February 1, 2023

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Big Student Loan Forgiveness Update As Education Department Clarifies Eligibility For One-Time Adjustment

The Education Department has updated formal guidance that appears to expand eligibility for a key, one-time federal student loan forgiveness and relief initiative that could benefit Parent PLUS borrowers.

Here are the details.

Biden Administration’s IDR Account Adjustment Will Lead to Student Loan Forgiveness

Last year, the Biden administration announced the IDR Account Adjustment, a one-time fix that will allow the Education Department to provide retroactive credit towards student loan forgiveness under Income Driven Repayment (IDR) plans.

IDR plans allow federal student loan borrowers to repay their loans according to formulas applied to their income and family size. After 20 or 25 years in an IDR plan (depending on the specific program), any remaining balance would be forgiven, although that loan forgiveness could be taxable.

Under the original IDR program rules, only time spent in an IDR plan counts towards a borrower’s repayment and loan forgiveness term. Most periods of non-payment, such as deferments and forbearances, don’t count, and loan consolidation can reset the clock. Many borrowers were not aware of this, and consumer advocates have long accused student loan servicers of improperly steering borrowers into costly forbearances or not properly tracking borrowers’ progress towards IDR loan forgiveness.

In response to these issues, the Biden administration is rolling out the IDR Account Adjustment. “I’m incredibly proud [of] the Biden-Harris team’s temporary changes” to key federal student loan forgiveness programs to improve access, said U.S. Secretary of Education Miguel Cardona last October.

Under the initiative, the Education Department “will conduct a one-time account adjustment to borrower accounts that will count time toward IDR forgiveness,” including the following periods:

  • Any months in a repayment status, regardless of the payments made, the type of federal loan, or the specific repayment plan;
  • 12 or more months of consecutive forbearance, or 36 or more months of total forbearance;
  • Any months spent in economic hardship or military deferments after 2013;
  • Any months spent in any deferment (except for in-school deferments) prior to 2013; and
  • Any time in repayment on earlier loans prior to consolidation of those loans into a consolidation loan.

According to Education Department guidance, “Any borrower with loans that have accumulated time in repayment of at least 20 or 25 years [under the IDR Account Adjustment] will see automatic forgiveness, even if you are not currently on an IDR plan.” Another three to four million borrowers will advance their progress towards eventual student loan forgiveness by several years as a result of the one-time adjustment.

Direct loan borrowers will see the adjustments automatically by July of 2023. Non-Direct loan borrowers, including FFELP borrowers, “should apply for a Direct Consolidation Loan by May 1, 2023, to get the full benefits of the one-time account adjustment,” according to the Education Department.

Borrowers working in public service careers (i.e., for certain nonprofit and public organizations) may also receive credit towards Public Service Loan Forgiveness (PSLF) under the adjustment.

Updated IDR Account Adjustment Guidance Good News for Parent PLUS Borrowers

Last month, the Education Department updated its published guidance on the IDR Account Adjustment to indicate that federal Parent PLUS borrowers on track for PSLF can also benefit from this initiative. Parent PLUS loans are a type of federal student loan issued to the parent of the undergraduate student. The parent, not the student or child, is the borrower for this type of loan.

“These changes will be applied automatically to all PSLF-eligible Direct Loans, including consolidated and unconsolidated parent PLUS loans,” says the updated guidance. This is a significant update, because unconsolidated Parent PLUS loans have typically not been eligible for any PSLF or IDR credit, including under the Limited PSLF Waiver, which ended last October. Unconsolidated Parent PLUS loans are not eligible for PSLF or IDR plans unless they are consolidated into a Direct consolidation loan, and time spent in repayment prior to Direct loan consolidation has historically not counted towards loan forgiveness for these borrowers.

“If you believe you might benefit, you should update your employment certification history to reflect all periods of public service employment,” advises the Education Department. Borrowers can start the process by using the online PSLF Help Tool.

Parent PLUS borrowers may still need to consolidate their loans via the Direct consolidation loan program, and apply for an IDR plan, in order to make continued progress towards student loan forgiveness beyond the credit received through the IDR Account Adjustment’s implementation. Currently, the only available IDR plan for consolidated Parent PLUS loans is Income Contingent Repayment (ICR), the most expensive IDR option. The Biden administration is developing a new, potentially more affordable IDR plan, but it is not yet clear if Parent PLUS borrowers would be eligible. More details should be released in the coming months.

Borrowers should carefully review the Education Department’s current guidance on the IDR Account Adjustment before taking action.

Further Student Loan Forgiveness Reading

Student Loan Forgiveness Could Be Big In 2023: Here’s What To Expect

The Student Loan Pause Is Actually Leading To Loan Forgiveness — Are Further Extensions Coming?

Supreme Court Takes Next Big Step In Student Loan Forgiveness Cases

23,000 Student Loan Borrowers Will Get $19 Million To Resolve Debt Relief Fraud Claims