The U.S. Department of Education has indicated that tens of thousands of borrowers will be eligible for “immediate” student loan forgiveness following sweeping changes to key federal student loan programs. But questions remain about the actual timing and implementation of that relief.
Biden Enacts Historic Changes To Student Loan Forgiveness and Income Based Repayment Programs
Last month, the Biden administration announced sweeping reforms to federal student loan income-driven repayment (IDR) programs, which include Income Based Repayment (IBR), Pay As You Earn (PAYE), and other plans tied to a borrower’s income.
Under IDR programs, borrowers can make payments on their student loans using a formula based on their income and family size. If any balance remains at the end of their plan’s repayment term (which is 20 or 25 years, depending on the specific plan), that loan balance would be forgiven. IDR plans have also been a required component of the Public Service Loan Forgiveness (PSLF) program, which can provide student loan forgiveness in as little a 10 years for borrowers who devote their careers to government or nonprofit work.
But under their original frameworks, both IDR and PSLF were plagued by complex rules and poor administration. Only payments made under an IDR plan (like IBR or PAYE) could count towards loan forgiveness. Payments made on other plans, and periods of nonpayment (like deferments and forbearances) would not qualify. Furthermore, consolidating federal loans would effectively restart a borrower’s repayment term, resulting in payment counts being restricted to the borrower’s most recent consolidation.
Last October, the Biden administration announced major changes to the PSLF program to allow more repayment periods to qualify towards student loan forgiveness. And then in April, the administration dramatically expanded what can count towards student loan forgiveness under the IDR and PSLF programs. According to the Department of Education, officials will be able to count towards IDR and PSLF:
- Any prior months in which the borrower was in a “repayment status,” regardless of the specific repayment plan or the timing or amount of a payment;
- 12 or more prior months of consecutive forbearance, or 36 or more months of cumulative forbearance;
- Any prior months spent in deferment (with the exception of in-school deferment) before 2013; and
- Prior periods of repayment before consolidation on federal consolidation loans.
The Department also indicated that, “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.”
When Will Eligible Borrowers Get Student Loan Forgiveness?
In its announcement, the Department of Education indicated that the sweeping reforms “will bring borrowers closer to public service loan [forgiveness] and income-driven repayment (IDR) forgiveness by addressing historical failures in the administration of the federal student loan programs.”
Importantly, the Department suggested that tens of thousands of borrowers will see quick benefits from the reforms. “Federal Student Aid (FSA) estimates that these changes will result in immediate debt cancellation for at least 40,000 borrowers under the Public Service Loan Forgiveness (PSLF) Program,” said the Department in April. “Several thousand borrowers with older loans will also receive forgiveness through IDR.” Millions more are expected to benefit in the coming years.
But the actual timing of this “immediate” student loan forgiveness remains uncertain. The changes to IDR payment counts will require significant administrative work by FSA officials, who are already working to implement previously-announced changes to PSLF, as well as changes to other federal student loan programs such as disability discharges and Borrower Defense to Repayment. The Department of Education has not provided an update on the number of borrowers who have been approved for student loan forgiveness since its April 19 announcement.
And in fact, the Department’s current guidance suggests that implementation of the IDR changes may not be completed for quite awhile. “Complete implementation of these changes… is estimated to be no sooner than Jan. 1, 2023.”
Other Questions Remain About Student Loan IDR Changes
Meanwhile, more questions regarding the Department’s implementation of the IDR changes remain unanswered.
The Department has not yet made clear how far back in time it will count qualifying repayment, deferment, and forbearance periods towards a borrower’s IDR student loan forgiveness term. In contrast, the Department has indicated that it cannot count payments towards PSLF prior to October 2007, when that program was first created. The first IDR program was enacted in 1994, but most IDR programs were created after 2007.
The Department has also not indicated how it will handle situations involving multiple consolidations. The Department says that it will count “any time in repayment prior to consolidation on consolidated loans,” but it is unclear what will be counted if a borrower has consolidated their loans multiple times, or whether requisite forbearance counts will be considered cumulatively across multiple consolidations (the Department indicates that “36 or more months of cumulative forbearance” can count towards loan forgiveness, but has not provided more detail than that). Under the PSLF Waiver announced in October, the Department indicated that it will credit a federal consolidation loan with the maximum number of qualifying payments based on the repayment histories of the individual loans included in the consolidation, but it has not made the same assurances for the IDR fixes.
Ultimately, the Department indicates that many of the changes will be implemented automatically over the course of this year, and many borrowers may just have to wait and see what, if any, additional information the administration provides as it begins initiating the changes. In the meantime, the Department’s current guidance is available here.
Further Student Loan Reading
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Who Qualifies For Student Loan Forgiveness Under Biden’s Huge New Expansion Of Income Based Repayment
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