More than 800,000 borrowers will have $39 billion in federal student loan debt eliminated under a government effort to fix years of mistakes by the loan servicers who collect payments on behalf of the government.
Millions more people will have their loans adjusted as part of the program.
The relief will go to those with federal loans owned directly by the Education Department and who have enrolled in income repayment plans. Those plans limit the payments that borrowers owe to a percentage of their income. Under these plans, borrowers must pay for a term that is typically 20 or 25 years. At the end of that period, any remaining balance is forgiven.
More than eight million people use income-driven repayment plans, but for decades, many of the companies that bill borrowers have made extensive mistakes in tracking payments and guiding borrowers through the payment process. Those mistakes put millions of borrowers years behind in their quest to pay off their loans.
“For too long, borrowers have fallen through the cracks of a broken system,” Miguel Cardona, the education secretary, said Friday.
The planned move comes two weeks after the Supreme Court rejected President Biden’s plan to eliminate $400 billion in student loan debt for tens of millions of borrowers. The court ruled that the president lacked the authority to eliminate debts so broadly without express congressional authorization.
But Friday’s much smaller adjustment, which is separate and has not led to court challenges, goes more into the education secretary’s power to administer loan repayment programs.
The debt relief — which will take place in the next few weeks, the Education Department said — is part of a plan the Biden administration announced last year to address the problem of servicer errors. The department decided to automatically and retroactively credit millions of borrowers for late or partial payments and for long periods of time before the pandemic with their payments in forbearance.
The 804,000 borrowers whose balance will be eliminated are those who, after the adjustments, made the required 240 or 300 monthly payments (depending on their payment plan) to have their remaining debt forgiven.
So-called “tolerant driving” was a particularly glaring issue, the department said last year. Low-income borrowers can qualify for $0 monthly bills through income-driven payment plans, but loan servicers often put struggling borrowers on forbearance — a move that kept their loans in good standing but meant interest continued to accumulate, swelling borrowers’ balances.
The Consumer Financial Protection Bureau in 2017 sued Navient, then one of the government’s largest student loan lenders, over such tactics. The lawsuit is still in progress, but Navient no longer services federal loans: It went out of business in 2021.
Borrowers eligible for relief will not have to apply – their debts will be automatically discharged. “By fixing past administrative failures, we ensure that everyone gets the forgiveness they deserve,” Mr. Cardona said.
About 45 million borrowers owe the government, the largest lender to Americans for higher education, a total of $1.6 trillion. Their loan payments have been paused since March 2020 — a move initiated under President Donald J. Trump as pandemic relief, and extended several times by Mr. Biden — but that pause will soon end. Borrowers will have to start paying again in October.