Troubled Student Loan Forgiveness Program Gets an Overhaul

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. It said that the coronavirus pandemic gave it the authority — under a 2003 law known as the Heroes Act — to bend the usual student loan rules in times of national emergency.

Some 22,000 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 “wrong loan” problem is what tripped up Rabbi Gubitz. After a decade of steady payments, she still had $112,000 left on the loans she had taken out to complete her master's degree at Hebrew Union College-Jewish Institute of Religion. She recently discovered that $35,000 of those loans were through the Federal Family Education Loan program and would not qualify for elimination.

The new fix is likely to wipe out some or all of that debt. Rabbi Gubitz, who is 39 and got married last summer, hopes to redirect the $600 a month that she now spends on loan payments into charitable donations, retirement planning and saving money to start a family.

The Education Department 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 Mr. Biden has resisted.