U.S. Education Secretary Miguel Cardona said in a statement that the latest forgiveness plan will help fix a "broken system" that failed to keep accurate track of borrowers' progress towards federal loan forgiveness.
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That’s according to new U.S. Department of Education data released Tuesday, which showed the number of borrowers who are eligible for automatic loan relief. The move is part of a fix to mismanagement of the agency’s income-driven repayment (IDR) plans.
Many long-time borrowers, including those who had been making payments for 20 years or more, were denied relief they were eligible for under the repayment plans. Qualified payments that were made were not accounted for.
In Indiana, the total debt eligible to be forgiven amounts to more than $932 million, according to federal officials.
A different approach to student loan forgiveness
The education department and the White House announced last week that more than 800,000 borrowers nationwide will see debt relief within the next 30 days.
“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” U.S. Secretary of Education Miguel Cardona said in a statement.
President Joe Bien’s forgiveness plan includes borrowers with Direct Loans or Federal Family Education Loans held by the education department (including Parent PLUS loans of either type) who have reached a forgiveness threshold specified by the department.
Borrowers are eligible for forgiveness if they have accumulated the equivalent of either 20 or 25 years of qualifying months depending on their loan type and IDR plan.
Federal education officials said they will also continue to identify and notify borrowers who reach the applicable forgiveness thresholds — but who are not yet eligible for forgiveness — every two months until next year.
Long-standing issues with IDR plans
A 2022 NPR investigation found numerous problems with the agency’s handling of IDR plans, which are meant to help low-income borrowers. Loan servicers failed to keep track of borrowers’ progress toward forgiveness and payment histories were not properly transferred from one loan servicer to another.
Under IDR, after 20 years of payments, a borrower’s loan plan should be forgiven. But a 2021 report from the National Consumer Law Center found that more than 4 million borrowers had been making payments for at least 20 years, but only 32 had their debts canceled under the plan.
Federal officials are soon to roll out a separate, complex new repayment plan — called the SAVE plan, for Saving on a Valuable Education — that will save borrowers thousands of dollars by keeping their monthly payments small (as low as $0) while also preventing interest from exploding what they owe.
Under the new plan, monthly payments would decline to 5% of a borrower’s income — down from 10% — and the repayment timeline for loan forgiveness would be decreased to 10 years from 20 or 25 if the initial loan is less than $12,000.
Borrowers who make less than $15 an hour will not have to make any payments. Those earning above that amount will save more than $1,000 a year on their payments compared to other IDR plans, according to the Biden Administration.
Benefits from the SAVE plan are expected to become available this summer.
The Department of Education is also going through a rulemaking process to cancel that student loan debt under the Higher Education Act, an action likely to face the same legal challenges as the initial debt relief program.
Under the Biden administration, the Department of Education has canceled about $116 billion in student loan debt for borrowers who were misled by for-profit institutions, borrowers with disabilities and those with loans through Public Service Loan Forgiveness.
More than 43 million Americans have student loan debt, and the Federal Reserve estimates that the total U.S. student loan debt is more than $1.76 trillion.
