The U.S. Department of Education on Tuesday announced upcoming changes that will result in immediate debt cancellation for at least 40,000 federal student loan borrowers and move an additional 3.6 million borrowers closer to some form of loan forgiveness.

                By                    Vance Cariaga

See: Student Loan Forgiveness — How Much Would It Really Cost the Federal Government?Find: 100,000 Additional Public Servants Will Have Their Student Loan Debt Canceled Because of This Policy Change

The actions are part of a broader effort to address historical failures in the administration of the federal student loan program, the Education Department said. The changes also help address the impact of the COVID-19 pandemic on borrowers with lower incomes and high debt loads. One goal is to restore the original intention of income-driven repayment plans by ensuring that borrowers have an affordable and effective path out of debt.

“Student loans were never meant to be a life sentence, but it’s certainly felt that way for borrowers locked out of debt relief they’re eligible for,” U.S. Secretary of Education Miguel Cardona said in a news release. “Today, the Department of Education will begin to remedy years of administrative failures that effectively denied the promise of loan forgiveness to certain borrowers enrolled in IDR plans.”

In addition to the 40,000 borrowers who will receive immediate debt cancellation under the Public Service Loan Forgiveness Program, several thousand more borrowers with older loans will receive forgiveness through IDR forgiveness. Another 3.6 million-plus borrowers will receive at least three years of additional credit toward IDR forgiveness.

The IDR and PSLF programs cap the amount that lower-income borrowers are required to pay and forgive the remaining balance after a set number of years, Reuters reported. But there is often confusion over the rules.

Education Department regulations require that borrowers who face difficulty making their loan payments get “clear and accurate information” from loan servicers about their options for staying out of delinquency, the agency said.

Explore: How To Manage Student Loan Debt as Costs Rise Due to Inflation

But reviews conducted by Federal Student Aid suggest that loan servicers placed borrowers into forbearance in violation of Education Department rules — even when their monthly payment under an IDR plan could have been as low as zero dollars. These findings were consistent with concerns raised by the Consumer Financial Protection Bureau and state attorneys general.

For example, a borrower advised to choose an IDR plan instead of forbearance can get a reduced payment, stay in good standing and make progress toward loan forgiveness. But a borrower who has been advised to choose forbearance can see their loan balance and monthly payments grow due to interest capitalization, which can lead to delinquency or default, the Education Department said.

The department will address these issues in the following ways:

  • Conducting a one-time account adjustment to count certain long-term forbearances toward IDR and PSLF forgiveness
  • Increasing oversight of servicers’ forbearance use
  • Permanently fixing IDR payment counting by reforming FSA’s IDR tracking

More than 43 million borrowers carry a combined $1.6 trillion in outstanding student loans from the Federal Loan Portfolio, an average of more than $37,000 each, Reuters reported, citing data from the Education Data Iniative.

The impact of all this debt stretches beyond the world of higher education, experts say. It is considered a drag on the U.S. economy because so many young adults are financially handcuffed for years, and even decades, trying to pay it down. And the process keeps repeating itself with every generation because the wide availability of loans has played a big role in rising college tuitions.

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