Ed Department to Fix Student Loan Program ‘Failures’

WASHINGTON — The U.S. Education Department on Tuesday began taking steps it says will bring thousands of borrowers closer to forgiveness of their debts while making additional changes that will result in the immediate debt cancellation for at least 40,000 borrowers.

“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,” said Education Secretary Miguel Cardona in a written 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 [income-driven repayment] plans. These actions once again demonstrate the Biden-Harris administration’s commitment to delivering meaningful debt relief and ensuring federal student loan programs are administered fairly and effectively.”

In addition to the debt forgiveness through changes to the public service loan and income-driven repayment plans, more than 3.6 million borrowers will also receive at least three years of additional credit toward IDR forgiveness.

According to the department, Tuesday’s actions are part of its commitment to address historical failures in the administration of the federal student loan program and support student loan borrowers through the pandemic. 

They are also intended to help address the impact of the COVID-19 pandemic on borrowers with lower incomes and high debt loads. 

“Today’s steps will help restore the promise of IDR plans by ensuring that borrowers have an affordable and effective path out of debt,” the department said in a press release.

Among the actions the department took Tuesday were:

Ending “Forbearance Steering”

Education Department regulations require that borrowers who are facing difficulty making their loan payments get clear and accurate information from servicers about their options for staying out of delinquency, including IDR plans, and the financial consequences of choosing short-term options like forbearance. 

However, Federal Student Aid reviews suggest that loan servicers placed borrowers into forbearance in violation of department rules, even when their monthly payment under an IDR plan could have been as low as zero dollars. A borrower advised to choose forbearance — particularly long-term consecutive or serial uses of forbearance — can see their loan balance and monthly payments grow due to interest capitalization and lead to delinquency or default.

The Education Department will address forbearance steering by:

• Conducting a One-Time Account Adjustment to Count Certain Long-Term Forbearances Toward IDR and Public Service Loan Forgiveness

To mitigate the harms of inappropriate steering into long-term forbearance, FSA will conduct a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness under IDR and PSLF. Borrowers who were steered into shorter-term forbearances will be able to seek account review by filing a complaint with the FSA Ombudsman at StudentAid.gov/feedback.

• Increasing Oversight of Servicers’ Forbearance Use

FSA will target forbearance steering by restricting servicers’ ability to enroll borrowers in forbearance by text or email, conducting an external review of patterns of forbearance use and servicers’ practices to identify other potential changes to address steering, and working in partnership with the Consumer Financial Protection Bureau to do regular audits of forbearance use. 

FSA will begin implementing these changes immediately, but borrowers may not see the effect in their accounts until the last quarter of 2022.

Tracking Progress Toward IDR Forgiveness

The Education Department’s review of IDR payment-tracking procedures has revealed significant flaws that suggest borrowers are missing out on progress toward IDR forgiveness.

The department is committed to fixing this problem swiftly and permanently. Secretary Cardona has directed FSA to:

• Conduct a One-Time Revision of IDR Payments to Address Past Inaccuracies

To fully address past issues with IDR payment counting, FSA will do a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally managed Federal Family Education Loan Program loans. Any months in which borrowers made payments will count toward IDR, regardless of repayment plan. Payments made prior to consolidation on consolidated loans will also count. 

Any borrower who has made the required number of payments for IDR forgiveness based on this payment-count revision will receive loan cancellation automatically. Additionally, FSA will count months spent in deferment prior to 2013 toward IDR forgiveness (with the exception of in-school deferment) for this same population of borrowers to address concerns that, prior to that date, its data cannot distinguish IDR-eligible deferments from other deferments.

• Permanently Fix IDR Payment Counting by Reforming FSA’s IDR Tracking

FSA will issue new guidance to student loan servicers to ensure accurate and uniform payment counting practices, and it will track payment counts in its own modernized data systems. In 2023, FSA will begin displaying IDR payment counts on StudentAid.gov so borrowers can view their progress after logging into their accounts. 

In addition, the department plans to revise the terms of IDR through rulemaking to further simplify payment counting by allowing more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.

FSA will begin implementing these changes immediately, but borrowers may not see the effect in their accounts until the last quarter of 2022.

Dan can be reached at [email protected] and at https://twitter.com/DanMcCue