With the Supreme Court hearings on President Biden’s initiative to forgive up to $20,000 in student loans per borrower kicking off on February 28, millions of Americans are anxiously waiting to find out what will become of their college debt.
And while the fate of Biden’s debt relief plan is still very much still up in the air, federal student loan borrowers should take comfort in knowing that there are other ways to have their loans forgiven — no matter what SCOTUS decides.
Income-Driven Repayment (IDR) plans and Public Service Loan Forgiveness (PSLF) both forgive remaining student debt after a certain number of years — and a one-time account adjustment is coming soon to help eligible borrowers get their debt wiped away even sooner.
The Department of Education (ED) offers four different IDR plans to federal student loan borrowers: Income-Contingent Repayment (ICR), Income-Based Repayment (IBR), Pay-As-You-Earn (PAYE), and Revised Pay As You Earn (REPAYE) Program.
After a borrower has been enrolled in an IDR for 20-25 years, any remaining debt will be forgiven. In the meantime, these plans often make student loan repayment more affordable, since the monthly payment for IDR plans caps borrowers’ monthly payments at 10-15% of their discretionary income.
Most federal student loan borrowers can qualify for an IDR plan — although in order to be eligible for PAYE and IBR plans, borrowers must meet certain financial hardship criteria.
The one-time account adjustment will be a major boost for millions. But that’s not all borrowers have to look forward to: in January, ED announced an outline for a new IDR plan that would make repayment more affordable than ever before. The proposed plan — which ED expects to finalize and implement later this year — includes benefits like:
- Monthly payments for borrowers with only undergraduate loans would be capped at 5% of discretionary income. Payments for borrowers with only graduate school loans would be capped at 10%, and borrowers with both undergraduate and graduate loans would pay a weighted average between 5% and 10%
- Monthly required payments would drop to $0 for borrowers whose annual income is less than $32,800
- Borrowers whose original loan balance was less than $12,000 would qualify for forgiveness after just 10 years
ED offers PSLF to federal student loan borrowers employed in the nonprofit and public service sectors. The program is designed to forgive any remaining federal student debt after a borrower has made 120 monthly payments while working full-time at an eligible employer.
Launched in 2007, confusing eligibility requirements and unfair review practices resulted in the program achieving minimal impact for more than a decade. But significant efforts have been made in recent years to make PSLF more accessible, including a limited-time waiver that saw more than 200,000 borrowers get their debt forgiven in full between 2021 and 2022.
Permanent improvements to the program are scheduled for implementation in July 2023, which will clarify eligibility requirements and ease rules for qualifying payments.
About the one-time account adjustment
In July 2023, ED will issue an account adjustment to grant retroactive IDR credit to all federal student loan borrowers and PSLF credit to borrowers who qualify for PSLF.
The account adjustments aim to help borrowers make up for past payments that could have otherwise counted towards fulfilling the requirements to receive IDR or PSLF forgiveness. Credit will be granted for:
- Time spent under any repayment status, regardless of the payments made, repayment plan, or loan type (note: Parent PLUS Loans qualify for IDR credit, but not for PSLF credit)
- Forbearance periods of 12 or more consecutive months or 36 or more cumulative months
- Time spent in deferment prior to 2013 (except for in-school deferment)
- Time spent in deferment after 2013 while under a active duty, economic hardship, or cancer treatment deferment status
- Payments made before consolidating other loans into a federal Direct Consolidation Loan
Borrowers don’t have to be currently enrolled in an IDR plan to be able to receive IDR credit through the account adjustment. However, borrowers must be enrolled in an IDR plan in order to receive IDR credit for any payments they make after the adjustment is administered in July — so borrowers wishing to switch to an IDR plan should plan to apply in the coming months.
Additionally, if a borrower has loans that are backed by ED but are commercially managed (including FFEL, Perkins, HEAL, or other non-Direct Loans), they must consolidate via a Direct Consolidation Loan before May 1, 2023 in order to be eligible.
The same rules apply to the PSLF credit account adjustment: borrowers must have federal student loans held by the ED, and consolidate any commercially managed, federally backed loans before May 1, 2023. It’s also recommended that borrowers submit a PSLF form before July 1, 2023 if they believe they qualify for the program but haven’t yet applied for it.