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The U.S. Department of Education on Tuesday announced upcoming changes that will result in immediate debt cancellation for at least 40,000 federal borrowers and bring an additional 3.6 million borrowers closer to some form of loan forgiveness. .
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These actions are part of a broader effort to address historic failures in the administration of the federal student loans program, the Department of Education said. The changes also help address the impact of the COVID-19 pandemic on low-income and highly indebted borrowers. One of the goals is to restore the original intent of income-driven repayment plans by ensuring that borrowers have an affordable and efficient way to get out of debt.
“Student loans were never meant to be a life sentence, but it certainly is for borrowers stuck on the debt relief they are eligible for,” the US Secretary of Education said. Miguel Cardona, in a press release. “Today, the Ministry of Education will begin to address years of administrative failures that effectively denied the promise of loan cancellation to some borrowers enrolled in IDR plans.”
In addition to the 40,000 borrowers who will receive immediate debt cancellation under the Civil Service Loan Cancellation Scheme, several thousand other borrowers with older loans will receive cancellation through the cancellation of the IDR. More than 3.6 million additional borrowers will receive at least three years of additional credit for IDR cancellation.
The IDR and PSLF programs cap the amount low-income borrowers are required to pay and cancel the remaining balance after a certain number of years, Reuters reported. But there is often confusion about the rules.
Department of Education regulations require borrowers who are having difficulty repaying their loans get “clear and specific information” from loan officers about their options to avoid default, the agency said.
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But reviews by Federal Student Aid suggest loan officers forced borrowers forbearance in violation of Department of Education rules — even when their monthly payment under an IDR plan might have been as low as zero dollars. These findings were consistent with concerns raised by the Consumer Financial Protection Bureau and state attorneys general.
For example, a borrower advised to choose an IDR plan instead of forbearance may obtain a reduced payment, remain in good standing, and progress to loan forgiveness. But a borrower who has been advised to forbear may see their loan balance and monthly payments increase due to interest compounding, which can lead to defaults or defaults, the Department of Finance said. Education.
The department will address these issues as follows:
- Make a single account adjustment to count certain long-term forbearances towards the cancellation of IDR and PSLF
- Increased monitoring of the use of forbearance by repairers
- Permanent correction of the counting of IDR payments by reforming the IDR tracking of the FSA
More than 43 million borrowers carry a total of $1.6 trillion in outstanding student loans from the federal loan portfolio, an average of more than $37,000 each, Reuters reported, citing Education data. Data Initiative.
The impact of all that debt extends beyond the world of higher education, experts say. It is seen as a drag on the American economy because so many young adults are financially handcuffed for years, even decades, trying to pay it off. And the process keeps repeating itself in every generation, as the wide availability of loans has played a significant role in driving up tuition fees.
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