40,000 student-loan borrowers are getting their debt wiped out immediately through fixes to ‘longstanding failures’ in forgiveness programs, Biden’s Education Department says

• The Education Department announced fixes to PSLF and income-driven repayment plans on Tuesday.
• They will wipe out student debt for 40,000 borrowers, while bringing 3.6 million closer to relief.
• The changes include updating the programs’ payment tracking methods toward loan forgiveness.

Thousands of student-loan borrowers are on track for relief that’s been a long time coming.

On Tuesday, the Education Department announced steps to bring borrowers enrolled in the Public Service Loan Forgiveness (PSLF) Program and income-driven repayment (IDR) plans closer to relief through fixes to “longstanding failures,” per the press release. PSLF, which is intended to forgive student debt for public servants after ten years of qualifying payments, has failed borrowers over past years due to its high denial rate, and Federal Student Aid estimated the new actions will wipe out student debt for 40,000 of those borrowers.

Additionally, IDR plans are intended to give borrowers affordable debt payments by creating a monthly payment plan based on a borrower’s income and family size. It promises loan forgiveness after 20-25 years on the plan. But a recent investigation from NPR revealed deep flaws with tracking those payments. Federal Student Aid estimated more than 3.6 million borrowers enrolled in those plans will receive at least 3 years of additional credit toward loan forgiveness through Tuesday’s announcement.

“Student loans were never meant to be a life sentence, but it’s certainly felt that way for borrowers locked out of debt relief they’re eligible for,” Secretary of Education Miguel Cardona said in a statement. “Today, the Department of Education will begin to remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers enrolled in IDR plans.”

Specifically, the announcement is focusing on “forbearance steering,” which is when a student-loan company places borrowers in forbearance on their payments even when they could enroll in $0 payments through IDR, which could hurt their credit reports and lead to delinquency or default.

Here’s how the department plans to end forbearance steering:

• Conduct a one-time adjustment to borrowers’ accounts that will count forbearances of 12 consecutive months and more than 36 cumulative months toward loan forgiveness under IDR and PSLF
• Restrict student-loan companies’ abilities to enroll borrowers in forbearance, conduct an external review of how forbearance is being used, and work with the Consumer Financial Protection Bureau to audit forbearance use
• Conduct a one-time revision for IDR that will allow any months when borrowers made payments to count toward forgiveness, regardless of the repayment plan, along with counting months in deferment prior to 2013 toward IDR forgiveness
• And issue new guidance to student-loan companies on tracking IDR payments using modernized systems, including displaying IDR counts on studentaid.gov beginning in 2023. 

The department added that it plans to revise IDR terms through the rulemaking process to further simplify the payment process by allowing more loan types to count toward forgiveness. Federal Student Aid will begin implementing the changes immediately, but it noted borrowers might not see changes to their accounts until the last quarter of 2022.

“By identifying obstacles for borrowers and fixing them, we are giving borrowers the support they deserve and restoring faith in these programs, even as we fix the mistakes of the past,” Under Secretary of Education James Kvaal said during a Tuesday press call. “We’re also focused on the future. The administration is developing a new repayment plan that will substantially reduce monthly payments for most borrowers.”

Prior flaws to IDR and PSLF

While borrowers enrolled in both IDR and PSLF were promised loan forgiveness after a period of time, many of them have yet to get the relief they deserve. Before President Joe Biden took office, PSLF ran up a 98% denial rate due to administrative flaws in the program, like paperwork and qualification errors, that kept borrowers paying off debt they might not have even owed, leading him to announce temporary reforms to the program last year that brought thousands of borrowers closer to relief.

When it comes to IDR, the issues spanned beyond minor paperwork errors. As Insider previously reported, only 32 student-loan borrowers — ever — have received full forgiveness under the plans. NPR recently found student-loan companies were not tracking borrowers’ payments, requiring them to ask the company to review their payment history. 

A number of lawmakers over recent weeks have called on the Education Department to implement permanent reforms to the repayment programs, and it appears the department is beginning to heed those calls. 

Kvaal told reporters the flaws with the programs are “frankly inexcusable,” and he expects the number of borrowers getting relief to “continue to grow” over the next few months, 

“We are working really, really hard…where there’s clear authority for us to help borrowers and every day we’re engaged in conversations about how to make these programs work better, and how to get the borrowers relief that they’re entitled to,” Kvaal said.