The U.S. Department of Education has announced steps to bring millions of student loan borrowers closer to debt forgiveness and offer immediate debt relief to 40,000 borrowers.
The agency said it was addressing “historic failures in the administration federal student loan program“, Said in a press release from the US Department of Education on April 19.
“Student loans should never have been life imprisonment, but it is certainly felt for borrowers who are deprived of the ability to repay the debt to which they are entitled,” US Education Secretary Miguel Cardona said in a release. “Today, the Department of Education will begin eliminating long-standing administrative failures that have effectively denied pardon promises to some borrowers involved in IDR repayment plans (depending on income).
This is what the new changes mean for borrowers.
Department of Education seeks to put an end to “leadership patience”
One of the goals of the US Department of Education is to end so-called deterrence.
Borrowers who have difficulty repaying the loan are often entitled to a deferral, which means temporarily suspending payments or reducing monthly payments, according to Federal Student Aid Service.
However, the agency said that these borrowers often have other options – for example (repayment based on income) IDR plans – This can reduce monthly payments to zero dollars and allow them to continue to move towards loan forgiveness.
In many cases, where credit providers “managed or improperly delivered” borrowers to be patient instead of these other options, interest rates will continue to rise over a period of endurance – meaning that borrowers end up paying more. For those hoping for a loan forgiveness, any period of patience is not counted in the forgiveness requirement and can be postponed for years.
Between 2009 and 2020, more than 13% of borrowers used the shutter speed for more than three consecutive years. The agency said it would “make a one-time adjustment to the account that will take more than 12 months in a row and more than 36 months in total to apologize.”
According to the agency, about 3.6 million borrowers will receive at least three years of credit forgiveness loan under the IDR program or the Public Service Credit Forgiveness Program (PSLF).
In addition, the department said it is now limiting the ability of credit providers to include borrowers in the deferral.
Thousands see loan forgiveness after change
According to the department, most borrowers are eligible for forgiveness after 20 years of payments.
But about 2 million federal student borrowers they have been paying on loans for more than 20 years and still owe money, according to a March 2021 report from the National Consumer Rights Center’s nonprofit organization.
Of the millions eligible, only 32 have received loan cancellation under the IDR program since it began 25 years ago, the report shows.
Education officials said a review of the agency’s procedures revealed “significant shortcomings” that have prevented many borrowers from working to forgive the loan to which they are entitled.
“The department is committed to resolving this issue quickly and permanently,” education officials said in a release, adding that “any borrower who has made the required number of payments to forgive IDR based on this revision of payment counts will receive automatic loan cancellation. ”
Taking into account changes in the IDR program and adjustments to the patience accounts, the agency estimates that about 40,000 borrowers will receive immediate debt cancellation through a government debt forgiveness program. Several thousand more borrowers with old loans will be forgiven through an income-adjusted repayment program.
The office will introduce the changes immediately, but the agency said borrowers can see changes in their accounts by the end of 2022.
And starting in 2023, the federal student aid office will begin showing payment counts so borrowers can more accurately track their progress toward forgiveness, the release said.
On April 6, President Joe Biden’s administration announced an extension suspend payment of student loan until August 31, 2022. At a briefing that day, spokeswoman Jen Psaki said Biden had not “turned off” the scale. cancellation of student debt.
This story was originally published April 19, 2022 5:30 p.m.
40,000 student loan borrowers are eligible for debt relief
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