A New, Bigger Student Loan Forgiveness Initiative Is Set To Launch — And It’s Not The One That You Think

The Biden administration is rolling out a new student loan forgiveness plan that could benefit millions of borrowers. It’s not who currently dominates the newsbut it could ultimately be bigger than any of the programs the administration has announced so far.

Some borrowers may need to take steps to qualify, and there are time limits. Here’s what you need to know.

Student Loan Forgiveness Under IDR Account Adjustment

Under the initiative — which the administration is calling the IDR account adjustment — the Department of Education will credit borrowers with time for 20- or 25-year student loan forgiveness terms under Income Contingent Repayment (IDR) plans, even if they were repaying their student loans under a different plan.

IDR plans are federal student loan repayment plans tied to the borrower’s income and family size. The plans allow loan forgiveness after 20 or 25 years of repayment. But according to the previous IDR rules, only the time spent in an IDR plane can count. Most deferment and forbearance periods, as well as repayment periods before loan consolidation, would not count. This was particularly problematic for borrowers who were pressured into costly deferrals or forbearances by their loan managers, rather than being advised on the availability of IDR options, or were asked to consolidate their loans multiple times.

As part of the IDR account adjustment, the Department of Education will retroactively credit borrowers for the time it takes to meet their IDR repayment terms, which will significantly advance many borrowers’ progress toward eventual loan forgiveness. Those who cross the 20 or 25 year threshold for loan forgiveness after the adjustment will have their balances automatically discharged.

The initiative was first announced last April, but was later put on the back burner when the administration rolled out Biden’s unique student loan forgiveness initiative. This plan – which can forgive $10,000 or up to $20,000 in student loans for borrowers who meet certain income guidelines — dominated the news cycle last month. A federal appeals court temporarily stopped the program as borrowers rush to apply. But unlike Biden’s one-time student loan forgiveness plan, there’s no cap or limit on loan forgiveness under the IDR account adjustment.

Here’s what the Department of Education can count:

  • Any month in which a borrower was in repayment status, regardless of federal student loan type or repayment plan, or if payments were partial or late;
  • Any period during which a borrower has spent at least 12 consecutive months in forbearance;
  • All months of forbearance if the borrower has spent at least 36 cumulative months of forbearance;
  • All adjournment months (excluding in-school adjournment periods) prior to 2013.

The IDR initiative will also offer loan forgiveness to PSLF borrowers

The Department of Education says the IDR account adjustment will also benefit borrowers on track for Public Service Loan Forgiveness (PSLF), a program that provides federal student loan forgiveness to borrowers who work during 10 years or more in eligible employment in the public service.

A similar initiative called the Limited PSLF Waiver allowed the Department of Education to provide retroactive PSLF credit to borrowers under similar terms as the IDR account adjustment. But the waiver for PSLF ends October 31. According to the Ministry of Education, the IDR account adjustment will effectively extend many (but not all) benefits of the limited PSLF waiver until 2023.

“I am incredibly proud that the temporary changes made by the Biden-Harris team to the forgiveness of public service loans have helped more than 236,000 teachers, nurses, veterans, government employees and other public service workers to get more than $14 billion in debt relief,” the US education secretary said. Miguel Cardona in a statement earlier this week. “We encourage public service workers to take advantage of the temporary changes to the program before the October 31 deadline. At the same time, we are taking bold steps that will automatically bring the hardest-working public service workers closer to forgiveness.

The new PSLF regulations will then come into force next summer, codifying some of the benefits of the limited PSLF waiver in a more lasting way.

Borrowers may need to take action to qualify for student loan forgiveness under the IDR account adjustment

The Ministry of Education will automatically implement the IDR account adjustment for borrowers in July 2023 when it will release the IDR payment tally showing borrowers’ progress towards their 20s or 25s. 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 fully benefit single account adjustment,” according to updated Department of Education guidelines. Consolidation is required to convert any loan not held by the government to a loan administered by the U.S. Department of Education. Borrowers should be aware, however, that since FFELP commercial loans are excluded from relief under Biden’s one-time student loan forgiveness plan of up to $20,000consolidating FFELP commercial loans with eligible direct loans may render the entire balance of the new direct consolidation loan ineligible for this one-time relief.

In addition, borrowers whose federal student loans are in default should work to get out of default, such as through rehabilitation, direct loan consolidation, or the Biden administration. Fresh Start Initiative before the July 2023 implementation of the IDR account adjustment.

The Ministry of Education is expected to apply the IDR account adjustment credit in July 2023. “Any borrower whose loans have accrued repayment time of at least 20 or 25 years will see an automatic discount, even if you don’t are not currently on an IDR plan,” says the Department of Education Borrowers who receive substantial credit but do not meet the required threshold for loan forgiveness should then continue to repay their loans under an IDR plan to continue to progress towards loan cancellation.

Further Reading on Student Loan Forgiveness

Court Temporarily Blocks Biden’s Student Loan Forgiveness Plan — Here’s What It Means For Borrowers

5 crucial points to remember after the court suspended student loan forgiveness

In Reversal, Biden Administration Announces New Student Loan Forgiveness Eligibility Limits

Apply for student loan forgiveness? Don’t Make These 3 Mistakes

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