The Biden administration has announced a plan to forgive unpaid interest charges on federal student loans, with borrowers potentially receiving up to $20,000 of forgiven interest. Low- and middle-income borrowers enrolled in income-driven repayment plans could have their entire interest balance canceled. Borrowers enrolled in certain repayment plans are automatically eligible for forgiveness without having to apply.
Many borrowers who are eligible for debt forgiveness programs have not applied due to difficulties in accessing information about these programs. The Department of Education will review accounts to identify eligible borrowers who have not successfully applied for relief. This automatic relief is expected to help many borrowers who may be struggling with their student loan debt.
An additional 2.5 million borrowers who have held student loans for 20 years or more may also be eligible for forgiveness. Borrowers with undergraduate debt who entered repayment on or before July 1, 2005, and those with graduate school debt who entered repayment on or before July 1, 2000, qualify for forgiveness. Both direct loans and consolidated loans are eligible for relief.
Graduates of “low-value” colleges or programs will also be eligible for loan forgiveness. Borrowers who attended institutions that closed or failed to provide sufficient value, leaving graduates no better off than someone with a high school diploma, can apply for relief. The Education Department has already canceled loans for over 1 million students who attended certain for-profit schools that engaged in fraudulent practices.
The administration’s plan also aims to help borrowers experiencing hardship, such as those at risk of defaulting on their loans or facing other financial burdens like medical debt or child care expenses. This piece of the plan would provide relief to millions of borrowers who are struggling to repay their student loans, with Black and Latino borrowers expected to benefit disproportionately.
Overall, the Biden administration’s student loan forgiveness plan targets borrowers with high levels of unpaid interest, those who have not applied for existing forgiveness programs, borrowers who have held loans for over 20 years, graduates of low-value institutions, and those facing financial hardship. The plan aims to provide relief to a wide range of borrowers who are struggling with student loan debt, particularly those who may be disproportionately impacted by financial challenges.
