For 804k Long-term Borrowers, Student Debt Cancelled

You’re going to have your balance wiped out if you’ve paid your federal student loan for more than 20 years.

Department of Education has announced that they will forgive student loans of $39 billion for 84,000 qualified borrowers. This number may increase as the process progresses.

This is part of an account adjustment that was made to correct past mistakes in the federal loan program. According to a statement from the Education Department, these mistakes included student loan services placing borrowers in unnecessary forbearances and not crediting them for their monthly payments. These borrowers were not able to move closer towards forgiveness. They should have been eligible after making qualifying payments for 20 or 25 consecutive years under the income-driven repayment plans (IDR).

We hear all the time from borrowers who are frustrated because they’ve paid for so long and haven’t seen much progress or that there is still a balance.

Borrowers must normally be in a plan of income-driven payment to qualify for forgiveness. The one-time adjustment will correct past mistakes in the repayment of student loans and cancel any debt owed by those who paid for undergraduate or graduate debts over a period of 20 or 25 years, even if they had never been enrolled in a plan based on income.

The government will forgive direct loans and Federal Family Education Loan Program loans. This includes graduate loans and PLUS parent loans. This adjustment includes several periods towards the 240 months or 300 month forgiveness period, such as:

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  Even if the borrower made partial or late payments, they were still considered to be in repayment for that month. It doesn’t even matter what type of plan the borrower has.
  

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  The time spent in abstinence, whether it is a period lasting 12 consecutive months or 36 months cumulatively.
  

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  A month of deferment, other than a deferment for schooling before 2013
  

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  A month in which you have been deferred from military service or faced economic hardship after January 1, 2013
  

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  Months of repayment, abstinence or deferment that are required before consolidating a debt.
  

The adjustment does not apply to months spent in default. The account adjustment does not apply to borrowers with FFELP loans that are not owned by the government. However, they may consolidate their commercially-held debt by 2023 in order to qualify.

Other important details regarding Friday’s announcement are listed below:

• Borrowers don’t need to submit an application. The Education Department will notify eligible borrowers starting this Friday. This adjustment will forgive your loan even if you are not enrolled in IDR.

• There will be more forgiveness. Until next year, the Education Department intends to continue identifying new borrowers who are eligible for forgiveness.

• Mayotte says that if you’re not in the first batch of borrowers to receive their loans forgiven, it’s over. Mayotte says that if you are not among the first group of borrowers who get their loan forgiven, then it’s over. You’ll have to be patient, she advises. It could take six or eight more months before the loan is forgiven.

• The first discharges of your debt will start 30 days after the emails that notify borrowers about this forgiveness. So, expect to see them around mid-August.

• Updates to the payment count will start in 2024. Payments will resume in October 2023.

• If you qualify, the adjustment counts towards Public Service Loan Forgiveness. The PSLF is granted after 10 years of payments. Education Department is now discharging qualifying loans.

• Parents PLUS may qualify for a payment count adjustment toward forgiveness. Parents PLUS borrowers who are pursuing PSLF can also receive a payment adjustment towards forgiveness.

• Mayotte warns that this is not likely to occur again.

• You will have to continue to pay your past payments to qualify for forgiveness. It is not necessary to enroll in an income-driven plan to count your payments towards forgiveness. If you are eligible for forgiveness you do not need to enroll. You must sign up for income-driven payment if you will still have an outstanding balance after your adjustment.

Mayotte says that while eventual forgiveness might sound appealing to some borrowers, it is not the ultimate goal. She says the goal is to pay as little over time as possible. This may require a more rapid repayment than waiting for 20 years or longer and having to pay a larger total due to interest accruing over time.

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