The Biden administration on Tuesday announced new updates to student loan forgiveness initiatives for millions of federal student loan borrowers as a temporary waiver for public service borrowers comes to an end this week.
Here’s what borrowers need to know.
Limited PSLF Waiver Ends This Week
This is the final week of the Limited PSLF Waiver, a temporary initiative the Biden administration enacted last year to expand what counts as a “qualifying payment” for the 10-year, 120-payment Public Service Loan Forgiveness program. The flexibilities under the waiver end on October 31.
The Education Department indicated that 236,000 borrowers have been granted $14 billion in student loan forgiveness so far.
“We have transformed the lives of these borrowers and their families,” said Education Secretary Miguel Cardona in remarks to the press on Tuesday.
‘Next Chapter’ for Student Loan Forgiveness Programs
While the Limited PSLF Waiver program ends on October 31, the Education Department on Tuesday indicated that many of the benefits of the waiver will continue through the summer of 2023, as the administration begins to implement the “next chapter” of student loan forgiveness under the IDR Account Adjustment initiative. That initiative is now expected to be effective by July 1.
According to the Education Department, the IDR Account Adjustment “will provide borrowers with many of the same benefits already going to those who have applied for the temporary changes to PSLF” under the Limited PSLF Waiver. But it will also benefit millions of borrowers who do not work in public service careers.
Under the IDR Account Adjustment, the Education Department will be able to retroactively credit borrowers with time towards 20-year or 25-year student loan forgiveness programs under income-driven repayment (IDR) plans, even if they are not already in such a plan. This will also continue to benefit borrowers on track for PSLF, as well.
Under the IDR Account Adjustment, the Education Department will grant credit toward IDR and PSLF:
- Any month in which a borrower was in a repayment status, regardless of whether payments were partial or late, the loan type, or the repayment plan;
- Months while a borrower spent at least 12 months of consecutive forbearance;
- Months while a borrower spent at least 36 cumulative months in forbearance; and
- Any month spent in deferment (exception for in-school deferment) prior to 2013.
“Beginning in November 2022, borrowers who have 20 years (240 monthly payments) or 25 years (300 monthly payments) worth of payments through these changes will start receiving loan discharges, unless they choose to opt out,” according to a Department of Education Fact Sheet. “Borrowers who applied for PSLF prior to October 31, 2022, and reach 120 payments due to the deferment and forbearance changes will also receive loan discharges. The Department will continue implementing discharges for borrowers who reach the thresholds for forgiveness in the months after November. In July 2023, the Department will automatically apply the same payment count treatment to all [Education Department]-managed loans for borrowers who do not otherwise reach the number of months necessary for forgiveness. Direct Loan borrowers will able be able to count these periods toward PSLF on loans borrowed as students for months where they certify qualifying employment.”
The Education Department had originally indicated these changes would be in place by January 1, 2023. However, the administration is now saying that these changes will be effective by July 1, 2023.
After July 1, new, more permanent PSLF regulatory updates will be place that will codify many (but not all) of the benefits under the Limited PSLF Waiver, including allowing borrowers to get credit for certain deferment periods, as well as repayment periods prior to Direct loan consolidation.
How to Qualify For Student Loan Forgiveness Benefits, Including for FFELP Loans
Borrowers who already have Education Department-held loans — including Direct loans and FFELP loans held by the government — may see the benefits of the IDR Account Adjustment automatically as the administration starts implementing these changes. But borrowers may want to consider consolidating via the federal Direct consolidation loan program to maximize the available benefits.
“Borrowers who have federally managed FFEL, Perkins, Health Education Assistance Loan (HEAL) Program, or other non-Direct Loan 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. Under Secretary of Education James Kvaal recommended on Tuesday that such borrowers consolidate “as soon as possible” but no later than May 1, 2023 to ensure that they benefit from this relief (the Direct loan consolidation process can take 30 to 60 days, and sometimes longer).
Student Loan Forgiveness Under These Initiatives Is Distinct From One-Time Cancellation
The benefits of the Limited PSLF Waiver, the IDR Account Adjustment, and the more permanent regulatory change to PSLF are entirely distinct from Biden’s one-time student loan cancellation initiative that can provide $10,000 or up to $20,000 in student loan forgiveness for eligible borrowers.
However, borrowers with a mix of commercially-held FFELP loans and Education Department-held loans may want to initially be cautious about consolidating, as a Direct consolidation loan application submitted after September 28, 2022 that contains commercially-held FFELP loans may not qualify for the one-time cancellation.
Last week, the 8th Circuit Court of Appeals temporarily stayed implementation of Biden’s one-time student loan forgiveness program in response to a legal challenge filed by a coalition of Republican-led states. However, that court action applies only to the one-time cancellation program — not to IDR or PSLF.
The Education Department is expected to release more detailed guidance in the coming weeks.