WASHINGTON, DC – JUNE 18: U.S. President Joe Biden speaks during an event in the East Room of the White … (+)
A key student loan forgiveness opportunity from the Biden administration is coming to an end. And for some borrowers who must take the crucial step of consolidating their loans in order to qualify, the window to act is quickly closing.
The IDR Account Adjustment, one of the Biden administration’s most successful “targeted” student loan forgiveness efforts, has already resulted in at least $51 billion in student debt forgiveness for more than ‘one million borrowers. The temporary initiative is designed to address long-standing administrative problems with income-driven repayment plans, including poor recordkeeping and harmful forbearance practices. The initiative may also benefit borrowers seeking Public Service Loan Forgiveness, a separate but related student loan forgiveness program designed to benefit nonprofit and public workers.
But some borrowers must consolidate their student loans through a federal program in order to receive or maximize the benefits available through account adjustment. And the deadline to apply is June 30.
How Student Loan Forgiveness Works in Account Adjustment
The IDR Account Adjustment allows the Department of Education to credit borrowers with student loan forgiveness for past periods that may not have been taken into account under prior IDR and PSLF rules . The Biden administration implemented this temporary initiative to address historical issues related to the IDR and PSLF.
“If you are in an IDR plan or working toward PSLF, the remaining balance of your loan is forgiven once you have made the required number of payments,” the Department of Education explains in published guidance. Typically, a borrower becomes eligible for student loan forgiveness after 20 or 25 years under IDR plans, or after 10 years under PSLF.
“In the past, there were various reasons why certain months were not credited toward loan forgiveness, for example, months where you were in a payment plan that was not eligible,” explains the ministry. “With this adjustment to the number of payments, we will change whether certain payments or months are credited toward your loan forgiveness.”
Borrowers who receive enough IDR or PSLF credit to qualify for loan forgiveness may be eligible for automatic discharge as a result. Other borrowers will not be eligible for immediate student loan forgiveness, but will move closer to discharge eligibility (and reduce their remaining repayment term) through retroactive credit.
Borrowers seeking loan forgiveness through IDR or PSLF may need to consolidate their account to adjust their account.
Federal student loans held by the government are eligible for IDR account adjustment and can automatically receive many benefits. Federal student loans held by the government include all direct loans, as well as certain FFEL program loans that have been assigned or transferred to the U.S. Department of Education.
“ED will make an adjustment to IDR eligible payments for all William D. Ford Federal Direct Loan (Direct Loan) Program loans and government-owned Federal Family Education Loan (FFEL) program loans federal,” indicates the ministry’s directives.
But borrowers with other types of loans should consolidate through the federal Direct Consolidation Program in order to qualify for the IDR account adjustment. In particular, borrowers with commercially held FFEL loans, as well as those with Perkins or HEAL loans, should consolidate. In May, the Biden administration belatedly extended the consolidation deadline, which had expired on April 30. The new consolidation deadline is June 30.
Although the consolidation process itself can take a month or two (and sometimes longer), borrowers simply need to apply to be consolidated before the June 30 deadline to be timely for the purpose of IDR account adjustment. The consolidation request can be submitted online at StudentAid.gov.
The Ministry of Education plans to complete the adjustment of accounts by September, when the initiative will end.
Other borrowers may want to band together for student loan forgiveness benefits
But it’s not just FFEL business borrowers, or those with HEAL or Perkins loans, who may need to consolidate before the June 30 deadline to receive the student loan forgiveness benefits of the IDR Account Adjustment . Here are some other reasons why some borrowers might consider consolidating their loans through the Direct Loan program before the June 30 deadline:
- Only direct federal student loans are eligible for PSLF. So borrowers with any of them FFEL program loans seeking loan forgiveness through PSLF should be consolidated into the Direct Loan program, even if their FFEL loans are already held by the Department of Education. Borrowers who pursue PSLF Also must certify their employment to receive loan forgiveness credit.
- Borrowers who have multiple federal student loans with very different repayment histories may also consider direct loan consolidation before June 30, even if their existing student loans are already direct loans. Indeed, under the IDR account adjustment, “assuming your repayment history overlaps for each loan, the consolidation loan will be credited with the longest repayment term of the consolidated loans,” according to the guidelines of the department.
- Parent PLUS loans are not eligible for IDR plans, but they can if consolidated into a direct consolidation loan, although with some significant (and sometimes unfavorable) restrictions, including ineligibility for some of the options Most affordable IDRs. It is important to note that Parent PLUS loans can receive IDR or PSLF credit as part of the IDR account adjustment, provided other eligibility criteria are met. However, whether Parent PLUS borrowers should consolidate is a case-by-case question. “You may or may not wish to consolidate, depending on how long your oldest loan has been repaid,” the department says in its guidance.
Legal Challenges Targeting Account Adjustment and IDR
Last month, a federal appeals court upheld the dismissal of a legal challenge to the IDR account adjustment. Had the challenge been allowed to proceed, it could have blocked the student loan forgiveness benefits associated with the initiative. The challengers indicated they were exploring options for a new appeal. But so far the challenge remains rejected.
Meanwhile, two legal challenges are underway aimed at blocking the Biden administration’s Value Education Savings Plan. SAVE is a new IDR option that can offer lower payments, interest subsidies, and faster forgiveness of student loans in some cases. If SAVE is canceled, this will not necessarily result in the IDR account adjustment being blocked. However, removing SAVE could make repayment more costly for borrowers who must remain in IDR to continue progress toward loan forgiveness.