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Biden admin to forgive $39 billion in student loan debt for 800,000 borrowers. Here's what to know.

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More than 800,000 borrowers with $39 billion in federal student loans will get their debt forgiven, the Biden administration said on Friday. 

The Department of Education said it will begin notifying borrowers today about the automatic discharge of their debt, which will occur in the next few weeks. 

The debt relief comes two weeks after the Supreme Court invalidated the Biden administration's plan for broad-based student loan forgiveness, which would have helped more than 40 million borrowers each erase up to $20,000 in debt. The plan announced on Friday is related to a separate effort by the Biden administration to improve income-driven repayment plans (IDRs), which are designed to reduce student loan monthly payments by pegging a person's payment amount to their income.

Who is getting loan forgiveness?

The Biden administration said 804,000 people will learn that their debt has been discharged. These are people who were enrolled in IDRs and who have accumulated the equivalent of either 20 or 25 years of qualifying monthly payments, the administration said. 

In an update on the loan relief plan, the Department of Education said Tuesday that it began notifying eligible borrowers by email on July 14 that they qualify for forgiveness. The loans will start to be discharged 30 days after those messages were sent, the agency said. Loan servicers will notify people when the loans have been forgiven. 

Borrowers who are granted relief under the plan will have repayment on those loans frozen they are discharged. 

Why are they getting loan forgiveness now?

The administration said it is discharging the loans now because it wants to fix "historical failures" in how IDRs were managed. 

Some "qualifying payments made under IDR plans that should have moved borrowers closer to forgiveness were not accounted for," the administration said in a statement. 

"For far too long, borrowers fell through the cracks of a broken system that failed to keep accurate track of their progress towards forgiveness," said U.S. Secretary of Education Miguel Cardona in the statement. 

What happened with income-driven repayment plans?

The Higher Education Act and Education Department regulations state that a borrower is eligible for forgiveness after making either 240 or 300 monthly payment in an IDR plan or the standard repayment plan. The different number of months depends on when a borrower first took out the loans, what type of loans they had and the IDR plan in which they were enrolled. 

But "inaccurate payment counts" meant that some borrowers weren't progressing toward loan forgiveness, the administration noted.

What types of loans are covered? 

Borrowers with Direct Loans, Federal Family Education Loans held by the Education Department, as well as Parent PLUS loans, are covered. 

Around the nation, Texas has the most borrowers, at nearly 64,000, who qualify for relief under the Biden administration's plan, with total loans worth more than $3 billion, according to the Education Department.

How is the length of time calculated? 

The Education Department said it is calculating the forgiveness threshold for people who received credit toward IDR forgiveness for any of the following periods: 

  • 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 spent in deferment, except for in-school deferment, before 2013
  • Any month spent in economic hardship or military deferments on or after January 1, 2013
  • Any months in the categories above that occurred prior to a loan consolidation will also be counted toward forgiveness
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