Over 800,000 student-loan borrowers to start seeing their debt canceled, Biden admin says

 Borrowers eligible for this debt relief have been paying their loans for at least 20 years

Hundreds of thousands of borrowers who have been paying their student loans for more than 20 years are starting to have their remaining balances canceled, the Biden administration announced Monday.

In July, officials said they would cancel $39 billion in student debt for more than 800,000 borrowers who had been paying on their loans for at least 20 or 25 years. On Monday, the government began discharging eligible borrowers' debt. Borrowers who qualify for the relief will receive emails from their servicers and the Department of Education expects all eligible loans to be canceled over the coming weeks, the agency said Monday.

The debt discharges are an effort by the Biden administration to correct for challenges borrowers faced accessing the benefits of income-driven repayment plans over the past several years. Under these plans, borrowers pay their debt as a percentage of their income for 20 or 25 years depending on the plan and then have their remaining loans canceled.

But there was evidence that millions of borrowers who had been paying on their debt for at least 20 years were still paying despite the existence of these plans. Consumer advocates and some regulators pointed to student-loan servicers steering borrowers towards forbearance -- a status that pauses payments, but where interest still accrues and where borrowers don't build credit towards forgiveness -- to explain borrowers' challenges accessing forgiveness under these plans. Advocates and regulators alleged servicers did this because that it was quicker and less costly to put a borrower into forbearance than to take the time to enroll them in income-driven repayment.

Last year, the Biden administration said it would review borrowers' payment history and see whether there were periods they should have been building credit towards debt relief under income-driven repayment, but where that progress wasn't accurately counted. Borrowers who are starting to see their debt canceled this week are those who the Department of Education determined have at least 20 years of qualifying payments.

"When I came into office, hundreds of thousands of borrowers weren't accurately getting credit for student loan payments that should have delivered them forgiveness," President Joe Biden said in a statement Monday. "I was determined to right this wrong."

Earlier this month, the Cato Institute and the Mackinac Center for Public Policy, two conservative think tanks, sued the Biden administration over the plan and asked the court to temporarily block officials from canceling the debt while the case wound its way through the legal system. On Monday, a George W. Bush-appointed federal judge in Michigan dismissed the suit and the request to stop the policy, in part because he said the plaintiffs lacked standing, or the right to sue.

The debt cancellation that's beginning this week for borrowers who have been paying for at least 20 years is different from the mass student loan forgiveness that's grabbed headlines for months. Earlier this summer, the Supreme Court struck down the Biden administration's plan to cancel up to $20,000 for a wide swath of borrowers. That policy would have discharged debt for borrowers regardless of how long they'd been paying on their student loans.

Hours after the court knocked down the plan, Biden said he would take another stab at debt forgiveness. That "plan B" is currently in progress and borrowers likely won't know if it will be successful for at least several months.

"We will continue to pursue an alternative path to deliver student-debt relief to as many borrowers as possible as quickly as possible," Biden said in the statement Monday. "We will use every tool at our disposal to get student loan borrowers the relief they need to reach their dreams."

Officials have been facing pressure from student-loan borrower advocates to move swiftly to cancel borrowers' debt. That's in large part because student-loan payments are scheduled to resume this fall after a more than three-year pause and advocates expect that without some debt relief, the end of the freeze will pose a financial and logistical headache for borrowers.

Interest will begin accruing again on student loans September 1 and borrowers will be expected to pay their first bill some time in October.

https://www.morningstar.com/news/marketwatch/20230815233/more-than-800000-student-loan-borrowers-to-start-seeing-their-debt-canceled-biden-administration-says