The Biden administration is rolling out a new student loan forgiveness plan that may benefit millions of borrowers. It’s not the one that is currently dominating the news, but it could ultimately be more significant than any of the programs the administration has announced so far.
Some borrowers may need to take action to qualify, and there are deadlines. Here’s what you should know.
Student Loan Forgiveness Under IDR Account Adjustment
Under the initiative — which the administration is calling the IDR Account Adjustment — the Education Department will credit borrowers with time towards 20-year or 25-year student loan forgiveness terms under income-driven repayment (IDR) plans, even if they’ve been repaying their student loans under a different plan.
IDR plans are federal student loan repayment plans tied to a borrower’s income and family size. The plans allow for loan forgiveness after 20 or 25 years in repayment. But under the previous IDR rules, only time spent in an IDR plan can count. Most periods of deferment and forbearance, as well as repayment periods prior to loan consolidation, would not count. This was particularly problematic for borrowers who were steered into costly deferments or forbearances by their loan servicers, rather than being counseled on the availability of IDR options, or were advised to consolidate their loans multiple times.
Under the IDR Account Adjustment, the Education Department will credit borrowers retroactively with time towards their IDR repayment terms, which will dramatically advance many borrowers’ progress towards eventual loan forgiveness. Those that cross the 20-year or 25-year threshold for loan forgiveness following the adjustment will have their balances automatically discharged.
The initiative was first announced last April, but it was then back-burnered as the administration rolled out Biden’s one-time student loan cancellation initiative. That plan — which can cancel $10,000 or up to $20,000 in student loans for borrowers who meet certain income guidelines — has dominated the news cycle for the last month. A federal appeals court has temporarily halted the program as borrowers rush to apply. But unlike Biden’s one-time student loan cancellation plan, there is no cap or limit on loan forgiveness under the IDR Account Adjustment
Here’s what the Education Department can count:
- Any month in which a borrower was in a repayment status, regardless of the type of federal student loan or the repayment plan, or whether payments were partial or late;
- Any period in which a borrower spent at least 12 consecutive months in forbearance;
- Any months of forbearance if the borrower spent at least 36 cumulative months in forbearance;
- Any months of deferment (except for in-school deferment periods) prior to 2013.
IDR Initiative Will Also Provide Loan Forgiveness For PSLF Borrowers
The Education Department indicates that the IDR Account Adjustment will also benefit borrowers on track for Public Service Loan Forgiveness (PSLF), a program that provides federals student loan forgiveness for borrowers who work for 10 years or longer in qualifying public service employment.
A similar initiative called the Limited PSLF Waiver has allowed the Education Department to provide retroactive PSLF credit to borrowers under similar conditions as the IDR Account Adjustment. But the waiver for PSLF ends on October 31. According to the Education Department, the IDR Account Adjustment will effectively extend many (although not all) benefits of the Limited PSLF Waiver into 2023.
“I’m incredibly proud that the Biden-Harris team’s temporary changes to Public Service Loan Forgiveness helped over 236,000 teachers, nurses, veterans, government employees and other public service workers secure more than $14 billion in debt relief,” said U.S. Secretary of Education Miguel Cardona in a statement earlier this week. “We’re encouraging public service workers to take advantage of the program’s temporary changes before the deadline on October 31. At the same time, we’re taking bold steps that will automatically move more hardworking public service workers closer to forgiveness.”
New PSLF regulations will then go into effect next summer, which will codify on a more lasting basis some of the Limited PSLF Waiver benefits.
Borrowers May Have To Take Action to Qualify for Student Loan Forgiveness Under IDR Account Adjustment
The Education Department will be implementing the IDR Account Adjustment automatically for borrowers in July 2023, when it will publish IDR payment counts showing borrowers’ progress towards their 20-year or 25-year terms. But to qualify, borrowers must have government-held federal student loans in good standing by then.
Borrowers who have FFELP, Perkins, Health Education Assistance Loan (HEAL) Program, or other non-Direct federal student loans “should apply for a Direct Consolidation Loan by May 1, 2023, to get the full benefits of the one-time account adjustment,” according to updated Education Department guidance. Consolidation is necessary to convert any non-government-held loans into a loan administered by the U.S. Department of Education. Borrowers should be aware, however, that since commercial FFELP loans are excluded from relief under Biden’s one-time student loan cancellation plan of up to $20,000, consolidating FFELP loans may render a new Direct consolidation loan ineligible for that one-time relief.
In addition, borrowers with federal student loans in default must work on getting out of default, such as through rehabilitation, Direct loan consolidation, or the Biden administration’s Fresh Start initiative before the July 2023 implementation of the IDR Account Adjustment.
The Education Department is expected to apply the IDR Account Adjustment credit in July 2023. “Any borrower with loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if you are not currently on an IDR plan,” says the Education Department. Borrowers who receive substantial credit but are short of the threshold required for loan forgiveness would then need to continue repaying their loans under an IDR plan to make continued progress towards loan forgiveness.