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Troubled student loan forgiveness program gets an overhaul

“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of public service loan forgiveness,” said Miguel A. Cardona, the secretary of education.Greg Nash/Associated Press

The Biden administration is overhauling a student loan forgiveness program for public service employees that had become a notorious quagmire, introducing a sweeping set of fixes Wednesday that Education Department officials said would help more than a half-million people get closer to the relief they had been denied for years.

Previous patchwork efforts to mend the program have largely failed, brought down by the same complexity that crippled the original initiative. But this time, the agency is taking a chain saw to the program’s rules to temporarily clear the way for many people who were previously rebuffed. Advocates who have long pushed for such changes said they were thrilled.


“This is a good day for teachers, nurses, service members, and millions of workers serving on the front lines of the pandemic,” said Seth Frotman, a former student loan ombudsman for the Consumer Financial Protection Bureau who now runs the nonprofit Student Borrower Protection Center. “For too long, those who give the most to our communities and our country have been given the runaround and forced to shoulder debts that should have been canceled.”

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

“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of public service loan forgiveness,” said Miguel A. Cardona, the 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 most consequential shift takes aim at a rule that snared an overwhelming number of applicants: the so-called wrong loan problem. When Congress enacted the forgiveness program, it limited eligibility to those with student loans made directly by the government. Since 2010, all federal student loans have been made and owned directly by the Education Department.

But before 2010, most borrowers had government-backed bank loans known as Federal Family Education Loans. Hundreds of thousands of borrowers working in public service jobs made payments on those loans for years without realizing — because loan servicers often failed to tell them — that those payments would not count toward the 120 monthly payments they needed to rack up to have their loan forgiven.

The Education Department had long resisted giving borrowers credit for those payments, insisting it lacked the authority to do so. But now, it is offering a limited waiver that will retroactively count those payments, which will benefit around 550,000 borrowers, the department said.

Some 22,000 of those borrowers will automatically have debts totaling $1.7 billion wiped out because of the program changes, the agency said. That exceeds the 16,000 borrowers who have managed to get their debts forgiven through the program to date.

The agency will also offer a temporary waiver to count payments made on ineligible payment plans, another hurdle that has tripped up many applicants. The department also intends to automate eligibility for federal employees and military service members, review all previously denied applications to find and correct errors, and offer an appeal process for those who believe they were harmed by processing mistakes.


And those on active military duty who put their loans on hold while they were deployed — a perk they are legally entitled to — will have those months counted toward their required 120 payments.

The fixes are the latest effort by the Biden administration to chip away at the extensive problems plaguing the federal student loan system, which controls $1.6 trillion in debt owed by 43 million borrowers. Progressive lawmakers have called for President Biden to cancel $10,000 or more per borrower through executive action — a move that Biden has resisted.

Instead, his administration has doled out $10 billion in loan forgiveness through piecemeal actions targeting some of the most troubled relief programs, including efforts to aid permanently disabled people, those who were defrauded by failed for-profit schools, and soldiers deployed to war zones.

Borrowers’ advocates were optimistic about the public service program changes.

Randi Weingarten, the president of the American Federation of Teachers, which sued the Trump administration over its management of the program, said the measures would bring “urgently needed relief” and “overdue changes” that would help at least 200,000 of the union’s members.

But some obstacles still loom for public servants seeking help. The first is that most borrowers will need to submit a public service loan forgiveness application form before Oct. 31, 2022, to have their previously ineligible payments counted. And those who still have Federal Family Education Loans or loans through other federal programs, like Perkins loans, will need to apply by that date for consolidation into a new, direct loan to qualify for relief through the waiver.


An even bigger challenge is that the primary loan servicer for the forgiveness program — the Pennsylvania Higher Education Assistance Agency, which does business as FedLoan — is in the process of quitting. Another major servicer, Navient, said last month that it, too, is resigning to focus on its other lines of business.