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Biden administration cancels $39 billion in student loans for more than 800,000 borrowers that had errors in their payment records

Student Graduation Hat Money Mentor-Gc7B4F03A9_640More than 804,000 borrowers will have $39 billion in federal student loans discharged in the coming weeks, the U.S. Department of Education announced Friday.

The discharges are fixes to ensure borrowers have an accurate count of monthly payments that qualify toward forgiveness under income-driven repayment plans. These fixes are part of the department’s actions to address failures in the administration of the federal student loan program in which payments made under IDR plans weren’t accounted for.

Borrowers are eligible for forgiveness if they’ve had either 20 or 25 years of qualifying months.

“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” said U.S. Secretary of Education Miguel Cardona said in a statement.

By fixing past administrative failures, everyone gets the forgiveness they deserve, just as the department has done for public servants, students who were cheated by their colleges, and borrowers with permanent disabilities, including veterans, Cardona said.

Under laws and regulations, a borrower is eligible for forgiveness after making 240 or 300 monthly payments – the equivalent of 20 or 25 years on an IDR plan or the standard repayment plan. The number of payments varies based on when borrowers first took out the loans, the type of loans they borrowed, and the IDR payment plan the borrowers are enrolled in.

This action also addresses practices by loan servicers that put borrowers into forbearance in violation of department rules. Forbearance is a move that kept their loans in good standing but meant that interest continued accruing, inflating borrowers’ balances. Low-income borrowers can qualify for monthly bills of $0 through income-driven payment plans, but loan servicers often placed struggling borrowers on forbearance instead.

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

Borrowers receiving notifications in the coming days include those with direct loans or federal family education loans held by the department (including Parent PLUS loans) who have reached the necessary forgiveness threshold as a result of receiving credit toward IDR forgiveness for any of the following periods:

  • Any month in which a borrower was in a repayment status, regardless of whether payments were partial or late, the type of loan, or the repayment plan.
  • Any period in which a borrower spent 12 or more consecutive months in forbearance.
  • Any month in forbearance for borrowers who spent 36 or more cumulative months in forbearance. 
  • Any month spent in deferment (except for in-school deferment) prior to 2013.
  • Any month spent in economic hardship or military deferments on or after January 1, 2013.

In addition, months described above that occurred prior to a loan consolidation will also be counted toward forgiveness.

The department will continue to identify and notify borrowers who reach the applicable forgiveness thresholds every two months until next year when all borrowers who aren’t yet eligible for forgiveness will have their payment counts updated.

Eligible borrowers will be informed by the department starting Friday that they qualify for forgiveness without further action on their part. Discharges will begin 30 days after emails are sent.

Borrowers will be notified by their servicer after their debt is discharged. Those receiving forgiveness will have repayment on their loans paused until their discharge is processed.

In total, the Biden-Harris Administration has approved more than $116.6 billion in student loan forgiveness for more than 3.4 million borrowers.

Originally Published on

Rita Robison Consumer & Personal Finance Journalist

For more than two decades, Rita R. Robison has been a consumer and personal finance journalist making her living by finding the best bargains, calling out the crooks, and advocating for regular people just like you and me. In that time, Robison has talked to so many people who feel like their money just isn’t getting them what they want, where they want to be, or the life they thought it would.

The purpose of her blog is to help you get what you want from your money. Robison covers financial goals, budgets, debt reduction, saving, smart choices for buying goods and services, and retirement planning. You’ll also find articles on safety, such as avoiding scams, looking out for rip off companies, and getting informed on the latest recalls.

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