U.S. Department of Education Announces New Student Debt Cancellation Programs

On July 14, the U.S. Department of Education announced a plan to reduce student debt for more than 800,000 borrowers. The program is targeted to those whose loan servicers failed to give credit for payments made or who may have received poor advice from loan servicers. The Department of Education says that those who are eligible will be informed before the end of the year.

In addition, many more borrowers will have their loans adjusted as part of the program. That process will continue into next year.

Borrowers with Direct Loans (from the Department of Education) or loans made through the Federal Family Education Loan Program and held by the Education Department may qualify, including those with Parent PLUS loans.

Debt cancellation is available for those who have reached a certain threshold or have a record of 240 to 300 months in either an income-driven repayment plan or a standard repayment plan. The precise number of qualifying payments will vary depending on the borrower’s loan type and the payment plan in which the person is enrolled.

The program is designed to correct the extensive mistakes many loan servicers made in tracking payments and in guiding borrowers through the payment process. So-called forbearance steering was a particularly glaring issue. Low-income borrowers could qualify for monthly bills of $0 through income-driven payment plans, but loan servicers often placed struggling borrowers on forbearance — a move that kept their loans in good standing but meant that interest continued accruing, inflating borrowers’ balances.

Borrowers’ payment count will include any month they were in repayment. They will also get credit for any period they spent 12 or more consecutive months in forbearance, as well as any month in forbearance for those who spent 36 or more cumulative months in forbearance. Any month spent in deferment — except for in-school deferment — before 2013 will also count. The same goes for any month spent in economic hardship or military deferment on or after January 1, 2013.

The Education Department said it would inform borrowers if they had enough payments for cancellation with no further action on their part — and they would continue to notify borrowers who reached the debt elimination threshold every two months until next year.

Debt discharges will begin 30 days after emails are sent — and the borrower’s loan servicer will let them know when it’s completed.

For more information on this plan, visit the U.S. Department of Education’s Student Loans, Forgiveness page.

August 2023