Substitute while the actions of the article are loading
People who have been repaying their student loans for decades will have a better chance of canceling debt as the Biden administration temporarily eases the rules on certain repayment plans.
On Tuesday, the education ministry said it would provide federal student loan borrowers with an additional loan to repay loans under so-called income-based repayment plans. The move will bring more than 3.6 million people closer to debt cancellation, including 40,000 who will be eligible immediately, according to the department.
About half of the more than $ 1 trillion in outstanding student loans provided directly by the federal government are repaid through one of four income-oriented plans. The plans limit monthly payments to a certain percentage of revenue, with the promise that the balance will be simplified after 20 or 25 years of payments.
The problem is that decades of poor communication between the education department, its borrowers and borrowers have made the program difficult to navigate. Education Minister Miguel Cardona now says the agency will fix years of administrative failures that have effectively refused to forgive loans to some borrowers written in income-based plans.
“Student loans have never been intended to be a life sentence, but it certainly feels that way for eligible debt relievers who are eligible,” Cardona said on Tuesday.
Congress created the first income plan in the 1990s, but few people benefited until the Obama administration expanded eligibility, cut monthly payments and shaved years off the road to forgiveness. The goal was to help more people manage their debt and avoid default.
Despite fine-tuning over the years, government audits show that the Ministry of Education has provided insufficient guidance to contractors managing its loan portfolio. This supervision has led to inconsistent servicing of the loan to the detriment of borrowers.
A recent NPR investigation found inconsistencies in the way service providers treat and track payments made through income-based plans. He also found that earlier versions of the file system used by the department to transfer borrower accounts between service providers did not track the number of payments for some of the plans, and some records lacked information on the correct payment amount. This means that people can repay their loans much longer than necessary.
To address past problems, the Biden administration said on Tuesday that each month borrowers made payments would count back to forgiveness, even if they were not included in an income-based plan. Anyone who has made the required number of forgiveness payments based on this one-off revision will receive an automatic loan cancellation.
Borrowers do not currently need to be enrolled in an income-based plan to benefit from the exemption. If they later enroll in the plans, all payments they have already made will be considered for remission.
The changes will be reflected in the accounts of borrowers by the end of the year. The department expects the release to give 3.6 million people at least three additional years of credit.
“We wanted to act as quickly as possible to address these issues, but we expect these figures to only increase as we continue to analyze and implement these solutions,” said James Kwaal, deputy secretary of education, during an interview with reporters in Tuesday.
The department will also provide a one-off adjustment to the account to count the months in which borrowers have postponed their payments by patience if they have remained in this status for years. Months in which borrowers are overdue, defaulted or deferred payments are not counted towards the forgiveness threshold.
In response to past complaints from the Office of Financial Consumer Protection, the education department said service providers routinely direct borrowers to long-term patience to avoid additional paperwork to fit into an income-based plan.
A review of past patience shows that more than 13 percent of all direct loan borrowers between July 2009 and March 2020 used patience for at least 36 months cumulatively, according to the department. The department’s federal student aid office will limit the ability of service providers to record borrowers in patience by text or email, and will review the use of patience.
The services have challenged the allegations of management, claiming that they are being paid more for bills that are being paid, so there is no motive for profit.
In a joint statement, the Education Finance Council, the National Council for Resources for Higher Education and the Alliance for Student Loan Services – groups representing service providers – said: The ministry to manage the conversation far from the root cause that the FSA has failed to fix the federal system for repaying student loans for years.
The groups called the release a “quick fix, a band-aid approach” to long-standing problems that the department has been unable to resolve in co-operation with its own creditors. The groups cite the experience of federal servicing loans made in 2016 to make wholesale changes to record keeping and payment counting, which the department initially agreed to but later canceled due to cost concerns.
The shortcomings of income-oriented plans have angered Democrats in Congress. Last week, Sen. Elizabeth Warren (D-Mass.), Sherrod Brown (D-Ohio) and Richard J. Durbin (D-Ill.) Called on the Department and the Consumer Financial Protection Bureau to investigate the program’s mismanagement. House Education and Labor Chairman Robert C. Bobby Scott (D-Va.) Has called for an investigation by the U.S. Government Accountability Office into the program, which is due out this week.
While liberal lawmakers and consumer advocates praised the release, many continued to press President Biden for widespread debt cancellation through enforcement action. Others expressed disappointment that the exemption did not include borrowers whose loans were in default due to failures in the repayment system.
“The education department has left the borrowers who have suffered the most from past failures: borrowers who do not have access to an affordable payment option have failed,” said Abby Shafroth, director of the National Center for Student Loan Assistance. consumer law. “This oversight significantly reduces the number of borrowers who will receive immediate loan repayment through today’s actions, as more than 2 million of the 4.4 million borrowers who have been in repayment for more than 20 years are in default.
Shafroth is also worried that few borrowers will be able to figure out how to take advantage of the refusal, and few will know what to do if they are initially missed. The department said it was working to adjust the way it tracks eligible payments by planning to show a count of payments that allows borrowers to track their progress towards 2023 forgiveness.
Tuesday’s waiver comes as the Ministry of Education details the details of a new plan called Expanded Income-Contingent Repayment, which will reduce monthly payments and simplify unpaid interest for borrowers so low-income that they can’t make payments.
It applied only to student loans, not the federal debt that parents or alumni accumulate, and maintained a long repayment period. The initial proposal was submitted in December by a group of experts in higher education, who could not reach a consensus during the rulemaking talks, leaving the department to move forward.
Add Comment