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Student loan companies derailed civil service debt cancellation: Menendez

A student loan forgiveness program is undergoing a series of reforms, after years of flawed implementation. A Democratic lawmaker wants President Joe Biden’s Education Department to go further with these fixes.

On Thursday, New Jersey Senator Bob Menendez sent a letter to Education Secretary Miguel Cardona — first reviewed by Insider — detailing concerns about the Public Service Loan Forgiveness Program (PSLF). While the program aims to cancel student debt for government and nonprofit workers after ten years of qualifying payments, those who are suspended by their loan officer while studying are not relieved. Menendez said it “derailed” the program and did not give all officials the relief the program intended.

“I fear that without corrective action, many public servants who held public service jobs while attending school will be excluded from the current waivers and flexibilities offered by the Department,” Menendez wrote.

In October, the department announced reforms to the PSLF, including a waiver through October 31, 2022 that allows past payments, including those that had been deemed ineligible, to qualify for loan forgiveness progression. But borrowers placed on academic deferment, as Menendez noted, may not be able to access this additional relief. These deferrals allow a borrower to defer repayment of their loan while they are in school, but if they choose to return to school and wish to continue repaying their previously acquired loans, loan companies can take measures to prevent this from happening.

A report of the Consumer Financial Protection Bureau in 2017 found that despite borrowers requesting to stay on a repayment plan while in school, “their manager will automatically place their loans on school-stay, preventing borrowers who work in government public while attending school to qualify for PSLF payments,” adding that it could take months for the borrower to revert to a repayment plan, “resulting in unnecessary accrued interest and qualifying payments. missed”.

To ensure these officials can access the relief to which they are entitled, Menendez requested that the department include in-school deferments in any future waivers or program reforms.

The department has yet to comment specifically on these deferrals, but it recently unveiled its list of regulatory proposals aimed at improving loan forgiveness programs, including the PSLF, by making it easier to qualify for the relief. While those rules could take at least a year to implement, Biden is also in the process of deciding on broad student loan forgiveness for federal borrowers — a move likely to be announced in July or August, before the resumption of payments.

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