Yesterday, the Biden administration announced a sweeping new initiative to expand income based repayment programs. The effort will dramatically expand the pool of borrowers who qualify for student loan forgiveness.
According to the Education Department, at least 40,000 student loan borrowers will receive immediate, automatic student loan forgiveness. And another 3.6 million borrowers will accelerate their progress towards getting the student loans completely wiped out.
As with many federal student loan relief programs, the new initiative is somewhat complicated. Here’s who qualifies, and what borrowers need to do.
Key Elements of Biden’s New Student Loan Forgiveness Initiative Through Income Based Repayment
Income-driven repayment (IDR) describes a collection of plans — which include Income Based Repayment (IBR), Pay As You Earn (PAYE), and others — that tie a borrower’s monthly payment to their income. After 20 or 25 years of payments (depending on the plan), any remaining balance is forgiven, although this could potentially be treated as taxable income to the borrower depending on when the forgiveness actually occurs. Under the original IDR rules, only time spent in repayment under specific IDR plans can count towards student loan forgiveness.
IDR plans are also a required component of the Public Service Loan Forgiveness (PSLF) program, which can eliminate a borrower’s federal student loan debt in as little as 10 years if they devote their career to nonprofit or government work. However, the Biden administration recently announced a temporary initiative called the Limited PSLF Waiver which, for a limited time, expands the type of repayment plans that qualify for PSLF.
Under the new IDR changes announced this week, the Biden administration will significantly expand student loan forgiveness eligibility under IDR:
- The Education Department will conduct a one-time adjustment to borrower accounts to allow any past periods of repayment, including repayment under non-IDR plans, to count towards a borrower’s 20 or 25-year IDR loan forgiveness term.
- The Education Department will conduct a one-time adjustment to borrower accounts to allow past periods of forbearance of 12 consecutive months or more, or 36 months of cumulative forbearance, to count towards a borrower’s 20 or 25-year IDR loan forgiveness term.
- The Education Department will conduct a one-time adjustment to borrower accounts to allow past periods of deferment (except in-school deferments) prior to 2013 to count towards a borrower’s 20 or 25-year IDR loan forgiveness term.
Under this initiative, the Education Department will also be able to count payments made prior to loan consolidation — a huge benefit to borrowers, given that under the original IDR rules, consolidation restarts the clock on a borrower’s repayment term.
The Department will be implementing many of these changes automatically. And in many cases, borrowers will not have to take any action to qualify for relief. But in some cases, they will.
Borrowers Who Qualify For Immediate, Automatic Student Loan Forgiveness Under IDR Changes
According to the Department of Education, 40,000 borrowers or more may qualify for immediate (or near-immediate), automatic student loan forgiveness under this initiative. “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 Department of Education in guidance released this week.
Borrowers who don’t qualify for immediate, automatic student loan forgiveness through the IDR changes may nevertheless see their progress towards loan forgiveness dramatically advance as a result of the changes, bringing them ever closer to having their student loans wiped out. The Education Department indicated it will start publishing payment counts and IDR progress reports for borrowers by sometime next year.
Borrowers Who Qualify for Immediate Student Loan Forgiveness Through PSLF As a Result of the IDR Changes
Thousands of borrowers may also qualify for immediate student loan forgiveness through the Public Service Loan Forgiveness (PSLF) program under the new IDR changes if, for example, past periods of forbearance that are counted under this new IDR initiative push them past the 120 payment threshold required for relief under PSLF.
“If you have 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance, you will receive PSLF credit for those periods of time if you certify qualifying employment,” said the Department of Education in guidance released this week. This relief will be provided automatically. However, borrowers who have not certified their employment for those periods would need to do so. You can start with the Department of Education’s online PSLF Help Tool.
Borrowers should also learn more about the requirements of the new Limited PSLF Waiver for more details. While the Limited PSLF Waiver did not include forbearance relief, the new IDR changes do.
Borrowers With Shorter Forbearance Periods May Need to Submit A Dispute
While the Education Department will be automatically counting past periods of forbearance of 12 consecutive months or longer, as well as 36 cumulative months of forbearance, shorter forbearance periods are in a bit of a gray area.
According to the Department, borrowers who want to get shorter past forbearance periods counted towards their IDR repayment term may need to submit a formal dispute to the Department’s FSA Ombudsman and successfully argue that they were improperly steered into a forbearance during that period, rather than an IDR plan. FSA officials will make determinations on a case by case basis.
FFEL Borrowers May Need to Consolidate
While borrowers with FFEL-program loans (commercially-issued federal student loans that are backed by the government) can benefit from the IDR reforms, the Education Department has said that these borrowers would first need to consolidate their loans through the federal Direct consolidation loan program. “If you have commercially held FFEL loans, you can only benefit from the IDR account adjustment if you consolidate before we complete implementation of these changes, which is estimated to be no sooner than Jan. 1, 2023,” said the Department.
Normally, consolidation erases any progress towards a borrower’s repayment term and restarts the clock on qualifying payments towards loan forgiveness. But under the IDR changes, “any time in repayment prior to consolidation on consolidated loans” will count, says the Department.