By: Catherine Brown, Senior Director of Policy and Advocacy
Reading time: 4 min.
Speculation abounds about whether President Biden will extend the student loan payment pause set to expire August
31, or even cancel student loans altogether.
The payment pause, in place since March 13, 2020, saves 37 million borrowers an average of $210 a month. This policy has also frozen interest rates at zero, protecting borrowers from growing balances, and allowed them to earn credit for loan forgiveness without making monthly payments.
Student debt has ballooned in recent years as states have disinvested in higher education, the cost of college has grown, and wages have stagnated. Between 2007 and 2020, student debt grew by 144%, from $642 billion to $1.56 trillion according to the Bipartisan Policy Center. Black borrowers have been disproportionately impacted by this increase, as they are much more likely to take out student loans to finance their education and have higher average balances than white borrowers.
The U.S. Department of Education and Federal Student Aid have issued a series of recent regulations aimed at chipping away at the student loan debt crisis.
Using a targeted approach, the Department has forgiven $32 billion in student loans so far, with more expected in the coming months. Here is a breakdown of federal student debt cancellation actions taken to date.
Borrowers in Default – The Administrationannounced last week that borrowers in default will be given a “fresh start” by restoring their eligibility for federal financial aid, protecting them against collections and wage garnishment, and wiping certain records from
their credit history. Borrowers who have defaulted on their student loans will be able to enroll in an income-driven repayment program to repay their loans at a rate they can afford. To enroll in this program, borrowers will have to connect with
their loan servicer or reach out to the department’s Default Resolution Group within one year of the date student loan repayments are restored. This policy is expected to help 7.5 million
borrowers. Those with debt and no degree are at the highest risk of default. Black borrowers are at the greatest risk of default, with default rates double that of their white peers.
Public Servants – Public Service Loan Forgiveness (PSLF) provides relief to non-profit and government employees, including
many employees at NCAN member organizations. PSLF forgives all federal student debt after a borrower has made 120 qualifying monthly payments. On Oct. 6, 2021, the Administration announced a temporary waiver to the program rules to allow more borrowers to receive relief. Under the more flexible rules, monthly payments
that were not made on time, were for less than the amount due, or were made on loans that did not previously qualify for PSLF credit, such as Perkins loans, still count towards the 120-payment (10 year) total. The Administration has already cancelled
$9.6 billion in student debt for 175,000 student borrowers and is still accepting applications. The waiver expires on October 31, 2022, so apply now if you think you might be eligible.
Borrowers with Permanent Disabilities – In August 2021, the Department announced it was streamlining the process for discharging loans of borrowers with total and permanent disabilities. Under the new rules, the Department identifies qualifying borrowers through data matches with the Social Security Administration
and automatically cancels their loans. The Department also proposed new regulations in July 2022 to allow a broader set of disability statuses to qualify for discharge, eliminate the three-year income-monitoring period for borrowers who receive discharges, and widen the types of documentation and signatures borrowers may submit
to demonstrate they are eligible for relief. Nine billion dollars in student loans have been forgiven for 425,000 borrowers with total and permanent disabilities so far.
Victims of Predatory For-Profit Colleges – The Administration has cancelled $13 billion in student loans for student borrowers who attended institutions that have been investigated and found to have made widespread misrepresentations
about their job placement rates. Some institutions have been closed amidst fraud allegations. These discharges include:
$5.8 billion in loans for 560,000 borrowers who attended Corinthian College
In sum, the Department has forgiven $32 billion in student loans for 9.1 million students already, with more cancellations being processed each day. They also announced a new student loan servicing system aimed at improving the borrower experience and increasing accountability for servicers while working to overhaul and simplify the FAFSA (Free Application for Federal Student Aid).
Here at NCAN we will keep you updated as more on student loan cancellation unfolds.
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