Nearly 64,000 Texas borrowers will have their federal loans forgiven

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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.

The corrective action taken last week would benefit borrowers in circumstances like these by counting payments they made under any repayment plan or any valid period of deferment as going toward meeting the forgiveness threshold.

The Department of Education’s review is meant to fix a program that is supposed to benefit mainly low-income borrowers but has yielded few results. Since the first income-driven repayment plan was implemented in 1994, only 157 loans had been forgiven as of 2021, according to a report by the U.S. Government Accountability Office.

“For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness,” said U.S. Secretary of Education, Miguel Cardona, last Friday in a statement. “By fixing past administrative failures, we are ensuring everyone gets the forgiveness they deserve.”

Direct Loans and Federal Family Education Loans held by the Department of Education are eligible for forgiveness. That includes Parent PLUS and consolidated loans.

Last week’s corrective action was announced two weeks after the U.S. Supreme Court struck down President Biden's student debt forgiveness plan, which affected 1.4 million Texans who had already been approved for forgiveness. That plan sought to cancel $10,000 of debt for all borrowers with incomes below $125,000, and $20,000 for those with Pell Grants and incomes below the same limit.

After learning of the court’s decision, Biden announced that he would insist on finding ways to provide relief to borrowers with student loans, which have become an increasingly heavy burden.

Since 2007, borrowers’ average student debt went up from $18,000 to almost $38,000. Student loans have ballooned along with tuition increases, rising costs of living and stagnant wages that make it harder for families and students to pay for their studies, said Michele Shepard, senior director of college affordability at the Institute for College Access and Success.

"It is kind of a perfect storm," Shepard said. "It's really difficult for most students, especially those from low-income backgrounds or even from middle-income backgrounds, to be able to attend school without having to take on debt."

In another effort to ease the burden of student debt, the federal government recently launched a new income-driven repayment plan. The Saving on a Valuable Education (SAVE) plan, a revised version of an earlier program, reduces monthly payments on federal loans and forgives loans of $12,000 or less after 10 years of repayment. Experts consider it the most generous income-driven repayment plan to date.

Some of the SAVE plan’s provisions will come into effect this summer before borrowers need to resume monthly payments on their loans next October, after a pause of almost three years that was ordered as part COVID-19 relief measures.

The Department of Education estimates that borrowers on average would see their total repayments fall by 40% under the SAVE plan. Lower-income borrowers would see a reduction of 83% and, on average, Black, Hispanic and Native American borrowers would have their total lifetime payments cut in half, according to the agency.

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