Nearly 64,000 Texas borrowers will have their federal student loans forgiven after a U.S. Department of Education review concluded they qualified for the benefit.
The total debt amount forgiven will be $3.1 billion, an average of $48,500 per borrower.
The move is unrelated to President Joe Biden’s now-defunct student debt forgiveness plan, which was blocked by the U.S. Supreme Court last month. It only applies to borrowers with federal loans taken more than two decades ago.
Rather than forgiveness, the steps taken last week are a correction: It affects borrowers whose debts should have been canceled but weren’t due to “past administrative failures,” according to the Department of Education.
The Department of Education started a review of all federal loans last year and, since then, the agency has identified 804,000 borrowers nationwide who would’ve qualified for debt forgiveness if they had been in a so-called “income-driven repayment plan.” Their combined debts total about $39 billion.
Income-driven repayment plans calculate borrowers’ monthly payments based on their annual income to make sure repaying their loans doesn’t represent an undue burden on their finances. Borrowers make monthly payments for 20 to 25 years, depending on the type of loan. After that term, whatever balance remains pending on their loan is forgiven.
All of the borrowers identified in the review — including 63,730 in Texas, the state with the most borrowers benefiting from last week’s announcement — were notified that their debt would be automatically canceled in 30 days.
More people will likely have their debts forgiven as part of the review. The Department of Education will continue looking for borrowers who qualify for debt forgiveness until next year.
All borrowers who would’ve qualified for an income repayment plan and have reached 240 or 300 monthly payments — depending on the type of federal loan they have — will be eligible for forgiveness. To determine eligibility, the Department of Education will take into account every month in which loan payments were made, but also periods of time in which the borrower requested a pause in payments because of economic hardship or illness. Months in which the borrower defaulted on their loan will not be considered toward meeting the forgiveness threshold.
The goal of the Department of Education’s review was to provide relief to those borrowers whose debts weren’t forgiven because they were poorly advised by their loan servicer or got lost in the bureaucracy, said Winston Berkman-Breen, Legal Director of the Student Borrower Protection Center.
For example, an unemployed borrower struggling to pay back their loan might’ve asked their loan servicer to pause payments while they got to a better place. Doing so would’ve meant that, for that time, the borrower would not be getting closer to having their debt forgiven. Berkman-Breen said that person should’ve been advised to enroll in an income-driven-repayment plan, which would’ve likely meant they would not have to make monthly payments — and their time under that plan would still count toward reaching the forgiveness threshold.
Berkman-Breen also said borrowers must renew their enrollment in an income-driven repayment plan each year. Many don’t, so any payment made outside that kind of plan no longer counts toward forgiveness.