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Just Like That – $39 Billion in Student Debt Canceled for 800K Borrowers
For more than 800,000 student loan borrowers, today is a day to celebrate.
Though President Joe Biden’s general student loan forgiveness plan was blocked by the Supreme Court, the Biden administration has canceled the remaining student loan debt – totalling $39 billion – for one set of borrowers.
Essentially, the latest round of forgiveness is just the federal government finally fixing the way it counts payments. The forgiveness is a part of corrections to income-driven repayment (IDR) plans the administration announced in April 2022.
Borrowers are eligible to get remaining debt canceled when they have made payments for either 20 or 25 years, based on when they initially borrowed and the type of loan they have.
Because of failures and mismanagement within the student loan system, many payments weren’t previously counted. Now, the federal government will count payments for borrowers who made payments during certain forbearance and deferment periods, as well as those who made partial or late payments.
“Inaccurate payment counts have resulted in borrowers losing hard-earned progress toward loan forgiveness,” the administration announced in a press release on July 14, 2023.
Eligible loans include Direct Loans and Federal Family Education Loans held by the Department (including Parent PLUS loans of either type) for any of the following periods:
Any of these months can also count toward Public Service Loan Forgiveness (PSLF) if the borrower documents qualifying employment for that same period.
The Biden Administration says they will notify affected borrowers in the coming days.
Income-driven repayment plans (IDRs) are just that — payment plans for federal student loans that are intended to be affordable based on a borrower’s income and family size.
Under the four different IDR plans, the monthly payment amount is a percentage of your discretionary income, with the percentage varying under each plan — anywhere from 10% to 20%.
In June 2023, the White House announced the Saving on Valuable Education (SAVE) plan, which will automatically replace Revised Pay As You Earn (REPAYE) Plan. The following changes go into effect this summer:
Beginning next summer, the SAVE plan will cap monthly payments for undergraduate loans at 5% of discretionary income — half the rate that borrowers pay under most existing plans. Because of this change, the DOE said the average annual student loan payment would be lowered by more than $1,000.
If you weren’t one of the borrowers whose loans were canceled through the IDR adjustments, these changes can still help you in a meaningful way.
Focus on making the most with those extra savings:
Robert Bruce is a senior staff writer at The Penny Hoarder covering earning, saving and managing money. He has written about personal finance for more than a decade.
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