The Biden administration announced Friday that it will cancel $39 billion in federal student loans for more than 804,000 borrowers, following the US Supreme Court’s decision last month to strike down the White House’s previous student loan forgiveness plan.
Biden’s new plan to forgive $39 billion in student loans, explained
More than 800,000 borrowers are now eligible for student loan forgiveness. Here’s what that means for you.
Nicole Narea covered politics at Vox. She first joined Vox in 2019, and her work has also appeared in Politico, Washington Monthly, and the New Republic.
The Education Department said that it will do so by accounting for payments made under income-driven repayment plans — which are capped to a certain percent of borrowers’ income — that it argues should have qualified toward loan forgiveness, but were previously unrecognized by loan servicers that collect payments.
“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” US Secretary of Education Miguel Cardona said in a statement Friday. “By fixing past administrative failures, we are ensuring everyone gets the forgiveness they deserve.”
This new plan differs from the one that was struck down by the Supreme Court, which would have forgiven $10,000 worth of loans for most student borrowers and $20,000 for Pell Grant recipients, applying to a population of about 37 million people.
Separately, Biden is also creating a new income-driven repayment plan — called SAVE (Saving on a Valuable Education) — that will allow some borrowers to cut their monthly payments in half and cancel the rest of their debt after making 10 years of payments.
Here’s what you need to know about whether you might qualify for Biden’s latest student loan forgiveness plan and how to access it.
Who is eligible?
The Education Department said Friday that borrowers who have taken out Direct Loans or Federal Family Education Loans held by the Education Department, including any Parent PLUS loans, may be eligible for forgiveness.
They would have had to have made the equivalent of either 20 or 25 years of qualifying payments — or 240 or 300 monthly payments — to be eligible for forgiveness. The required payments vary based on when the loan was initiated, the type of loan borrowed, and the particular income-driven repayment plan in which the borrower is enrolled.
The Department is now counting months toward forgiveness for any month in which the borrower made a payment (even if only partial or late); any month in which borrowers deferred their loans prior to 2013, with the exception of those who deferred payment while in school; any month spent in economic hardship or deferment due to military service on or after January 1, 2013; and any month in which a borrower had spent at least 12 consecutive months or 36 cumulative months in forbearance. That goes for months prior to consolidating loans, as well.
How can you access loan forgiveness?
The Department said that it would start notifying borrowers eligible for forgiveness by email as early as Friday. Essentially, if you are eligible, you don’t have to do anything. Repayment (and therefore interest) will be paused until loans are discharged, which will occur starting 30 days after the Department notifies borrowers of their eligibility.
Borrowers can also choose to opt out of the discharge by contacting their loan servicer. They will have to start repaying their loans once payments resume on September 1.
The Department will continue notifying borrowers who become eligible for forgiveness every two months until next year.
Will the plan survive in court?
The Supreme Court found last month that the Biden administration did not have the power under the Higher Education Relief Opportunities for Students Act of 2003, or HEROES Act, to unilaterally cancel federal student debt.
But Biden’s new plan is different in that it relies on authorities in the Higher Education Act concerning the administration of income-driven repayment plans, as well as existing Education Department regulations. Legal experts say that may put these changes on firmer legal ground.
“It’s a better legal argument. But with this [Supreme] Court, you can never be sure,” said Dan Urman, a law professor at Northeastern University.
What should borrowers do now?
Borrowers should make sure that they enroll in an income-driven repayment plan if they’re eligible and haven’t done so already. Otherwise, there isn’t further action required.
For borrowers who still anticipate not being able to make payments once payments restart in September, the Biden administration has indicated that there will be a 12-month “on-ramp” during which borrowers are not considered delinquent and will not be reported to credit bureaus, placed in default, or referred to debt collection agencies. After that, they will have to make payments.
