Over 800,000 Individuals Set to Have Student Loan Balances Eliminated in Latest Round of Debt Forgiveness

Approximately 804,000 individuals will have their student loan balances erased in the coming months due to a revision in how the federal Education Department calculates loan payments. This adjustment aims to rectify past errors and addresses a remaining debt of around $39 billion after 20 to 25 years’ worth of payments.

While the Biden administration faced a setback last month when the Supreme Court rejected its plan for widespread student loan forgiveness, which would have benefited over 40 million borrowers, the recent announcement highlights ongoing efforts to address student debt challenges. The administration has been vocal about its commitment to helping individuals free themselves from student loan burdens.

The recent relief stems from the administration’s promise to make a one-time adjustment to borrowers’ payment histories, ensuring proper credit is given. Education Department Undersecretary James Kvaal emphasized the importance of fulfilling the administration’s commitment to borrowers who had earned loan forgiveness but never received it. The debt forgiveness plan encompasses borrowers with Direct Loans or Federal Family Education Loans, including Parent PLUS loans.

Enrolling in income-based payment plans has long been an option for student loan borrowers, but some faced difficulties receiving credit for all their payments. Furthermore, the extended repayment period associated with these plans often leads to accruing interest that outpaces borrowers’ ability to pay off the principal amount. NPR’s investigation last year exposed mismanagement of the program by loan servicers and the Education Department.

The Student Borrower Protection Center expressed gratitude for the administration’s efforts to rectify past issues but called the student loan system “dysfunctional,” highlighting the need for further action. The relief provided to over 804,000 individuals is seen as a necessary response to systemic failures.

Affected borrowers will receive notifications regarding the cancellation of their debt, with the option to opt out if they have concerns about tax liabilities or other forgiveness-related matters. For those who don’t opt out, their respective loan servicers will be informed about the debt elimination plan after August 12, and borrowers will subsequently receive notifications from their servicers confirming the forgiveness of their balances.

A significant portion of the affected borrowers are likely to be aged 50 or older, accounting for approximately 9.2 million borrowers in this category.

While the Biden administration faces pressure to deliver on student loan forgiveness following the Supreme Court’s decision, it has pursued alternative means to address the issue. A new plan is set to commence through the Higher Education Act of 1965, with public input invited through a bureaucratic procedure known as negotiated rulemaking. The timeline for this process and the potential legal challenges remain uncertain.

The administration has already provided targeted student debt forgiveness, such as relieving the debt of 200,000 borrowers defrauded by for-profit colleges. This action utilized the Higher Education Act. Additionally, the Education Department has expanded access to public-service loan forgiveness and plans to introduce a new income-driven repayment plan that will reduce or eliminate payments for eligible borrowers.