DOE Overhauls Student Loan Forgiveness, May Bring Immediate Debt Relief

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The Biden administration is temporarily expanding its student loan forgiveness program, allowing all payments made on federal student loans to count towards Public Service Loan Forgiveness, regardless of loan or plan.

Department of Education announces Public service loan forgiveness program overhaul

The Department of Education (DOE) announced major changes to the federal student loan forgiveness program, which could bring immediate debt relief to thousands of borrowers who work in government and nonprofit sectors.

The Education Department will temporarily allow all payments being made on federal student loans to count towards Public Service Loan Forgiveness, irrespective of the loan program or payment plan. The DOE estimates the overhaul could make 22,000 people immediately eligible, while bringing over 550,000 people closer to debt cancellation, the Washington Post reported.

The DOE said it will “restore the promise” of the debt relief program under a series of actions to be implemented “over the coming months,” according to an agency memo, CNN reported. The proposed actions include a time-limited waiver that will authorize “all prior payments” made from student borrowers to count towards the forgiveness program – including loan types and payment plans which didn’t previously qualify for forgiveness. According to the memo, this temporary waiver will extend through October 31, 2022.

How does the Public Service Loan Forgiveness program work?

The loan forgiveness program was created by Congress in 2007.

Under the program, qualifying borrowers must work for the government or certain nonprofit organizations and have loans made directly by the federal government. After being deemed eligible, they must make 120 on-time monthly payments for 10 years in order to have their remaining balance canceled. Further, they must be enrolled in specific repayment plans, specifically, those which cap the monthly loan payments at a percentage of their income.

Problems plaguing the existing loan forgiveness program

The Public Service Loan Forgiveness has been highly criticized by lawmakers, consumer groups, and participants for being exceedingly complex and poorly managed.

For example, some people have complained they received poor advice from loan servicing companies (hired by the DOE) which led them to believe they were making qualifying payments on their loans when they were not. Such advice can add years to the process, delaying or eliminated the promise of tax-free debt cancellation, according to consumer advocates.

Many borrowers have paid their debt for more than a decade, but are still being held back by technicalities that prevent them from receiving loan forgiveness.