What is Forbearance Steering?

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Stanley Tate

#1 Student Loan Lawyer

Updated on October 6, 2022

Forbearance steering is a process where contractors hired by the U.S. Department of Education guided or steered borrowers who struggled to make their monthly payments into long-term forbearances instead of offering an income-driven repayment plan.

Imagine if you were struggling to pay your student loans and you had two choices: put a delay on repaying the debt for a set period of time, or enroll in a payment plan that calculated payment based on your income that would cancel your debt after 20 or more years.

If you were only told about the first choice, you’d be angry, right? This is what happened to hundreds of thousands of borrowers.

This overuse of forbearance robbed borrowers of earning credit for student loan forgiveness programs and inflated their bills by adding thousands of dollars of interest to their loan balances.

On April 19, 2022, the Department of Education acknowledged this long-standing problem and announced it would take immediate action to fix this failure. It also promised to remedy the harm by using a one-time IDR account adjustment.

The department estimates its corrective action will result in immediate debt cancellation for thousands of borrowers in the Public Service Loan Forgiveness Program and others who’ve been repaying for 20 years. These changes will also push another 3.6 million borrowers pursuing debt forgiveness through an IDR plan at least three years closer to relief.

Keep reading to learn more about what will happen with your loans if you qualify for the forbearance steering benefits.

The plan to fix forbearance steering

For many years, student loan servicers like Navient placed borrowers who requested lower student loan payments into a general forbearance. While the forbearance paused their payments, it didn’t freeze their interest, which kept accumulating. It also didn’t progress them towards loan forgiveness under the PSLF Program or income-driven repayment forgiveness after 20 or more years of payments.

The Education Department plans to correct this harmful servicer practice by counting forbearance periods of 12 consecutive months and over 36 cumulative months toward IDR Forgiveness and PSLF. It will also count certain months spent in deferment before 2013.

This one-time adjustment will increase the payment counts of millions of borrowers working towards loan forgiveness under both programs and immediately wipe out the debt of thousands of others.

Borrowers with shorter-term forbearances can request an account review by filing a complaint with the Federal Student Aid Ombudsman at studentaid.gov/feedback.

Most student loan borrowers will have these changes automatically applied to their accounts by the end of the year. For those who have commercially held Federal Family Education Loans, this change isn’t automatic: they must consolidate their loans into a Direct Loan before January 1, 2023, to qualify.

You can consolidate your FFEL Loans on the FSA website, studentaid.gov.

Learn More: Best Student Loan Consolidation Companies

“Student loans were never meant to be a life sentence, but it’s certainly felt that way for borrowers locked out of debt relief they’re eligible for,” Education Secretary Miguel Cardona said in a written statement.”

Forbearance and the Navient settlement

A few years back, the Consumer Financial Protection Bureau and several state attorneys generals sued Navient in federal court, alleging that it used forbearances and other tactics that added billions of dollars in interest to the accounts of federal student loan borrowers.

Navient struck a $1.85 billion deal with 39 states to resolve those claims and another that it made predatory private student loans to people who it knew were unlikely to repay.

The settlement requires Navient to cancel $1.7 billion in delinquent private student loan debt. It also calls for Navient to pay around $260 to each federal student loan borrower it steered into a forbearance. This deal will not cancel the debts or eliminate the interest of any federal student loan.

Learn More: Do I Qualify for the Navient Lawsuit Settlement?

Student loan cancellation during the pandemic

The Biden administration has used its pandemic-related authority to take a chainsaw to several federal student loan programs. The piecemeal fixes it has implemented have delivered the largest student loan forgiveness actions this country has seen.

To date, the Education Department has wiped out over $20 billion owed by public servants, disabled persons, and those defrauded by their schools.

More relief is on the way. By the end of the year, thousands more people will have made enough IDR payments to have their remaining balance erased. And before payments resume, millions of borrowers will be pulled out of default and returned to good standing, avoiding harsh collection activities like wage garnishment and tax refund offset.

Payments are expected to restart in September, but President Biden is widely expected to delay that date again — possibly to leave time to forgive more debt using his executive authority.

Advocates and Democratic lawmakers continue to press the president to fulfill his campaign promise to wipe away $10 thousand in student loan debt. Forgiving that amount per borrower would require the government to write off $321 billion in loans, according to an analysis by the Federal Reserve Bank of New York.

UP NEXT: $10,000 Student Loan Forgiveness

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