Biden administration wipes $39B of student debt for more than 800,000 borrowers

President Joe Biden’s administration will automatically wipe a total of $39 billion in federal student loans for more than 804,000 borrowers in the coming weeks, the U.S. Department of Education announced on Friday.

The relief comes just a few months before borrowers have to start repaying their federal student loans after the COVID-19 pandemic triggered a three-year pause.

The administration’s move is a result of fixes to the student loan system’s income-driven repayment plans that ensure all borrowers have an accurate count of the number of monthly payments that qualify toward forgiveness.

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“Nearly a million borrowers who have been trapped in decades of never-ending payments will finally get the relief Congress intended,” Persis Yu, deputy executive director and managing counsel at the Student Borrower Protection Center, said in a statement.

“This is only the tip of the iceberg,” Yu said. “Working people with student loan debt have been made collateral damage by a dysfunctional student loan system.”

The Biden administration and education department have also created a new repayment plan called Saving on a Valuable Education (SAVE).

The SAVE plan will cut payments on undergraduate loans in half, ensure that borrowers’ balances don’t grow as long as they keep up with their required payments and allow borrowers to save more of their income for basic needs, according to the Department of Education.

A single borrower who makes less than $15 an hour will not have to make any payments. Those earning above that amount will save more than $1,000 a year on their payments compared to other income-driven plans.

The application for the new SAVE plan will be available this summer. The Department of Education will notify borrowers directly when the new application is available.

Roughly 43 million people across the country owe more than $1.6 trillion in federal student loan debt, according to the U.S. Department of Education. More than $127 billion in such debt belongs to about 3.8 million Texans.

Supreme Court ruling

The loan forgiveness announcement comes weeks after the Supreme Court ruled that Biden overstepped his authority to provide student debt forgiveness through the HEROES Act of 2003.

The HEROES Act authorizes the U.S. Secretary of Education to “waive or modify” student financial assistance programs in the face of national emergencies.

A handful of Republican-led states and individuals challenged the constitutionality of Biden’s plan to erase student debt, attempting to stop the rollout of Biden’s plan.

“This administration will not stop fighting to level the playing field in higher education,” U.S. Secretary of Education Miguel Cardona said in a statement.

Biden first announced plans to provide federal student loan relief last year, but they were thrust into limbo for months after the lawsuits.

Roughly 20 million Americans’ debt would be completely wiped if they applied, according to the Biden administration’s estimates at the time.

Debt cancellation

So far, according to the Department of Education, the Biden administration has forgiven:

• $45 billion for more than 650,000 public servants through its Public Service Loan Forgiveness program
• $5 billion for nearly 500,000 borrowers who have a total and permanent disability
• and $22 billion for nearly 1.3 million borrowers who were cheated by their schools, saw their schools suddenly close or are covered by related court settlements.

The administration’s latest debt cancellation will start 30 days after the department emails borrowers informing them of their relief. Borrowers can contact their loan servicer to opt out of the discharge if they choose to during that period. Servicers will then notify borrowers after their debt is discharged.

Federal student loan interest will resume Sept. 1, and payments will be due starting in October.

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