The changes, which include oversight of loan servicers and tracking income-driven repayment plan procedures, will begin immediately. Borrowers will see the impact later this year, according to the department.
04/21/2022 2:45 P.M.
3.5 minute read
The U.S. Department of Education (DOE) is taking “immediate corrective actions” for public service loan and income-driven repayment (IDR) forgiveness, according to a news release issued this week.
“Federal Student Aid (FSA) estimates that these changes will result in immediate debt cancellation for at least 40,000 borrowers under the Public Service Loan Forgiveness (PSLF) Program. Several thousand borrowers with older loans will also receive forgiveness through IDR,” according to the news release.
The actions include:
- A one-time account adjustment for some borrowers with IDR plans and PSLF accounts. “These changes will be applied automatically to borrowers’ accounts later this year,” according to the DOE. “FSA will conduct a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness under IDR and PSLF.”
- FSA will increase oversight of student loan servicers’ use of forbearance after “FSA reviews suggest that loan servicers placed borrowers into forbearance in violation of department rules, even when their monthly payment under an IDR plan could have been as low as zero dollars. These findings are consistent with concerns raised by the Consumer Financial Protection Bureau and state attorneys general.”
- FSA will restrict servicers’ ability to enroll borrowers in forbearance by text or email, conducting an external review of patterns of forbearance use and servicers’ practices, and work in partnership with the CFPB to do regular audits of forbearance use. “This will build upon other FSA efforts to improve oversight of loan servicing activities, including stronger accountability provisions in servicing contracts, renewing partnerships with federal and state regulators and clarifying its position on federal preemption of state oversight of loan servicing,” according to the DOE.
“The department’s announcement concerning IDR enrollment and forbearance appear to potentially affect millions of consumers,” said Vaishali Rao, partner at Hinshaw & Culbertson LLP. “From the information released, it appears servicers, and potentially their collector-agents, will have to keep close track of requirements and obligations the department imposes. It is going to be imperative that industry strictly complies with the implementation directives provided, and also that they appropriately engage with the department and other student loan stakeholders to ask the right, detailed questions regarding the nuances of implementation. All eyes will be on the industry to ensure there are no mistakes.”
The DOE is also reviewing IDR payment tracking procedures and reports that borrowers may be “missing out on progress toward IDR forgiveness.”
As a result, “FSA will do a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans.”
According to Politico, “Every circumstance where a borrower spent a month that might have accrued credit toward IDR forgiveness, we are granting that credit,” James Kvaal, the undersecretary of education, told reporters.
FSA also said it will issue new guidance to student loan servicers to ensure accurate and uniform payment counting practices, and it will track payment counts in its own modernized data systems. The DOE is working on regulations to revise the terms of the IDR program to further simplify payment counting, which includes proposals to allow more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.
While the changes are being implemented immediately, borrowers may not see the effect on their accounts until the last quarter of 2022.
Student Debt
Meanwhile, the White House has extended student loan payment and interest relief through Aug. 31.
Questions remain about how much these actions would help borrowers and the economy, and what some of the other unintended consequences might be, ACA International previously reported.
The DOE reports the changes to IDR and loan forgiveness complement steps the Biden administration has already taken within its first year to cancel more than $17 billion in debt for 725,000 borrowers in addition to extending the student loan payment pause, saving 41 million borrowers billions of dollars in payments each month.
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