Biden's $39 Billion Student Loan Forgiveness: What It Means for Private Loan Borrowers
President Joe Biden and the Department of Education announced a $39 billion student loan forgiveness program on Friday, July 14, 2023, that will benefit more than 800,000 borrowers who have been paying back their federal loans under income-driven repayment (IDR) plans. The program is part of the administration's efforts to fix "historical failures" in how IDR plans were managed and to provide relief to borrowers who have been struggling with student debt for decades. As Under Secretary of Education James Kvaal argued, "millions of borrowers had earned loan forgiveness but never received it," which he said was "unacceptable." "Today we are holding up the bargain we offered borrowers who have completed decades of repayment."
However, the program does not apply to borrowers who have private student loans, which are loans issued by banks or other financial institutions. Here's what private loan borrowers need to know about Biden's plan and their options for debt relief.
What is Biden's $39 billion student loan forgiveness program?
Biden's program is aimed at borrowers who have been enrolled in IDR plans, which are repayment plans that adjust the monthly payment amount based on the borrower's income and family size. Under these plans, borrowers are eligible for forgiveness after making either 240 or 300 monthly payments, depending on the type of loan and the plan they chose. However, due to "inaccurate payment counts" and "administrative failures", some borrowers did not receive credit for payments they made or periods they spent in forbearance or deferment, which delayed their progress toward forgiveness.
Biden's program will automatically discharge the remaining debt of 804,000 borrowers who have accumulated the equivalent of either 20 or 25 years of qualifying monthly payments under IDR plans. The Department of Education will begin notifying these borrowers today and will complete the process in the next few weeks. The program will forgive $39 billion in federal student debt, which is an average of $48,625 per borrower.
Who is eligible for Biden's program?
Biden's program applies to borrowers who have Direct Loans, Federal Family Education Loans held by the Department of Education, or Parent PLUS Loans. These are loans that were issued by the federal government or guaranteed by it. To qualify for forgiveness, borrowers must have been enrolled in an IDR plan at some point in the past or present, and must have accumulated the equivalent of either 20 or 25 years of qualifying monthly payments. Unlike Biden’s earlier plan, the student loan forgiveness plan announced Friday doesn’t have a blanket amount of forgiveness for large swaths of borrowers. How much is forgiven is unique to each borrower and depends on several different factors. Qualifying payments include:
- Any payment made in a month when they were in repayment status, whether the payments were partial or late
- Any period when a borrower spent at least 12 consecutive months in forbearance
- Any month in forbearance for borrowers who spent at least 36 consecutive months in forbearance
- Any month in deferment for borrowers who had economic hardship or military deferments after January 1, 2013
- Any month in deferment for borrowers who had in-school deferments before January 1, 2013
What about private loan borrowers?
Biden's program does not apply to borrowers who have private student loans, which are loans that were issued by banks or other financial institutions without any involvement from the federal government. Private loan borrowers are not eligible for IDR plans or federal forgiveness programs, and they have to repay their loans according to the terms and conditions set by their lenders. Private loan borrowers also typically face higher interest rates, fewer repayment options, and less consumer protection than federal loan borrowers.
However, private loan borrowers may still have some options for debt relief, such as:
- Refinancing their loans with a new lender that offers lower interest rates or better terms
- Negotiating with their current lender for a lower monthly payment, a longer repayment period, or a settlement
- Applying for hardship programs offered by some lenders that may temporarily reduce or suspend payments due to financial difficulties
- Declaring bankruptcy, which may discharge some or all of their debt in rare cases
Private loan borrowers should carefully weigh the pros and cons of each option and consult a financial advisor before making any decisions.
Biden's $39 billion student loan forgiveness program is a significant step toward easing the burden of student debt for hundreds of thousands of federal loan borrowers who have been paying back their loans under income-driven repayment plans. However, the program does not cover private loan borrowers, who still face challenges and limitations in managing their debt. Therefore, private loan borrowers should explore their options and seek professional guidance to find the best solution for their situation.
