The Education Department plans to help millions of people budge closer to getting their student loan debts wiped out after unveiling a slate of new measures Tuesday intended to fix a federal program for low-income student borrowers.
The announcement also includes immediate debt cancellation for at least 40,000 borrowers under a student loan forgiveness program for public servants.
This comes as the White House faces increased pressure to alleviate the nation's ballooning student debt, worth about $1.75 trillion. The heads of the House and Senate education committees are urging the Education Department to overhaul the "broken" system of income-driven repayment plans, which were first introduced by Congress in the 1990s and allow borrowers to pay back their federal student loans based on their income and family size.
In addition, borrowers enrolled in income-driven repayment are eligible to have their remaining loans canceled if they make the required amount of payments for either 20 or 25 years.
To address "historical failures" with federal student loan programs, the Education Department said it will focus on revising several aspects of the income-driven repayment program, including the use of forbearance. Federal loan servicers will allow struggling student borrowers to pause or reduce their payments temporarily under forbearance arrangements. But such a practice has been widely criticized by state attorneys general, who say borrowers are only driven further into debt because their loans still continue to accrue interest even while they aren't paying.
The Education Department said it will remedy the situation by changing its policy. It said it will now count forbearances of more than 12 consecutive months and more than 36 cumulative months toward student loan forgiveness under income-driven repayment programs as well as another program known as Public Service Loan Forgiveness, which launched in 2007 to help teachers, health care workers, military members and others earn debt relief on their federal loans.
The Education Department said it will also better track the payments of borrowers enrolled in income-driven repayment plans and conduct a one-time revision of their payments to address past inaccuracies.
If the agency determines a person should be credited and qualifies for student loan forgiveness, they will receive it automatically.
While more than 9 million borrowers are enrolled in income-driven repayment programs, over 3.6 million of them are able to move closer to debt forgiveness under the changes and are expected to receive at least three years of new credit toward cancellation, said James Kvaal, the undersecretary of the Education Department.
"We wanted to act as quickly as possible to address these problems, but expect these figures to only grow as we continue to implement and analyze the situation," Kvaal told reporters Tuesday.
President Joe Biden is facing mounting demands from members of his own party to overhaul income-driven repayment plans as the White House tackles the larger issue of student debt. His administration this month announced yet another extension of the payment pause on federal student loans — this time, through Aug. 31 — as concerns about inflation and rising gas prices roil the country.
A March report by the Brookings Institution, a public policy think tank, examined income-driven repayment and highlighted several lingering problems: Many borrowers who would benefit from the program are never told about it; they face "bureaucratic, technical, or legal difficulties" when they have to recertify their incomes; and some borrowers ultimately "do not make payments large enough to cover the accruing interest, so they see their balances grow over time."
Student borrower groups also point to what they say are other failures of the programs. Since 2016, only 32 borrowers have had their remaining loans canceled as permitted under the programs — a tiny fraction compared to the 2 million borrowers who have been in repayment for 20 years or longer, advocacy groups have found.
An NPR investigation this month also reported that some federal student loan servicers weren't counting how many payments borrowers were making under their income-driven repayment plans, as required, and failed to proactively notify borrowers when they qualified for loan cancellation.
In a letter to Education Secretary Miguel Cardona, Sen. Patty Murray, D-Wash., and Rep. Bobby Scott, D-Va., the chairs of the Senate and House education committees, asked him to extend the moratorium on federal student loan payments until 2023 and use the time to simplify the income-driven repayment process and "reduce borrower confusion and administrative complexity."
The lawmakers also made several suggestions of their own, including making the program available to all federal student loan borrowers, including parent and graduate borrowers, and protecting borrowers' income equal to at least 250 percent of the federal poverty line so they can prioritize basic needs.
"The Department of Education should repair the broken safety net for low-income borrowers by addressing past failures and establishing a new income-driven repayment plan that keeps payments affordable, prevents debts from ballooning over time, and provides a reliable pathway out of perpetual repayment," Murray and Scott wrote in their letter shared Monday with NBC News.
The letter was written in anticipation of the Education Department releasing proposed changes beyond what was announced Tuesday to how income-driven repayment plans would be administered.
The top-ranking Republicans in the House and Senate education committees did not respond to requests for comment about how they believe income-driven repayment plans could be overhauled.
Murray said Tuesday that she's encouraged by the Education Department's announced changes because they expand debt relief, but she hopes it goes further by finalizing a "more generous" income-driven repayment plan for all borrowers.
"It's an urgently needed step in the right direction," she said, adding, "We've got to fix the income-driven repayment system once and for all."