On July 14, a significant number of longtime student loan borrowers, totaling 804,000 individuals, received the good news that the Education Department would forgive their remaining debt, amounting to $39 billion. This move comes as a part of the income-driven repayment (IDR) account adjustment program, first introduced in April 2022 to rectify past issues within the IDR system. The program aims to count more past repayment periods towards IDR forgiveness, bringing many borrowers three years closer to full forgiveness, and some will see their loans completely forgiven.
The decision was met with approval, and Department of Education Under Secretary James Kvaal expressed that it was crucial to uphold the promises made to borrowers who had diligently completed decades of repayment. With more than 4.4 million borrowers having consistently repaid their loans for over 20 years, and 2.3 million of them never having defaulted or been delinquent, the IDR account adjustment forgiveness will provide much-needed relief.
Unlike President Joe Biden’s up-to-$20,000 student debt cancellation plan, which was hit back down by the Supreme Court, the IDR account adjustment has not faced any legal challenges since its introduction, making future roadblocks unlikely, according to Mike Pierce, executive director of the Student Borrower Protection Center.
The IDR adjustments are planned to be made in waves, with the Education Department notifying recipients about every two months. The next announcement is expected by mid-September. The department intends to apply the account adjustment by the end of 2023 to all borrowers who qualify for forgiveness based on their past payments, while other borrowers will receive at least three additional years of credit toward IDR loan forgiveness in 2024.
To determine eligibility for loan forgiveness under the IDR account adjustment, borrowers are advised to calculate their past payments. Generally, borrowers with undergraduate loans qualify if they have made at least 240 monthly student loan payments, while those with certain graduate loans need at least 300 payments.
The account adjustment takes into account various periods, including any time a borrower was in repayment, periods of forbearance, deferment, and repayment before loan consolidation. Defaulted months will generally not be included, except for borrowers who enroll in the temporary Fresh Start program.
The loan forgiveness process will be automatic for most eligible federal borrowers with older direct loans, federally held Federal Family Education Loan Program (FFELP) loans, and parent PLUS loans. However, commercially managed federal loans will require consolidation to qualify for forgiveness.
To prepare for the IDR account adjustment, borrowers are encouraged to update their contact information with Federal Student Aid (FSA) and servicer accounts. Additionally, consolidating commercially held federal loans and newer parent PLUS loans before the end of 2023 will ensure eligibility for forgiveness.
Those eligible for Public Service Loan Forgiveness (PSLF) will also benefit from the account adjustment, receiving IDR loan forgiveness after just 10 years or 120 eligible payments. PSLF-eligible borrowers with direct loans will be automatically covered, while those with FFELP loans must consolidate them into a direct consolidation loan before 2024.
Now, it is essential for borrowers to check their state’s tax policy, as some states treat forgiven student loans as taxable earned income. If concerned about a state tax bill, borrowers can opt-out of loan forgiveness within 30 days of receiving notice about the IDR account adjustment.
As borrowers gear up for student loan payments resuming in October, the IDR account adjustment brings much-needed relief to longtime borrowers, offering a light at the end of the tunnel for those struggling with student debt.
