The Biden administration is launching a new student loan forgiveness plan that could benefit millions of borrowers. It’s not the one that currently dominates the news, but it could ultimately be more important than any program the administration has announced so far.
Some borrowers may need to take action to qualify, and there are time limits. Here’s what you should know.
Student Loan Forgiveness Under IDR Account Adjustment
Under the initiative — which the administration is calling IDR Account Adjustments — the Education Department will credit borrowers under income-driven repayment (IDR) plans for 20-year or 25-year student loan forgiveness terms over time, even if they don’t. Have paid off your student loans under a different plan.
IDR plans are federal student loan repayment plans that are tied to a borrower’s income and family size. The plans allow loan forgiveness after 20 or 25 years in repayment. But under the previous IDR rules, only the time spent in the IDR scheme can be counted. Most of the period prior to debt consolidation deferment and forbearance, as well as the repayment period, will not be counted. This was particularly problematic for borrowers who, instead of being advised about the availability of IDR options, were stepped into costly deferments or forbearances by their loan servicers, or advised them to consolidate their loans multiple times. Went.
Under IDR account adjustments, the Department of Education will give borrowers credit for their IDR repayment terms over time, which will dramatically accelerate the progress of many borrowers toward eventual loan forgiveness. For those who exceed the 20-year or 25-year limit for loan forgiveness after adjustments, their balance will be wiped out automatically.
The initiative was first announced last April, but was then back-burnt as the administration launched Biden’s one-time student loan cancellation initiative. That plan — which can cancel up to $10,000 or $20,000 in student loans for borrowers who meet certain income guidelines — dominated last month’s news cycle. 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 limit or limit on loan forgiveness under IDR account adjustments.
Here’s what the Department of Education can count:
- any month in which a borrower was in a state of repayment, regardless of the type of federal student loan or repayment plan, or whether payments were made partial or late;
- any period in which a borrower spent at least 12 consecutive months in forbearance;
- any month forbearance if the borrower has spent at least 36 cumulative months in forbearance;
- Any month prior to 2013 (except in-school moratorium period).
IDR initiative will also provide loan waiver for PSLF borrowers
The Department of Education indicates that IDR account adjustments will also benefit borrowers on track for Public Service Loan Forgiveness (PSLF), a program that provides federal student loan forgiveness for borrowers who are 10 years or more in qualified public service employment. work longer.
Ltd. A similar initiative called PSLF Waiver has allowed the Department of Education to offer PSLF credit retrospectively to borrowers under the same terms as an IDR account adjustment. But the exemption for PSLF expires on October 31. According to the Department of Education, IDR account adjustments will extend many (though not all) benefits of the limited PSLF exemption, effectively until 2023.
“I am incredibly proud that the Biden-Harris team’s temporary change to Public Service loan forgiveness has helped secure more than $14 billion in debt relief to more than 236,000 teachers, nurses, veterans, government employees and other public service workers.” of,” said the US Secretary of Education. Miguel Cardona in a statement earlier this week. “We are encouraging public service workers to take advantage of temporary changes to the program before the October 31 deadline. At the same time, we are taking bold steps that will automatically bring more diligent public service workers closer to forgiveness.” will take.”
The new PSLF rules, which will come into effect next summer, will codify some of the limited PSLF exemption benefits on a more permanent basis.
Borrowers may have to take action to qualify for student loan forgiveness under IDR account adjustment
The Department of Education will automatically implement IDR account adjustments for borrowers in July 2023, when it publishes IDR payment calculations showing borrowers’ progress for their 20-year or 25-year terms. But to qualify, borrowers must have federal student loans held by the government in good standing by then.
Borrowers who have an FFELP, Perkins, Health Education Assistance Loan (HEAL) program, or other non-direct federal student loans must apply for a direct consolidation loan by May 1, 2023 to receive the full benefit of a one-time account adjustment needed. , “As per the guidance of the updated Education Department. Consolidation is required to convert any non-government-held debt administered by the U.S. Department of Education into a loan. However, borrowers should be aware that since commercial FFELP loans are excluded from relief under Biden’s one-time student loan cancellation plan of up to $20,000, consolidating commercial FFELP loans with qualified direct loans may result in newer loans. The entire balance of a direct consolidation loan may be disqualified. 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 debt consolidation, or the Biden administration. new beginning initiative Prior to the July 2023 implementation of the IDR account adjustment.
The Department of Education is expected to implement the IDR Account Adjustment Credit in July 2023. “Any borrower who has at least 20 or 25 years of accumulated time in repayment will receive an automatic waiver, even if you are not currently on an IDR plan, says the Department of Education. Borrowers who receive sufficient credit , but are below the threshold required for loan waiver, they will have to continue to repay their loans under an IDR scheme to make continued progress towards loan waiver.
Further Reading Student Loan Forgiveness
Court Temporarily Blocks Biden’s Student Loan Forgiveness Plan – Here’s What It Means for Borrowers
5 important facts after the court stayed the student loan waiver
In Reversal, Biden Administration Announces New Eligibility Limits on Student Loan Forgiveness
Applying for Student Loan Forgiveness? Don’t Make These 3 Mistakes
Credit: www.forbes.com /