Major Student Loan Forgiveness Program Launched, A Lifeline for Borrowers

Updated on July 25, 2023

Discover the latest student loan forgiveness program introduced by the Education Department, benefiting long-time borrowers with $39 billion in remaining debt. Learn about eligibility, forgiveness periods, and proactive steps to prepare for the IDR account adjustment. Find relief from your student loan burden today.

Questions Answered in this Article

Q1: When did the Education Department launch the income-driven repayment (IDR) account adjustment forgiveness program? A1: The Education Department launched the IDR account adjustment forgiveness program on July 14; 804,000 longstanding student loan borrowers began receiving word about their debt forgiveness.

Q2: How many borrowers have repaid their loans for at least 20 years, and how many have never defaulted or been delinquent? A2: More than 4.4 million borrowers have been repaying their loans for at least 20 years, and an impressive 2.3 million have never defaulted or been delinquent on their loans.

Q3: How can borrowers determine if they will receive loan forgiveness under the IDR account adjustment? A3: Borrowers can assess their eligibility for loan forgiveness under the IDR account adjustment by counting past payments. Generally, undergraduate loan borrowers need to have made at least 240 monthly student loan payments, while some graduate loan borrowers require at least 300 amounts for forgiveness.

Q4: What periods count toward forgiveness under the IDR account adjustment program? A4: The IDR account adjustment program considers various periods for forgiveness, including any month in repayment (even if payments were late or partial), time spent in forbearance (12 or more consecutive months, or a cumulative 36 or more months), months spent in deferment (excluding in-school deferment before 2013), months in economic hardship or military deferments after January 1, 2013, and repayment, forbearance, or qualifying deferment months before a loan consolidation.

Q5: How can borrowers prepare for the IDR account adjustment and potentially receive loan forgiveness? A5: Borrowers can take several steps to prepare for the IDR account adjustment and maximize their chances of loan forgiveness. These steps include updating contact information, consolidating commercially managed federal loans, consolidating newer parent PLUS loans, applying for Public Service Loan Forgiveness (PSLF), and checking their state’s tax policy regarding forgiven debt.

Introduction

On July 14, 804,000 longstanding student loan borrowers were granted relief from their burdensome debt, with $39 billion in remaining debt forgiven through the Education Department’s income-driven repayment (IDR) account adjustment program. This one-time initiative, aimed at rectifying past issues in the IDR system, credits more past repayment periods toward IDR forgiveness, bringing many borrowers closer to debt freedom and, in some cases, offering complete loan forgiveness. The Department of Education’s commitment to righting past wrongs and assisting millions of borrowers has been hailed as a significant step forward in the battle against student loan debt.

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The Scale of Student Loan Struggles

According to data from April 2021, more than 4.4 million borrowers have diligently repaid their loans for over 20 years, with an impressive 2.3 million never defaulting or being delinquent on their loans. While the complete count of borrowers eligible for IDR account adjustment forgiveness is yet to be determined, the Student Borrower Protection Center (SBPC) executive director, Mike Pierce, believes this program has the potential to make a substantial impact. Unlike President Biden’s up-to-$20,000 student debt cancellation plan, which faced legal challenges and was eventually struck down by the Supreme Court, the IDR account adjustment program has remained unchallenged and is expected to proceed smoothly.

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Timeline and Eligibility

The IDR account adjustment forgiveness program is set to notify recipients every two months, with the following announcement anticipated by mid-September following the initial information on July 14. By the end of 2023, all borrowers who have fulfilled the required payments for forgiveness will receive the account adjustment, while others will gain at least three additional years of credit toward IDR loan forgiveness in 2024.

To determine eligibility for forgiveness under the one-time IDR account adjustment, borrowers must calculate their past payments. Generally, those with undergraduate loans qualify if they’ve made at least 240 monthly student loan payments, while some graduate loan recipients will reach forgiveness with a minimum of 300 payments.

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What Counts Towards Forgiveness

The IDR account adjustment considers various periods to reach the 240 or 300 payments required for forgiveness:

Any month spent in repayment, even if the payments were late or partial.
Time spent in forbearance for 12 or more consecutive months or a cumulative 36 or more months.
Any month spent in deferment, excluding in-school deferment before 2013.
Any month spent in economic hardship or military deferment after January 1, 2013.
Repayment, forbearance, or qualifying deferment months before a loan consolidation.
Months in default will generally not be counted; however, borrowers who enroll in the temporary Fresh Start program to exit default will receive IDR credit from March 2020 until they leave default.

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Preparing for the IDR Account Adjustment

For most eligible federal borrowers with older direct loans, federally held Federal Family Education Loan Program (FFELP) loans, and parent PLUS loans, the loan forgiveness process will be largely automatic. However, there are some proactive steps borrowers can take:

Update Contact Information: Ensure current contact details are listed in Federal Student Aid (FSA) and servicer accounts to receive notifications promptly.
Consolidate Commercially Managed Federal Loans: Borrowers with commercially held federal loans will need to consolidate them to benefit from the recount.
Consolidate Newer Parent PLUS Loans: Parent PLUS loans can benefit from the IDR account adjustment, but consolidation is required for those with fewer payments.
Apply for Public Service Loan Forgiveness (PSLF): PSLF-eligible borrowers can receive IDR loan forgiveness after 10 years, and those with qualifying loans should apply for PSLF and certify their employment as soon as possible.

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State Tax Considerations

The federal government will not tax any debt forgiven under the IDR account adjustment. However, specific states may tax forgiven student loans as taxable earned income. Borrowers should check their state’s tax policy and can opt out of loan forgiveness within 30 days of receiving notice if they are concerned about potential state taxes.

Conclusion

The IDR account adjustment forgiveness program represents a significant victory for millions of borrowers who have faithfully repaid their loans. With the potential to alleviate the financial burdens of countless individuals, this initiative is a crucial step forward in addressing the student loan debt crisis. Borrowers should take the necessary steps to ensure they benefit fully from this unprecedented opportunity for relief and reclaim their financial freedom.