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The Department of Education announced last week that borrowers can have more time to make the most of a serious Biden administration initiative to forgive student loans.
The program, called IDR Account Adjustment, can speed progress toward paying off debt under income-driven repayment plans by taking credit for past loan terms that may not have been eligible before. For some borrowers, this may end up in immediate debt relief—and in accordance with the newest data, nearly 1,000,000 borrowers have had their loans forgiven. For others, this system can shorten the time remaining on 20- or 25-year debt repayment under IDR plans.
The adjustment may profit borrowers looking for public service debt forgiveness. PSLF can provide relief in as little as 10 years for borrowers pursuing careers within the nonprofit or public sector. More than 800,000 borrowers have now received debt forgiveness through PSLF, partly as a result of the account adjustment advantages. Parent PLUS borrowers may receive advantages under the account adjustment.
While some borrowers will mechanically profit from this system, others might want to take specific actions. With the newest extension announced last week, there may be now more time to achieve this. Here’s a breakdown of what this implies for borrowers.
More time for FFEL borrowers to profit from the scholar loan forgiveness initiative
The IDR account adjustment advantages apply only to federal student loans held or administered by the federal government. This includes all direct federal student loans in addition to some FFEL program loans which will have been privately issued but have since been assigned or transferred to the Department of Education.
But commercially held FFEL loans, school-held Perkins loans, and other federal student loans not administered by the department (resembling HEAL loans) can only qualify for the IDR account adjustment in the event that they are consolidated right into a Direct Loan. The deadline for consolidation was April 30. But the Biden administration’s recent extension pushes that deadline back to June 30 — giving FFEL and Perkins loan borrowers about eight more weeks to use for a Direct Consolidation loan.
More time to maximise student loan forgiveness for IDR plans
But it is not just FFEL and Perkins borrowers who wish to consolidate their loans through the Direct Loan program. Some Direct Borrowers will probably want to do that as well. That’s since the IDR Account Adjustment offers some additional consolidation advantages.
Under previous IDR rules, only time spent in an IDR plan counted toward the 20- or 25-year student loan forgiveness period. And borrowers who had already accrued IDR credits would erase that progress in the event that they consolidated those loans. But under the IDR Account Adjustment, borrowers can receive IDR credits for nearly any past repayment period under any plan, in addition to certain forbearance and forbearance periods. And borrowers who consolidate loans with different repayment histories can actually maximize existing IDR credits on the brand new Direct Consolidation Loan in the event that they apply for consolidation by the prolonged June 30 deadline.
Under the IDR account adjustment, “the consolidation loan will be credited with the longest repayment period of the consolidated loans, provided your repayment history overlaps on each loan,” says the Department of Education. Orientation aid. “For example, let’s say you had 50 months to repay one subsidized Stafford loan and 100 months to repay another subsidized Stafford loan. If you were to consolidate those loans, you would be credited with 100 months of repayments on the new direct consolidation loan.”
The extension of the consolidation period until June 30 gives borrowers more time to make the most of this chance. Starting July 1, borrowers who consolidate loans with existing IDR loans and enroll in the brand new SAVE plan will receive the Weighted average the IDR credit on the underlying loans – not the best IDR credit amount based on the loan with the longest repayment history.
More time to maximise PSLF advantages through account adjustment
Just like IDR student loan forgiveness, the account adjustment also allows borrowers to maximise the PSLF credit in the event that they consolidate their loans by the brand new June 30 deadline. The Department of Education would credit the brand new direct consolidation loan with the best PSLF loan amount based on the underlying loan with the best qualifying payment number.
“If you apply for consolidation by June 30, 2024, the adjustment will count the repayment periods of your loans prior to consolidation toward IDR forgiveness and (for eligible borrowers) PSLF,” the department’s guidance states. “This is different from the previous approach, where consolidating your direct loans reset your payment count to zero.” According to the department, PSLF payment counts will temporarily reset to zero upon consolidation. However, they can be updated again afterward to reflect the advantages of the IDR account adjustment, provided the borrower applied for consolidation by June 30.
Starting July 1, Direct Consolidation Loans used to repay federal student loans with an existing PSLF balance will receive the weighted average of that PSLF balance, somewhat than the best amount based on the loan with essentially the most qualifying payments.
Borrowers applying for PSLF must moreover provide proof of employment using the PSLF online assistance tool. PSLF processing is currently paused, but borrowers may proceed to submit employment certifications throughout the temporary pause. The Department of Education will resume PSLF processing in July.
More time for Parent PLUS borrowers to use for student loan forgiveness
Importantly, Parent PLUS borrowers may profit from the IDR account adjustment. And the Biden administration’s extension gives Parent PLUS borrowers more time to take motion.
Parent PLUS loans are generally not eligible for IDR plans, but when consolidated right into a Direct Consolidation Loan, they might qualify for income-driven repayment. ICR plans are typically costlier than other IDR options, but generally is a lifeline for low-income parents.
Under the IDR account adjustment, time spent repaying Parent PLUS loans (in addition to some deferment and forbearance periods) can count toward the 25-year IDR loan forgiveness period and, for qualified borrowers, toward PSLF. Many Parent PLUS borrowers would wish to consolidate their loans through the Direct Loan program to proceed repaying their loans under an IDR plan, as unconsolidated Parent PLUS loans usually are not eligible for IDR. However, Parent borrowers ought to be cautious when consolidating Parent PLUS loans with non-Parent PLUS loans, as this might limit the brand new Direct Consolidation Loan to ICR only.
Implementation of student loan forgiveness postponed until September
The consolidation deadline isn’t the one IDR account adjustment date that the Biden administration has postponed. The planned implementation date has also been pushed back from July to September.
“The payment count adjustment is not expected to be fully implemented until September 2024, rather than July,” the Department of Education said in a recent statement. At that time, borrowers should have the opportunity to view their IDR progress (and determine how much time they’ve left until they qualify for student loan forgiveness) through a brand new dashboard on StudentAid.gov.
