New round of student loan debt forgiveness will erase balances for over 800,000 people

A tweak to how the federal Education Department calculates student loan payments, intended to correct past errors, means about 804,000 people will have the balance of their loans erased over the next few months.

The outstanding debt, worth about $39 billion, is what’s left of these borrowers’ loans after the equivalent of 20 to 25 years' worth of payments.

Although the Biden administration took a hit last month when the Supreme Court undid its plan for large-scale student loan forgiveness – the now-defunct proposal would have forgiven debt for more than 40 million borrowers – the announcement Friday is the latest in a stream of messages touting the many ways it has helped people escape their student debt.

I have student debt: What to know after Supreme Court strikes down loan forgiveness

The how and why of new relief

The Biden administration said last year that it would make a one-time adjustment to borrowers’ payment histories to ensure they are getting all the credit they should.

"At the start of this administration, millions of borrowers had earned loan forgiveness but never received it. That’s unacceptable," Education Department Undersecretary James Kvaal said. "Today we are holding up the bargain we offered borrowers who have completed decades of repayment."

The borrowers involved in these plans for forgiveness include those with Direct Loans or Federal Family Education Loans held by the department, including Parent PLUS loans.

A longstanding option for student loan borrowers has been to enroll in a payment plan that aligns payments with their income. Some people with those plans, however, have struggled to get credit for all of those payments. Others who were eligible never participated.

Another long-standing criticism of these plans: While they can make the monthly payment more affordable, they stretch out the life of the loan, and interest often accrues faster than borrowers can pay it off.

An investigation by NPR last year uncovered mismanagement of the program by loan servicers and the Education Department.

The Student Borrower Protection Center said it was grateful for the Biden administration's work to correct the problems but called the student loan system "dysfunctional" and said there is more work to do.

"Make no mistake – over 804,000 people are receiving relief with this action because of 804,000 failures – and this is only the tip of the iceberg," said Persis Yu, the group's executive director and managing counsel. "Now our leaders need to finish the job. We look forward to the administration’s ongoing efforts to enact further relief efforts and ensure they include defaulted borrowers – those who have truly fallen between the cracks and who have been continually left behind.”

In the coming days, borrowers will receive notices if they are a part of the group whose debt will be canceled. Borrowers who fear a tax liability or who have other concerns about loan forgiveness will have the option to opt out.

Student loan debt forgiveness isn't dead The Supreme Court only blocked one route to canceling your balance.

If borrowers don’t opt out, their respective loan servicers will be told about the plan to eliminate the outstanding debt after Aug. 12, and borrowers will in turn be notified by their servicers that their balances have been forgiven.

Many of the borrowers affected are likely 50 or older. About 9.2 million borrowers fall into this category.

Biden, thwarted on mass forgiveness, under pressure to deliver

The Biden administration has made it a top priority to reduce the burden of student loan debt on Americans. But after last month’s Supreme Court decision, which concluded Biden lacked the authority to provide large-scale student loan relief through the executive emergency mechanism he used originally, he has faced mounting pressure to provide that forgiveness with other means.

The day the court issued its opinion, the administration announced its next plan of action: working to forgive such debt through the Higher Education Act of 1965.

That plan will kick off Tuesday through a usually dry but in this case highly anticipated bureaucratic procedure known as negotiated rulemaking. As part of this process, members of the public will be able to share their feedback on how if at all they want the Education Department to use the Higher Education Act to provide mass forgiveness.

But it’s not clear how long that will take or whether any option created through the alternate route will also face a lawsuit.

Other ways Biden has canceled student debt

The Biden administration already has provided forgiveness for targeted groups of people, sometimes using the Higher Education Act.

Last year, for example, the administration agreed to relieve the student loan debt of 200,000 borrowers who had been defrauded by their institutions, namely for-profit colleges. The relief plan totaling billions of dollars relied on the Higher Education Act, which gives the education secretary the authority to "enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand" related to its obligations, including student loans.

Under Biden, the Education Department has also significantly streamlined and expanded access to public-service loan forgiveness. Such forgiveness, reserved for people who have worked for at least a decade in eligible fields such as teaching and nursing, was partly provided through emergency levers outside the Higher Education Act.

And a new income-driven repayment plan to be unveiled soon will cut payments to nothing for some borrowers.

Contributing: Chris Quintana, USA TODAY

Contact Alia Wong at (202) 507-2256 or awong@usatoday.com. Follow her on Twitter at @aliaemily.

This article originally appeared on USA TODAY: Some student loan borrowers paying for years will have debt erased