Biden administration is helping millions more student borrowers, but still no word on a big fix

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The Biden administration is taking another step to ease student debt for millions of borrowers—while still falling short of universal loan forgiveness. Income-driven repayment (IDR) plans were supposed to allow student borrowers who couldn’t afford large monthly payments to make payments they could afford for 20 to 25 years, and then have the balance of their loans forgiven. But, like the Public Service Loan Forgiveness program, IDR has been a mismanaged mess. As of 2021, 4.4 million people had been paying into IDR programs for 20 years or longer. Just 32 people—yes, a three followed by a two with no other digits—had had their loans forgiven.

Now, the Education Department is making changes to the program, trying to fix decades of gross mismanagement by both the department itself and the student loan servicers handling the millions of loans. At least 40,000 borrowers will have their loans immediately forgiven, the agency estimates, because they will now qualify for Public Service Loan Forgiveness. Another several thousand will qualify for forgiveness through IDR. But millions more will be moved closer to eventual forgiveness through several fixes.

First, there will be a “one-time account adjustment” for borrowers “steered or inappropriately placed into long-term forbearances.” Forbearance allows people to pause payments during periods of financial difficulty—but interest keeps accumulating, and there is supposed to be a 12-month limit on any single period of forbearance, and a cumulative limit of 36 months. Violations of those limits have been “remarkably widespread,” the Education Department said, hitting “more than 13% of all Direct Loan borrowers between July 2009 and March 2020.” In other words, loan servicers were putting people into forbearance who should have been steered into IDR plans where their payments could have been as low as $0 a month for those whose income was less than 150% of the poverty line. Long periods of forbearance will now count as months of qualifying payments, with 3.6 million people getting at least 36 months of credit toward cancellation and millions more getting shorter lengths of credit.

Next, in a “one-time revision” of past payments, “Any months in which borrowers made payments will count toward IDR, regardless of repayment plan. Payments made prior to consolidation on consolidated loans will also count.”

The Education Department is also going to work to fix the loan servicers’ massive failures to track what people actually owed and paid. Some servicers just didn’t bother to track people’s progress toward IDR cancellation, NPR reported at the beginning of the month. Borrowers at one servicer would have had to request a manual check of their past payments to even know how much progress they had made. When borrowers were shifted from one servicer to another—which happens when people default and again when they return to good standing—technological problems meant that their records of qualifying payments were entirely lost. It’s a situation so bad that even an expert at the right-wing American Enterprise Institute called it “horrible.”

Unfortunately, while these changes will happen automatically, they won’t happen immediately. The Education Department needs to upgrade the National Student Loan Data System, which is expected to take until fall. Currently, federal student loan repayments are paused until August 31. It seems like a no-brainer that if this set of changes haven’t been made by then and no other broader student debt fix has been announced by the administration, that pause should be extended until the data system is ready to go.

In its announcement of the IDR changes, the Education Department noted its past moves to forgive student debt:

$6.8 billion for more than 113,000 public servants through improvements to PSLF;

$7.8 billion for more than 400,000 borrowers who have a total and permanent disability;

$1.2 billion for borrowers who attended ITT Technical Institutes before it closed; and

Nearly $2 billion to 105,000 borrowers who were defrauded by their school.

What none of that is, of course, is universal student loan forgiveness. The $17 billion that adds up to is a lot of money … if you don’t put it in the context of the $1.75 trillion in overall student debt. Fixing programs that have never worked as they were intended and wiping out debt for people who were actively defrauded is good, but it doesn’t address the larger structural problem here. President Joe Biden campaigned on forgiving $10,000 in student debt for everyone, but he hasn’t done that broadly, instead offering forgiveness targeted to specific groups. It’s time to make good on that promise.

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