition period for borrowers before payments resume by implementing an "on-ramp" period to help borrowers avoid penalties if they miss payments during the first year.
Furthermore, the Department of Education has introduced a separate plan called SAVE (Saving on a Valuable Education). This plan, similar to other income-driven repayment plans, will be implemented gradually, with some parts starting this summer and full implementation expected next year. It aims to cut monthly bills in half and cancel remaining debt after at least ten years of payments. The plan has undergone the formal rulemaking process and is anticipated to face fewer legal challenges.