U.S. President Joe Biden is joined by Education Secretary Miguel Cardona (L) as he announces new actions to protect borrowers.
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The Education Department announced $39 billion in debt relief for over 800,000 borrowers.
It’s a result of a one-time account adjustment for income-driven repayment plans.
More borrowers can still get relief once they meet the forgiveness threshold.
Thousands of student-loan borrowers are being notified that their debt is being wiped out. They won’t be the only ones.
On Friday, President Joe Biden’s Education Department announced that over 800,000 student-loan borrowers will receive $39 billion in debt relief in the coming months thanks to a one-time adjustment to accounts enrolled in an income-driven repayment plan. This relief is automatic and the department said it will send emails to eligible borrowers who have “accumulated the equivalent of either 20 or 25 years of qualifying months,” according to the press release.
Specifically, borrowers who will receive the first batch of notices have direct federal loans or loans in the Federal Family Education Loan program — held by the Education Department — who have reached the necessary threshold for forgiveness, including payments during deferment or forbearance.
And, according to Federal Student Aid, federal borrowers who are not currently enrolled in an income-driven repayment plan can still benefit from this adjustment as long as they have made at least 20 years of qualifying payments.
Here’s what borrowers should know if they want to benefit from the relief.
How to make sure your loans qualify
The account adjustment only applies to direct federal loans and FFEL loans held by the Education Department. If borrowers have commercially held student loans, they need to apply for a Direct Consolidation Loan by the end of 2023 to benefit from the adjustment.
How long borrowers need to make payments before relief
This is the repayment timeline for eligible loans:
Parent PLUS loans: 25 years, or 300 months of paymentsUndergraduate loans: 20 years, or 240 months of paymentsGraduate loans enrolled in the PAYE repayment plan: 20 years, or 240 months of paymentsGraduated loans not enrolled in PAYE: 25 years, or 300 months of payments.
What happens after the repayment threshold is met
If a borrower reaches their qualifying payments before August 1, 2023, the Education Department said it expects their loans will be discharged before student-loan payments resume in October. If a borrower reaches their qualifying payments on or after August 1, the department said “you will likely have to start making payments after the payment pause ends. But don’t worry—you’ll get a refund for any payments beyond the number you need for forgiveness.”
“You can also choose to enter forbearance until your forgiveness is processed,” the department said. “But if you enter forbearance and did not yet reach 20 or 25 years’ worth of payments, you won’t get credit for the period of forbearance and will need to make additional eligible payments to reach forgiveness.”
How to get a refund if a borrower overpays
Once a borrower reaches the repayment threshold, they automatically qualify for forgiveness. Additional payments made on loans after qualifying for relief will be refunded back to whichever of the following dates is most recent: the date the borrower reached the number of required payments, the date when the Education Department acquired your loan, or the disbursement date for a consolidated loan.
Borrowers’ student-loan servicers will notify them when their loans are forgiven, and they will get refunds in the same method the borrower used to make payments. It typically takes two months or less for refunds to process.