Feeling down about your student loan debt and the end of the forthcoming payment pause? If it’s been more than two decades, your debt might already be forgiven.
A tweak to how the federal Education Department calculates student loan payments means about 804,000 people will have the balance of their loans erased over the next few months. The outstanding debt, worth about $39 billion, is what’s left of these borrowers’ loans after the equivalent of 20 to 25 years worth of payments.
Although the Biden administration took a hit last month when the Supreme Court undid its plan for large-scale student loan forgiveness – the now-defunct proposal had the potential to forgive debt for more than 40 million borrowers – the announcement Friday is the latest in a stream of messages touting the many ways it has helped people escape their student debt.
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The how and why of new relief
The Biden administration said last year it would make a one-time adjustment to borrowers’ payment histories, to ensure they are getting all the credit they should.
“At the start of this administration, millions of borrowers had earned loan forgiveness but never received it. That’s unacceptable,” Education Department Under Secretary James Kvaal said. “Today we are holding up the bargain we offered borrowers who have completed decades of repayment.”
The borrowers involved in these plans for forgiveness include those with Direct Loans or Federal Family Education Loans held by the department, including Parent PLUS loans.
A longstanding option for student loan borrowers has been to enroll in a payment plan that aligns payments with their income. Some people with those plans, however, have struggled to get credit for all of those payments. Others who were eligible never participated.
Another long-standing criticism of these plans: while they can make the monthly payment more affordable, they stretch out the life of the loan, and interest often continues to accrue faster than borrowers can pay it off.
In the coming days, borrowers will receive notices if they are a part of the group whose debt will be canceled. Borrowers who fear a tax liability or who have other concerns about the forgiveness will have the option to opt out of the loan forgiveness.
Student loan debt forgiveness isn’t deadThe Supreme Court only blocked one route to canceling your balance.
If they don’t opt out, their respective loan servicers will be told about the plan to eliminate the outstanding debt after Aug. 12, and borrowers will in turn be notified by their servicers that their balances have been forgiven.
Many of the borrowers affected are likely 50 or older. About 9.2 million borrowers fall into this category.
Biden, thwarted on mass forgiveness, under pressure to deliver
The Biden administration has made it a top priority to reduce the burden of student loan debt on Americans. But after last month’s Supreme Court decision, which concluded Biden lacked the authority to provide large-scale student loan relief through the executive emergency mechanism he used originally, he faces mounting pressure to provide that forgiveness with other means.
The day the court issued its opinion, the administration announced its next plan of action: working to forgive such debt through the Higher Education Act of 1965.
That plan will kick off Tuesday, through a usually dry but in this case highly anticipated bureaucratic procedure known as negotiated rulemaking. As part of this process, members of the public will be able to share their feedback on how if at all they want the Education Department to utilize the HEA to provide mass forgiveness.
But it’s not clear how long that will take or whether any option created through this alternate route will also face a lawsuit.
Other ways Biden has canceled student debt
The Biden administration already has provided forgiveness for targeted groups of people, sometimes using the HEA.
Last year, for example, the administration agreed to relieve the student loan debt of 200,000 borrowers who’d been defrauded by their institutions, namely for-profit colleges. The relief plan totaling billions of dollars relied on the HEA, which gives the secretary the authority to “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand” related to its obligations, including student loans.
Under Biden, the Education Department has also significantly streamlined and expanded access to public-service loan forgiveness (PSLF). Such forgiveness, reserved for individuals who’ve worked for at least a decade in eligible fields such as teaching and nursing, was partly provided through emergency levers outside of the HEA.
And a new income-driven repayment plan that will debut soon will cut payments to nothing for some borrowers.
Contributing: Chris Quintana, USA TODAY
Contact Alia Wong at (202) 507-2256 or awong@usatoday.com. Follow her on Twitter at @aliaemily.
