The Biden Administration said on Thursday that it will make changes to how it administers some federal student loan repayments, a move that it says means at least 40,000 borrowers will have their debt canceled and millions more will be eligible to have their debts relieved three years earlier than expected.
The moves have the potential to have a major financial impact on Black borrowers, in particular, because students of color are more likely to finance college degrees and in turn, that debt becomes one of many factors that contributes to a persistent wealth gap in the United States.
Today’s changes revolve around programs that allow for some student loans to be forgiven after certain time periods or other conditions are met, as well as a problem known as “forbearance steering”, in which some loan servicers improperly placed borrowers’ loans in forbearance when they were eligible for income-based plans that would have reduced their required monthly payments to zero. Borrowers who were steered to forbearance risked ballooning loan balanced and deferred interest payments that put them at greater risk of defaulting on their loans, according to a statement from the Education Department.
The government says it will address the issue by giving borrowers who were improperly placed in long-term forbearance a one-time credit toward their eligibility for loan forgiveness, which could shave 36 months off the terms of their loans. The Education Department also said it will make other changes including counting a one-time adjustment that will see all payments made on Direct Student Loans and Federal Family Education Loan Program loans toward income-dependent loan forgiveness, regardless of the payment plans that borrowers are enrolled in.
Student loan forgiveness has been a source of tension for the Biden Administration, as many voters and activists on the left have pushed for widespread loan forgiveness while Biden has promised more moderate steps. The administration said today that it has already canceled more than $17 billion in student debt covering 725,000 borrowers. Last month, Biden announced a plan to extend a freeze on student loan payments for some 43 million borrowers through August.
It was originally set to expire May 1.
A report from CNBC and Acorns released in January found that 24% of Black adults have federal student loan debt, a higher percentage than in the white, Hispanic or Asian populations.