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U.S. Department of Education Announces Major Student Loan Forgiveness Wave and IDR Program Improvements

Discover the latest updates from the U.S. Department of Education regarding the income-driven repayment (IDR) forgiveness program. Learn about the automatic account adjustment, which allows every month of repayment to count towards forgiveness, and find out how millions of borrowers will benefit from the debt cancellation. Stay informed about the requirements, eligibility, and important considerations under the IDR waiver.

Questions Answered in this Article

Question 1: What is the recent announcement from the U.S. Department of Education regarding student loan forgiveness? Answer 1: The U.S. Department of Education has announced a major wave of student loan forgiveness through an automatic IDR account adjustment, relieving millions of borrowers.

Question 2: Who will benefit from the IDR account adjustment? Answer 2: Borrowers who have spent at least 240 months (20 years) in repayment will see their remaining federal student loan balance wiped away, regardless of whether they were enrolled in an IDR plan.

Question 3: What is the purpose of the IDR account adjustment? Answer 3: The adjustment addresses past missteps in the IDR program, including miscounted payments and unnecessary forbearances by loan servicers, which have made forgiveness through older IDR plans difficult to obtain.

Question 4: How will the IDR account adjustment impact borrowers? Answer 4: Every month spent in student loan repayment or on pause since leaving school will count toward forgiveness after the account adjustment is applied, even for borrowers who have never enrolled in an IDR plan.

Question 5: What actions must borrowers take to benefit from the IDR account adjustment? Answer 5: Most borrowers do not need to take any action as the recount should be automatic. However, borrowers with commercially-held federal loans must consolidate, and Public Service Loan Forgiveness-seeking borrowers must apply for PSLF if they haven’t already. Some borrowers may also need to enroll in an income-driven repayment plan.

Millions of Borrowers to Benefit from Automatic IDR Account Adjustment and Loan Forgiveness

The U.S. Department of Education is significantly improving the income-driven repayment (IDR) forgiveness program, relieving millions of borrowers. This initiative, known as the “IDR waiver,” was introduced by the Biden administration in April 2022 and is now being implemented as an automatic adjustment to IDR accounts.

Under the IDR plans, borrowers make reduced payments based on their income for 20 or 25 years, after which the remaining balance is forgiven. The program was designed to protect borrowers from financial hardship by linking payments to their income rather than the amount owed.

The accounting adjustment will change the rules regarding which payments count toward forgiveness. After the adjustment, every month that borrowers have spent on student loan repayment or on pause since leaving school will count toward forgiveness, even for those who have never enrolled in an IDR plan. This adjustment addresses past issues in the IDR program, such as miscounted payments and unnecessary forbearances by loan servicers. These errors have made it difficult for borrowers to obtain forgiveness through older IDR plans.

According to estimates from the Education Department, over 3.6 million borrowers will receive at least three additional years of credit toward IDR forgiveness through this program. Some experts even believe the impact could be more significant.

IDR Program Update: Every Payment Counts Towards Forgiveness After Account Adjustment

The account adjustment process has already begun, with Public Service Loan Forgiveness (PSLF) borrowers who have older loans seeing their remaining balances erased starting in the spring of 2023. PSLF borrowers qualify for forgiveness after ten years of repayment rather than the standard 20 to 25 years required for IDR borrowers.

The relief efforts are now accelerating, and on July 14, the Education Department announced that 804,000 borrowers who have been repaying their loans for at least 20 years will have their remaining federal student loan balance automatically wiped away in the coming weeks. This relief amounts to $39 billion in debt cancellation before student loan payments resume in October.

This development has been a significant victory for borrowers burdened by decades of never-ending payments. The Education Department will notify eligible borrowers about the debt discharge, and the process will begin in mid-August.

The borrowers who will benefit most immediately are those with the oldest loans, who have spent at least 240 months in repayment. They will see their debts entirely wiped away, even if they were not previously enrolled in an IDR plan.

Important Changes and Requirements for Borrowers Under the IDR Waiver and Recount

To ensure eligibility for the recount, borrowers with commercially-held federal loans must consolidate their loans into direct loans by the end of 2023. Public Service Loan Forgiveness-seeking borrowers must apply for PSLF if they haven’t already, and they need to submit an employment certification form and PSLF application by the end of 2023 to have the adjustment count toward PSLF. Borrowers who have not had their debts wiped clean in the summer of 2023 will have their past payments reviewed in 2024, and if they are not already enrolled in IDR, they may need to decide whether to enroll and take advantage of the recount.

The IDR waiver and recount were prompted by the recognition that loan servicers had improperly steered millions of borrowers into forbearance or failed to count their payments accurately. A previous one-year waiver of payment-counting rules for PSLF borrowers has already benefited over 236,000 borrowers.

The IDR recount will greatly benefit borrowers not in public service jobs but using IDR plans for forgiveness after 20 or 25 years. Although most of them would not have qualified for forgiveness until at least 2035 due to being enrolled in the Revised Pay As You Earn (REPAYE) program, the IDR waiver will significantly increase their count of qualifying payments.

The payments that will count toward IDR forgiveness include the following:

  • 20 or 25 years of payments (240 and 300 monthly payments, respectively) under any payment plan.
  • Payments made by borrowers who have submitted a PSLF application and have reached 120 payments due to changes to deferment qualifications.

If borrowers are unsure whether these changes apply to them, they can log into their Federal Student Aid account using their FSA ID to know how many months will likely count toward IDR forgiveness. The Federal Student Aid office is expected to issue new guidance to loan servicers to improve counting practices, and they will track payment counts in their data systems.

Borrowers with loans in delinquency or default will not benefit from these IDR plan fixes. However, the Education Department’s temporary “Fresh Start” program allows borrowers with delinquent or defaulted student loan debt to return to good standing when payments resume.

It’s important to note that these changes in the IDR program are separate from other student debt relief efforts, such as the interest-free pause on federal student loan payments that will end on September 1, 2023. Borrowers will need to resume their prices at that time unless notified otherwise.

Overall, these improvements to the IDR program aim to provide much-needed relief to borrowers and correct past errors in payment counting, leading to automatic debt cancellation for many eligible borrowers.

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