WASHINGTON, DC – JUNE 18: US President Joe Biden speaks at an event within the East Room of the White … [+]
A key opportunity for the Biden administration to forgive student loans is expiring. And for some borrowers who must take a critical step to consolidate their loans to qualify, the window for motion is closing quickly.
The IDR Account Adjustment, certainly one of the Biden administration’s most successful “targeted” student loan forgiveness efforts, has already resulted in at the very least $51 billion in student debt forgiveness for greater than one million borrowers. The temporary initiative is designed to handle longstanding administrative problems with income-driven repayment plans, including poor record-keeping and harmful forbearance practices. The initiative might also profit borrowers searching for Public Service Loan Forgiveness, a separate but related student loan forgiveness program designed to profit nonprofits and public employees.
However, some borrowers might want to consolidate their student loans through a federal program to qualify for or maximize available advantages under the Account Matching Agreement. The application deadline is June 30.
This is how student loan forgiveness works as a part of account adjustment
The IDR Account Adjustment allows the Department of Education to credit borrowers with time toward student loan forgiveness for past periods that won’t have been accounted for under previous IDR and PSLF rules. The Biden administration implemented this temporary initiative to handle historical issues with IDR and PSLF.
“If you have an IDR plan or are working toward a PSLF, your remaining loan balance will be forgiven after you make the required number of payments,” the Department of Education explains within the published Orientation aidTypically, a borrower is eligible for student loan forgiveness after 20 or 25 years under IDR plans or after 10 years under PSLF.
“In the past, there have been a number of reasons why some months may not have counted toward debt relief – for example, months when you were on a payment plan that did not qualify,” the department explains. “With this payment count adjustment, we are changing whether certain payments or months count toward your debt relief.”
Borrowers who receive enough IDR or PSLF credits to qualify for debt forgiveness may receive automatic discharge in consequence. Other borrowers don’t qualify for immediate student loan forgiveness, however the retroactive credit brings them closer to relief eligibility (and shortens their remaining repayment time).
Borrowers searching for debt relief through IDR or PSLF may have to consolidate for account adjustment
Federal student loans qualify for the IDR account adjustment and may receive most of the advantages mechanically. Federal student loans include all direct loans in addition to certain FFEL program loans assigned or transferred to the U.S. Department of Education.
“ED will implement an adjustment of IDR qualified payments for all loans in the William D. Ford Federal Direct Loan (Direct Loan) program and the federally owned Federal Family Education Loan (FFEL) program,” the department’s guidelines state.
However, borrowers with other loan types would wish to consolidate through the Direct Federal Consolidation Program to qualify for the IDR account adjustment. Specifically, borrowers with commercially held FFEL loans, in addition to those with Perkins or HEAL loans, would wish to consolidate. In May, the Biden administration granted a belated extension of the consolidation deadline, which had expired on April 30. The latest deadline to consolidate is June 30.
While the consolidation process itself can take a month or two (sometimes longer), borrowers only need apply by June thirtieth to be in time for the IDR account adjustment. The consolidation request may be submitted online at StudentAid.gov.
The Department of Education expects to finish the account adjustment by September, at which point the initiative will end.
Other borrowers will want to consolidate to reap the benefits of student loan forgiveness
But it isn’t just borrowers of economic FFEL loans or of HEAL or Perkins loans who must consolidate by the June 30 deadline to reap the benefits of the IDR account adjustment related to student loan forgiveness. Here are just a few other the explanation why certain borrowers should consider consolidating their loans through the Direct Loan program before the upcoming June 30 deadline:
- Only direct federal student loans qualify for PSLF. Borrowers with any FFEL program loans eager about debt relief through PSLF would must be consolidated into the Direct Loan program, even when their FFEL loans are already held by the Department of Education. Borrowers searching for PSLF will Also must provide proof of employment so as to receive a loan to clear debts.
- Borrowers who’ve multiple federal student loans with significantly different repayment histories also needs to consider direct loan consolidation before June 30, even when their existing student loans are already direct loans. That’s because under the IDR account adjustment, “assuming your repayment history overlaps for each loan, the consolidation loan will be credited with the longest repayment period of the consolidated loans,” the department’s guidelines state.
- Parent PLUS loans don’t qualify for IDR plans, but can if consolidated right into a direct consolidation loan, albeit with certain essential (and sometimes unfavorable) limitations, including ineligibility for among the cheaper IDR options. Importantly, Parent PLUS loans can receive IDR or PSLF credits under the IDR account adjustment, provided other eligibility criteria are met. But whether Parent PLUS borrowers should consolidate is a really individual query. “You may or may not consolidate depending on how long your oldest loan has been repaid,” the department says in its guidance.
Legal challenges related to account adjustment and IDR
Last month, a federal appeals court affirmed the dismissal of a lawsuit difficult the IDR account adjustment. Had the lawsuit been allowed to proceed, it may need blocked the coed loan forgiveness advantages related to the initiative. The plaintiffs have indicated they’re exploring options for further appeal, but to this point the lawsuit has continued to be dismissed.
Meanwhile, two lawsuits are pending to dam the Biden administration’s Saving on a Valuable Education plan. SAVE is a brand new IDR option that may provide lower payments, interest subsidies, and faster student loan forgiveness in certain cases. Eliminating SAVE wouldn’t necessarily lead to blocking the IDR account adjustment. However, eliminating SAVE could make repayment dearer for borrowers who must remain within the IDR to proceed working toward loan forgiveness.
