Major Student Loan Forgiveness Update as Education Department Clarifies One-Time Adjustment Eligibility

Miguel Cardona speaks after being introduced Wednesday at The Queen Theater in Wilmington, Del. … [+] December 23, 2020. (AP Photo/Carolyn Kaster)

The Education Department has updated the official guide, which appears to expand eligibility for a key, one-time federal student loan forgiveness and the aid initiative that can benefit Parent PLUS borrowers.

Details are here.

Biden Administration’s IDR Account Regulation Will Lead to Student Loan Amnesty

Biden administration last year announced IDR Account Adjustment, a one-time adjustment that allows the Department of Education to provide retroactive credit for student loan forgiveness under Income-Driven Repayment (IDR) plans.

IDR plans allow federal student loan borrowers to repay their loans according to formulas applied to their income and family size. After spending 20 or 25 years on an IDR plan (depending on the specific program), the remaining balance is forgiven, although this debt forgiveness may be taxable.

Under the original IDR program rules, only time spent on an IDR plan counts towards a borrower’s repayment and loan forgiveness period. Most unpaid periods, such as deferrals and indulgences, are not counted and credit consolidation can reset the clock. Many borrowers were unaware of this, and consumer advocates have long accused student loan services of improperly directing borrowers to costly indulgences or failing to properly monitor borrowers’ progress towards IDR loan forgiveness.

In response to these issues, the Biden administration is initiating the IDR Account Arrangement. “I am incredibly proud [of] U.S. Secretary of Education Miguel Cardona said last October that the Biden-Harris team made temporary changes to key federal student loan forgiveness programs to improve access.

As part of the initiative, the Education Department will “make a one-time account adjustment to accounts payable that will count towards the IDR amnesty”, including the following periods:

Any month in repayment status, regardless of payments made, federal loan type, or specific repayment schedule;
12 months or more consecutive indulgences or 36 or more months of full indulgence;
Months of economic hardship or military delays after 2013;
months spent in any deferral before 2013 (excluding in-school deferrals); and
Any time in the repayment of previous loans before these loans are consolidated into a consolidation loan.

By Department of Education guideline, “Any borrower with accumulated loans with a minimum repayment period of 20 or 25 years. [under the IDR Account Adjustment] You will automatically see forgiveness even if you are not currently on an IDR plan.” Another three to four million borrowers will advance their progress towards final student loan forgiveness by several years as a result of one-time adjustment.

Direct borrowers will automatically see the arrangements by July 2023. Non-Direct loan borrowers, including FFELP borrowers, “must apply for a Direct Consolidation Loan by May 1, 2023 to take full advantage of the one-time account arrangement,” according to the Department of Education.

Borrowers working in civil service careers (ie, for certain nonprofits and government agencies) may also be eligible for a Public Service Loan Forgiveness (PSLF) loan under regulation.

Updated IDR Account Editing Guide for Parent PLUS Borrowers Good News

Last month, the Department of Education updated its guidance on IDR Account Adjustment to indicate that federal Parent PLUS borrowers on the PSLF pathway can also benefit from this initiative. Parent PLUS loans are a type of federal student loan granted to the parent of an undergraduate student. The borrower of this type of loan is the parent, not the student or child.

“These changes will automatically apply to all PSLF-eligible Direct Credits, including consolidated and unconsolidated major PLUS credits,” the updated guidance says. This is an important update because unconsolidated Parent PLUS loans are often immortality qualify for any PSLF or IDR credits, including the Limited PSLF Waiver which expired last October. Unconsolidated Master PLUS loans are not eligible for PSLF or IDR plans unless they have been consolidated into a Direct consolidation loan, and time spent on repayment prior to Direct loan consolidation has historically not counted towards loan forgiveness for these borrowers.

The Department of Education advises that “If you believe you can benefit, you should update your employment certification history to reflect all periods you have worked in the civil service.” Borrowers can initiate the process using online PSLF Help Tool.

Parent PLUS borrowers may need to consolidate their Loans through the Direct consolidation loan program and apply for an IDR plan to make continued progress towards student loan forgiveness beyond the loan received through the IDR Account Adjustment application. Currently, the only IDR plan available for consolidated Master PLUS loans is Income Contingent Repayment (ICR), which is the most expensive IDR option. Biden management developing a new, potentially more affordable IDR plan, but it is not yet clear whether Parent PLUS borrowers will be eligible. More details should be announced in the coming months.

Borrowers, Education Department current guidance About IDR Account Adjustment before trading.