Special Needs Student Loan forgiveness program is overhauled

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The Biden administration is revising a student loan cancellation program for civil servants that had become a notorious quagmire, introducing a set of fixes on Wednesday that education officials said would help more than half a million people move closer to the relief they had had. been denied for years.

Previous patchwork efforts to fix the program have largely failed, driven by the same complexity that crippled the original initiative. But this time, the agency is using a chainsaw for the program’s rules to temporarily clear the way for many who have already been pushed back. Defenders who have long pushed for such changes have said they are delighted.

“It’s a good day for teachers, nurses, the military and the millions of workers on the frontlines of the pandemic,” said Seth Frotman, former student loans ombudsperson for the Consumer Financial Protection Bureau who now heads the Student Borrower Protection non-profit association. Center. “For too long, those who give the most to our communities and our country have been tested and forced to take on debts that should have been canceled.”

Created by Congress in 2007 to attract people to vital but often low-paying jobs for government and nonprofit organizations, the program offered employees a generous incentive: after 10 years of work, those who had made their payments federal student loan loan on time would have their remaining debt. wiped. But for many, that promise turned out to be a mirage. Over 98 percent of those who applied were rejected, due to convoluted rules and sloppy administration.

“Borrowers who devote a decade of their life to public service should be able to count on the promise of a public service loan forgiveness,” said Miguel A. Cardona, Secretary of Education. “The system has not delivered on that promise to date, but that is about to change for many borrowers who have served their communities and their country.”

The biggest change is aimed at a rule that has grabbed an overwhelming number of applicants: the so-called bad loan problem. When Congress enacted the forgiveness program, it limited eligibility to those who had student loans granted directly by the government. Since 2010, all federal student loans have been issued and held directly by the Department of Education.

But before 2010, most borrowers received government-guaranteed bank loans, known as Federal Family Education Loans. Hundreds of thousands of public service borrowers have made payments on these loans for years without realizing – because loan officers often failed to tell them – that these payments would not be factored into the accounts. 120 monthly payments they had to accumulate to have their loan canceled. .

The education ministry has long resisted giving borrowers credit for these payments, insisting it lacks the authority to do so. But now he’s offering a limited waiver that will retroactively count those payments, which will benefit about 550,000 borrowers, the department said.

Some 22,000 of those borrowers will automatically have debts totaling $ 1.7 billion written off as a result of the program changes, the agency said. This exceeds the 16,000 borrowers who have successfully secured debt cancellation through the program to date.

The agency will also offer a temporary exemption to count payments made on ineligible payment plans, another hurdle that has stumbled many applicants. The department also intends to automate the eligibility of federal employees and military service members, review all previously denied applications to find and correct errors, and offer an appeals process for those who believe they have been harmed by processing errors.

And those in active military service who suspended their loans while deployed – a benefit they are legally entitled to – will see those months counted toward the 120 required payments.

The Patches are the Biden administration’s latest effort to eliminate significant problems plaguing the federal student loan system, which controls the $ 1.6 trillion debt of 43 million borrowers. Progressive lawmakers have called on President Biden to write off $ 10,000 or more per borrower through executive action – a move Mr. Biden has resisted.

Instead, his administration distributed $ 10 billion in loan cancellation through piecemeal actions targeting some of the most struggling relief programs, including efforts to help people with disabilities in such a way. permanent, those who have been swindled by failing for-profit schools and soldiers deployed in war zones.

Borrower advocates were optimistic about the changes to the civil service agenda.

Randi Weingarten, president of the American Federation of Teachers, who sued the Trump administration for its management of the program, said the measures would bring “urgent relief” and “overdue changes” that would help at least 200,000 members of the union.

Ms Weingarten said former Education Secretary Betsy DeVos failed to fix parts of the program that resulted in applications being refused or disqualified for such minor reasons as an incoming applicant with a bad number on the form, or for issues beyond the borrowers’ control, such as a server counting payments incorrectly.

“It was almost as if the system was set up to break the promise of canceling public service loans, and what Dr Cardona and the Department of Education did is remove the obstacles and administrative obstacles, ”Ms. Weingarten said.

But some hurdles still loom for officials seeking help. The first is that most borrowers will need to submit a utility loan forgiveness request form by October 31, 2022, to have their previously ineligible payments counted. And those who still have federal family education loans or loans through other federal programs, such as Perkins loans, will need to apply before that date for consolidation into a new direct loan to receive relief through waiver.

An even bigger challenge is that the primary loan manager for the remission program – the Pennsylvania Higher Education Assistance Agency, which operates as FedLoan – is resigning.

The Department of Education outsources the billing work of borrowers and guides them through the repayment process to hired providers. FedLoan, which has a contract to manage the accounts of borrowers pursuing a utility loan forgiveness, told the agency this summer it would not renew its contract when it expires at the end of the year. He said the “increasingly complex and difficult” job of servicing federal loans had become too costly.

Another major service provider, Navient, said last month it was also stepping down to focus on its other lines of business. These defections and those of several small servers mean that the Education Department will have to move at least 16 million accounts to new servers over the next few months – a process that has in the past been filled with confusion and errors. Agency officials said they do not yet have a successor to FedLoan.

Kristi Jacobson, a second-grade teacher at George R. Moscone Elementary School in San Francisco, was cautiously optimistic about the prospects for relief.

Ms Jacobson only learned in June that none of the payments she had made on her loans since 2005 were forgivable. She had also been submitting the annual program documents since 2014. She found this out by filling out a form on the Department of Education website that advised her to consolidate her loans into a loan eligible for public service loan forgiveness. . The news stunned her.

“I have goose bumps,” she said. “I read it over and over again.”

The 54-year-old was anxious to retire in nine years. Instead, she would restart the clock on another 10 years of payments on her $ 86,000 loan, at $ 550 per month, after consolidating her federal family education loans into a qualifying loan this summer.

“I don’t think I should get a free ride,” Ms. Jacobson said. “I borrowed this money for my studies and I should pay it back. But being 54 and thinking, Oh, I’ll never buy a house. It’s like being in a Kafkaesque tunnel.

“I’ve been told good things are on the way,” she added, “but I can’t believe it until this happens.”

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