Biden administration unveils $39B of student debt relief as part of income-driven repayment fix

The Biden administration announced on Friday that it would cancel $39 billion of student debt owed by more than 804,000 borrowers whose debts have been outstanding for more than 20 years.

The Education Department said it was implementing its plan, announced in April 2022, to compensate borrowers for what it called “historical inaccuracies” and other failures in how the agency and its contracted loan servicers have managed the income-driven repayment programs.

The program is separate from President Joe Biden’s sweeping student debt relief program that the Supreme Court struck down last month. But the announcement comes as the Biden administration looks to highlight its alternative pathways for delivering student debt relief in the face of that legal defeat.

“We will not stop there,” Vice President Kamala Harris said in a statement, praising the announcement as a “historic step” to alleviate student debt burdens.

“Our Administration will continue to fight to make sure Americans can access high-quality postsecondary education without taking on the burden of unmanageable student loan debt,” she said.

What happened: Department officials revised borrowers’ accounts to retroactively count months towards forgiveness under the income-driven repayment plans that previously weren’t counted or wouldn’t typically qualify.

Those months of credit pushed the more than 804,000 borrowers to reach the threshold for loan forgiveness of 20 or 25 years, depending on the type of income-driven repayment plan.

Department officials said borrowers who are set to receive loan forgiveness would begin receiving notices in the “coming days” and that discharges would begin 30 days after that.

What’s next: The Education Department said it would continue to identify every two months new groups of borrowers who reach those thresholds. The agency said that “next year” it would award all remaining retroactive credit to all borrowers who will be pushed closer to loan forgiveness but still fall short of the 20- or 25-year threshold.

The department has previously said that some 3.6 million borrowers would receive at least three years worth of credit toward loan forgiveness under the new one-time adjustment.

Key context: Income-driven repayment programs promise borrowers the opportunity to have their debts erased entirely after they make payments for either 20 or 25 years, depending on the plan. But relatively few borrowers have received forgiveness under those plans.

In some cases, the Education Department did not properly track borrowers’ monthly credit toward making payments. In addition, state attorneys general and the Consumer Financial Protection Bureau also filed lawsuits accusing student loan servicers of improperly steering borrowers into long-term forbearances that don’t qualify for credit toward loan forgiveness.

For example, Navient, which was once one the department’s largest servicers, reached a $2 billion settlement with a bipartisan group of 40 attorneys general last year to resolve allegations that included forbearance-steering. The company denied any wrongdoing.

“At the start of this Administration, millions of borrowers had earned loan forgiveness but never received it. That’s unacceptable,” Education Undersecretary James Kvaal said in a statement. "Today we are holding up the bargain we offered borrowers who have completed decades of repayment.”

GOP pushback: Rep. Virginia Foxx (R-N.C.), chair of the House Education Committee, blasted the Education Department’s announcement as illegal and too expensive for taxpayers.

“The Biden administration’s blatantly political attempt to circumvent the Supreme Court is shameful,” she said in a statement. “The Biden administration is trampling the rule of law, hurting borrowers, and abusing taxpayers to chase headlines.”