https://finance.yahoo.com/news/student-loans-one-time-payment-adjustment-of-39-billion-takes-center-stage-175455644.htmlStudent loans: One-time payment adjustment of $39 billion takes center stage
On Friday, the Department of Education announced that it will begin discharging student loan debts for borrowers who’ve been in repayment for 20-25 years under a one-time payment adjustment.
Around 800,000 borrowers will have $39 billion in federal student loans discharged as a result.
President Biden said that the previously announced one-time adjustment will become an even more important lifeline for struggling borrowers when repayments start in September.
"For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness," Miguel Cardona, US Secretary of Education, said in a press release. "Today, the Biden-Harris Administration is taking another historic step to right these wrongs and announcing $39 billion in debt relief for another 804,000 borrowers. By fixing past administrative failures, we are ensuring everyone gets the forgiveness they deserve, just as we have done for public servants, students who were cheated by their colleges, and borrowers with permanent disabilities, including veterans."
The one-time payment adjustment the Education Department had announced counts certain months that were previously ineligible toward student loan forgiveness under income-driven repayment plans, or IDRs. Around 3.6 million borrowers would receive at least three years of credit toward forgiveness as a result, according to Federal Student Aid.
Today, the Department of Education announced that 800,000 borrowers will have $39 billion in federal student loans discharged as a result of a one-time payment adjustment.
"The one-time adjustment hasn’t gotten the attention it deserves as it remedies decades of a broken system due to forbearance steering on behalf of loan servicers," Persis S. Yu, deputy executive director of Student Borrower Protection Center (SBPC), told Yahoo Finance. "Millions of borrowers will benefit."
In April 2022, the education department announced the one-time payment adjustment for all Direct Loans and federally owned Federal Family Education Loans (FFELs). The adjustment to student loan accounts would go toward helping borrowers get closer to forgiveness under income-driven repayment plans, which offer cancellation after 20 or 25 years, depending on the particular plan.
After the adjustment, borrowers with 20 or 25 years of repayment history automatically get forgiveness even if they aren’t enrolled in an income-driven repayment plan.
Read more: Will I be taxed on student loan forgiveness?
FFEL borrowers with commercially-held loans can benefit from the adjustment too if they consolidate their loans with Federal Student Aid by December 31, 2023.
Default borrowers have until December 31, 2023, to use the Fresh Start Program to become in good standing and take advantage of the one-time payment adjustment.
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800,000 student borrowers to get $39 billion in debt forgiveness
More than 800,000 borrowers with $39 billion in federal student loans will get their debt forgiven, the Biden administration said on Friday.
The Department of Education said it will begin notifying borrowers today about the automatic discharge of their debt, which will occur in the next few weeks.
The debt relief comes two weeks after the Supreme Court invalidated the Biden administration's plan for broad-based student loan forgiveness, which would have helped more than 40 million borrowers each erase up to $20,000 in debt. The plan announced on Friday is related to a separate effort by the Biden administration to improve income-driven repayment plans (IDRs), which are designed to reduce student loan monthly payments by pegging a person's payment amount to their income.
Who is getting loan forgiveness?
The Biden administration said 804,000 people will learn that their debt has been discharged.
These are people who were enrolled in IDRs and who have accumulated the equivalent of either 20 or 25 years of qualifying monthly payments, the administration said.
Why are they getting loan forgiveness now?
The administration said it is discharging the loans now because it wants to fix "historical failures" in how IDRs were managed.
Some "qualifying payments made under IDR plans that should have moved borrowers closer to forgiveness were not accounted for," the administration said in a statement.
"For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness," said U.S. Secretary of Education Miguel Cardona in the statement.
What happened with income-driven repayment plans?
The Higher Education Act and Education Department regulations state that a borrower is eligible for forgiveness after making either 240 or 300 monthly payment in an IDR plan or the standard repayment plan. The different number of months depends on when a borrower first took out the loans, what type of loans they had and the IDR plan in which they were enrolled.
But "inaccurate payment counts" meant that some borrowers weren't progressing toward loan forgiveness, the administration noted.
What types of loans are covered?
Borrowers with Direct Loans, Federal Family Education Loans held by the Education Department, as well as Parent PLUS loans, are covered.
How is the length of time calculated?
The Education Department said it is calculating the forgiveness threshold for people who received credit toward IDR forgiveness for any of the following periods:
Any payment made in a month when they were in repayment status, whether the payments were partial or late. Any period when a borrower spent at least 12 consecutive months in forbearance. Any month in forbearance for borrowers who spent at least 36 consecutive months in forbearance. Any month spent in deferment, except for in-school deferment, before 2013. Any month spent in economic hardship or military deferments on or after January 1, 2013. Any months in the categories above that occurred prior to a loan consolidation will also be counted toward forgiveness.
