Personal finance

As student loan forgiveness nears $160 billion, here’s what to know about the relief programs

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US President Joe Biden announces student loan relief with Education Secretary Miguel Cardona (R) on August 24, 2022 in the Roosevelt Room of the White House in Washington, DC.
Olivier Douliery | AFP | Getty Images

The Biden administration fixes to the country’s $1.6 trillion student loan system have resulted in regular announcements to forgive large shares of that debt.

In total, the U.S. Department of Education has canceled almost $160 billion in federal student loan debt for nearly 4.6 million borrowers while President Joe Biden has been in office.

Here what to know about the aid programs that have led to that relief.

Income-driven repayment plans

Income-driven repayment plans, which date to 1994, allow student loan borrowers to pay just a share of their discretionary income toward their debt each month, and to get any remaining debt forgiven after a set period. There are four different plans.

Many borrowers paid into the system for years without getting that promised cancellation, explained higher education expert Mark Kantrowitz.

“The loan servicers weren’t keeping track of the number of qualifying payments,” Kantrowitz said in an earlier interview with CNBC.

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The Biden administration has been evaluating millions of borrowers’ loan accounts to see if they should have had their debt forgiven.

It has also been granting borrowers who consolidate loans a one-time payment count adjustment. That gives them credit toward all their loans based on the one they have been making payments on the longest, as well as for certain periods that previously didn’t count, including certain months spent in deferments or forbearances.

So far, nearly 1 million people have benefited from the improvements to income-driven plans, receiving almost $50 billion in debt cancelation.

Most people with federal student loans qualify for income-driven repayment plans, and can review the options and apply at Studentaid.gov. In some cases, borrowers will want to request a loan consolidation by June 30 to qualify for the Biden administration’s account adjustments.

Public Service Loan Forgiveness

Navigating the Public Service Loan Forgiveness program has been famously difficult

The program, which former President George W. Bush signed into law in 2007, allows employees of the government and certain not-for-profit entities to have their federal student loans discharged after 10 years of on-time payments.

The Consumer Financial Protection Bureau in 2013 estimated that 25% of American workers may be eligible.

However, after getting wrong information from their servicers about the program’s requirements, many borrowers hit walls. Those borrowers frequently found that some or all of their qualifying payments didn’t count because they had a loan or were enrolled in a payment plan not covered under the initiative.

The Biden administration has tried to reverse the trend of borrowers being excluded from the relief on technicalities. It has broadened eligibility and allowed people to reapply for the relief, as long as they were working in the public sector and paying down their debt.

Some 876,000 public servants have gotten their debt erased as a result, amounting to more than $62 billion in relief.

With the PSLF help tool, borrowers can also search for a list of qualifying employers under the program and access the employer certification form. They can also learn about all the program’s requirements at Studentaid.gov.

Borrower defense

Another 1.6 million borrowers have eliminated their debt over the past few years thanks to the Borrower Defense Loan Discharge. These people received more than $28 billion in relief.

You may be eligible for a full discharge of your Direct Loans, Federal Family Education Loan (FFEL) Program Loans or Federal Perkins Loans if your school closed while you were enrolled, if you were misled by your school or didn’t receive a quality education.

The Biden administration has more swiftly processed these applications and has started considering cases in a group rather than requiring each attendee of a school to prove they were misled.

Those who think they might qualify can apply with the Education Department.

Total and Permanent Disability Discharge

The Biden administration has forgiven the student debt of more than 548,000 disabled borrowers. The $14.1 billion in aid was delivered under the Total and Permanent Disability Discharge.

The Department of Education has gotten better at identifying borrowers who are disabled and in need of this relief by accessing information from the Social Security Administration, Kantrowitz said.

Borrowers may qualify for a TPD discharge if they suffer from a mental or physical disability that is severe, permanent and prevents them from working. Proof of the disability can come from a doctor, the Social Security Administration or the Department of Veterans Affairs.

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