Biden Has Wiped Away $127 Billion In Student Loan Debt

(Bloomberg) -- At least some Americans are seeing their student debt wiped away.

The Supreme Court may have struck down President Joe Biden's one-time forgiveness plan, estimated to cost $400 billion. However, changes to existing programs have allowed for more than $127 billion in debt to be forgiven since Biden took office, far surpassing previous totals.

It's welcomed relief for millions of borrowers, many of whom had previously applied for forgiveness only to be denied because of byzantine fine-print and other factors. With debt payments restarting in the face of higher living costs, half of surveyed borrowers said they will struggle to make a payment over the next six months. But that's at least one expense the more than 3.6 million people who've had their debt extinguished the past three years won't have worry about.

This includes Justin La Mort, a public interest attorney in New York City, who had roughly $150,000 of law school debt forgiven after 10 years of payments through the Public Service Loan Forgiveness (PSLF) program.

Applying for forgiveness wasn't the smoothest process, he said. He still had to wait for his loans to be consolidated, and he had to submit his application multiple times. But now — years after starting his career — he'll be able to start putting more money towards savings, including for his young children's college funds.

“I'll still be doing public interest work,” he said. “But now I no longer have to worry if my work is eligible for the program.”

Forgiveness Just in Time

For years, there had been a high rate of denial for debt forgiveness under PSLF and Income-Driven Repayment (IDR) plans. In 2017, when the first cohort of borrowers were able to apply for PSLF discharge, upwards of 99% were rejected, according to a report from the US Government Accountability Office. Most borrowers were told they were in the wrong loan program or had the wrong repayment plan.

Similarly, mass confusion over what counted as a qualifying payment under IDR plans meant only 132 borrowers had ever seen forgiveness through the program before June 2021, according to the GAO. The first wave of borrowers who could have qualified for IDR forgiveness enrolled in 1994, with hopes of seeing their debt erased 25 years later, in 2019.

By fixing historical inaccuracies in payment records and issuing a temporary PSLF waiver, the Biden administration has now forgiven about $93 billion through PSLF and IDR plans — up from a cumulative total of less than half a billion before Biden took office, a Bloomberg calculation of public data shows.

The administration has also forgiven $11.7 billion in loans for those with a total and permanent disability after allowing a data match with the Social Security Administration. Plus, about $22.5 billion was extinguished for borrowers who were “cheated” by their schools or saw their institutions precipitously close, a Department of Education release said.

Patrick Roberts, who graduated from ITT Technical Institute in 2010, is among those whose forgiveness came as a result of being defrauded by his school.

The DOE forgave his $35,000 balance on the basis that ITT — located in Carmel, Indiana — misled students on the ability to find a job or transfer credits after attending. And without that balance, Roberts said his credit score has risen to almost 700. 

“Those student loans were really dragging my credit down,” he said. “I'm paying 20% interest on a car loan just because of my credit.” He plans to refinance and, ultimately, apply for a mortgage so he can buy a house.

Making Ends Meet 

To be sure, the balances forgiven are just a fraction of the $1.8 trillion in outstanding federal student debt. Last month, the vast majority of borrowers didn't receive a notice of forgiveness either, but rather a bill for the first time in almost four years with the end of a pandemic-era pause on payments. 

Surveyed borrowers say they'll need to reduce their savings, pull back on spending or take on a second job to afford the payments, according to TransUnion. And those waiting for forgiveness will be on the hook for payments too.

After consolidating his loans in June, Rob Galbraith said he's been waiting for the DOE to perform an account adjustment and forgive his $230,000 balance from undergrad and law school. But he's had trouble getting in touch with his loan servicer to find out a timeline.

He's been working toward forgiveness since 2012 through his work at a nonprofit public-interest research organization.

“I've planned my whole life in reliance on this program,” the 38 year old in Buffalo, New York, said. “It would mean much more freedom to determine what I do with my life and my money.”

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