I Got My Student Loans Ready For Joe Biden’s Big Income-Based Forgive-A-Thon And You Should Too

Last week we brought you some really nifty news about a new rule from the US Department of Education that has the potential to finally rassle the student loan debt monster to the ground — at least for millions of borrowers, because there’s only about a million and two types of loans, and not every borrower will qualify.

But for borrowers in the “REPAYE” income-driven repayment plan — which includes those who consolidate loans to get into that plan — the new rules will help them reduce the amount they pay monthly, and will also get them on track to seeing the balance of their debt forgiven after they’ve made payments for a given amount of time. Most of the details are in our article last week, or you can go straight to the federal horse’s mouth, too.

MOAR! Did Joe Biden Just Fix Student Loan Debt Going Forward? Mayyyyybe!

So why are we bringing this all up again? Dear Reader, it is because we went and consolidated our existing loans to get into the REPAYE plan, and as we did that (it’s remarkably easy; go to studentaid.gov for information), we found some pretty cool news that we missed when it was announced last year, which will help a lot of borrowers get their loan balances forgiven sooner. This is, remember, separate from Biden’s plan to forgive up to $20,000 in student debt outright, which is being held up in the courts.

Loan Forgiveness Was There All Along! You Just Had To Click Your Heels! (And Make Payments For 20-25 Years)

Here’s the dealio: For most borrowers in income-driven repayment (IDR) plans, once you’ve made a certain number of payments, the balance of your loan will be forgiven. For REPAYE plans, it’s 20 years for undergraduate debt, or 25 years for graduate debt — and as we noted last week, the changes to the REPAYE plan mean many low-income borrowers won’t have monthly payments at all. Once someone gets their IDR loans forgiven, they may need to pay taxes on the amount that’s forgiven. Better than being in debt forever.

Honestly, I thought I would be paying off my student loans well past whenever I die, because my loan servicer would track me down in some astral plane I don’t even believe in.

I should also note that these forgiveness terms are different from yet another program, the Public Service Loan Forgiveness (PSLF) program that was supposed to offer accelerated loan forgiveness to people who took jobs in public service and teaching and the like. As you may recall, when Betsy DeVos was Education secretary, the department used every excuse in the world to deny and slow-walk applications, preventing people from getting the loan forgiveness they’d been promised. The Biden administration fixed that mess, too, correcting the records for “over 236,000 teachers, nurses, veterans, government employees and other public service workers” already.

Student Loan Servicers Screwed Borrowers? See Our Shocked Face.

But here’s the bit we hadn’t known about until we started consolidating our own loans for REPAYE: Back in April 2022, the Education Department announced it would be making up for some very bad behavior on the part of a lot of loan servicers by doing a one-time adjustment to the amount of time that borrowers need to make payments.

You see, the Education Department requires loan servicers to inform borrowers of all their repayment options so their loans won’t go into delinquency, including the availability of income-driven repayment plans (IDR). But a review of actual practices found that instead of doing that, a lot of loan servicing companies steered borrowers who couldn’t afford to make payments to put their loans in “forbearance,” which means that the borrowers didn’t have to make monthly payments, but the loans continued to accumulate interest, which rolled into the total balance owed.

This is where I raise my hand and say “Oh yeah, that was me! Nobody told me anything about IDR plans until I applied for one a few years ago! That’s why my student loan balance went from like $__K when I finished grad school to around $___K now!”

Please Release Me, Let Me Go

So here’s what the Education Department is doing about it, which we missed the first time around: It’ll be doing a one-time adjustment for qualifying loans (including the PSLF program) that are in an income-driven repayment plan, and apply the months people spent in forbearance, or months where they even made a partial payment, to the time they have left on their loans. It’s like a revision for time served. The initial phase of the policy was expected to wipe out the loan balances of some 40,000 borrowers who’d been making payments for 20 or 25 years but whose payments hadn’t previously counted toward IDR forgiveness. And roughly 3.6 million Americans are expected to have their IDR payment periods cut by at least three years. The review and adjustment will also apply to the public servant loan forgiveness borrowers, too. Best of all? If you consolidate your loans into a qualifying IDR payment plan, the adjustment will apply to your loans as well, even if you haven’t already been in an IDR plan previously.

According to the Education Department, the IDR and PSFL loan adjustments will apply to:

• Any month in which a borrower was in a repayment status, regardless of whether payments were partial or late, the loan type, or the repayment plan;
• Any month in which loans were in an eligible repayment, deferment, or forbearance status prior to consolidation;
• Months while a borrower spent at least 12 months of consecutive forbearance;
• Months while a borrower spent at least 36 cumulative months in forbearance; and
• Any month spent in deferment (exception for in-school deferment) prior to 2013.

I called the Federal Student Aid customer service line (800-433-3243) with a question about my own consolidation application earlier this week, and when the very competent agent explained that, well, you know me: I teared up a bit. I spent a lot of time during my own lean years in forbearance, and I was terrified that I’d be wiped out by the debt. Even when I finally got onto an IDR plan a yew years ago, I was pretty annoyed that I hadn’t known I could’ve been on IDR the whole time, getting closer to forgiveness.

So yeah, I’m one of the people who’ll benefit from this adjustment, though I don’t yet know by how much. (More on that in a moment.)

How Do I Get A Piece Of The Action?

As Forbes explains, this adjustment will make IDR loan forgiveness available far more widely than under previous policy:

Under the original IDR framework, generally only time spent in an IDR plan can count towards loan forgiveness (with some rare exceptions, like an economic hardship deferment). But under the IDR Account Adjustment, the Education Department will be able to retroactively credit borrowers with time towards the 20-year or 25-year student loan forgiveness thresholds, even for borrowers who haven’t been in an IDR plan. The Education Department says it can count any past period of repayment, along with certain broad categories of prior deferments and forbearances, including for periods prior to loan consolidation (historically, consolidation would restart the clock on a borrower’s IDR term).

That last bit was actually what I’d called the customer service line about, because the consolidation application still has now-obsolete boilerplate language warning that any previous payments won’t count. The one time I read the terms and conditions, and I scare myself.

If you already have a Direct Loan through the Education Department, the adjustments will be done automatically by July of 2023, Forbes ‘splainers. Also too:

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.

Here, have a linky to the consolidation application, and if you aren’t sure whether your loans qualify for the adjustment, check with your loan servicer or with the Department of Education at studentaid.gov.

Update/Clarification: On my lunch break, I called Federal Student Aid to double check, and the one-time adjustment does apply to all direct IDR repayment plans, not only the revised REPAYE plans that we wrote about last week. That’s a different improvement to loan repayment.

Good luck to us, huh?

[Department of Education / Dept. of Education / Studentaid.gov / Nerdwallet / Forbes / Forbes /Photo: Bryan Alexander, Creative Commons License 2.0]

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