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4 Big Questions About Biden’s Sweeping Fixes to Income-Driven Repayment

In April 2022, President Biden announced a sweeping initiative to fix what advocates have called a “broken” repayment system for student loan borrowers in income-driven repayment programs. The Department of Education estimates that tens of thousands of borrowers may quickly get their loan balance forgiven under the new changes, and millions more will advance their progress towards their repayment terms.

The Education Department quickly published general guidance about the initiative, calling it an “IDR Adjustment.” According to this guidance, the Department will be able to count many more loan periods towards a borrower's repayment term, bringing millions of borrowers closer to student loan forgiveness. But several important questions remain unanswered.

Background: How IDR programs worked under the original framework

Income-driven repayment (IDR) is not a single repayment plan. Rather, it is a term that encompasses a collection of individual plans, each of which uses a formula tied to the borrower’s income and family size to determine their monthly payment amount for their federal student loans. IDR plans include:

  • Income Contingent Repayment (ICR) is the oldest of the programs, first enacted in 1994.
  • Income Based Repayment (IBR) plan, enacted in 2008.
  • Pay As You Earn (PAYE) followed in 2012.
  • Revised Pay As You Earn (REPAYE) plan came to be in late 2015.

After 20 or 25 years of repayment under an IDR plan, any remaining balance can be forgiven (after 2025, however, this type of loan forgiveness could be considered a taxable event to the borrower unless Congress extends or makes permanent the temporary tax relief that is presently in effect).

But only payments made under an IDR plan can be counted towards the repayment term. Payments made under non-IDR plans and periods of nonpayment — including grace periods, forbearances, default, and most deferments — do not count.

Historically, consolidating loans could mess up a borrower’s progress towards loan forgiveness. Under the original IDR framework, consolidation results in a new loan, which restarts the borrower's repayment term — effectively erasing any progress towards loan forgiveness.

Biden’s fix to IDR programs: What we know

According to the Department of Education’s current published guidance, the Biden administration’s initiative to fix IDR will allow borrowers to get a one-time adjustment. This way, many past loan periods that otherwise couldn't count towards their IDR loan forgiveness term can now be counted.

“[The Department of Education] will conduct a one-time account adjustment to borrower accounts that will count time toward IDR forgiveness, including any months in which you had time in a repayment status, regardless of the payments made, loan type, or repayment plan; 12 or more months of consecutive forbearance or 36 or more months of cumulative forbearance… [and] months spent in deferment (with the exception of in-school deferment) prior to 2013.”

The Department also indicates that it may count periods prior to loan consolidation and may count shorter periods of forbearance on a case-by-case basis.

But the broad guidance does not address more nuanced individual borrower situations, and several critical questions remain unanswered.

How far back can the Department of Education go in counting loan periods towards IDR loan forgiveness?

The Department of Education’s current guidance does not specify how far back in time it will go when counting student loan periods towards a borrower’s loan forgiveness term.

The lack of a retroactive date suggests that there may be no time limit. In fact, the Department’s current guidance specifically says, “Any borrower with loans that have accumulated time in repayment of at least 20 or 25 years will see automatic forgiveness, even if you are not currently on an IDR plan.”

Still, this raises questions. The Limited PSLF Waiver — a similar fix announced by the Biden administration that expired in October 2022 to address problems with the troubled Public Service Loan Forgiveness (PSLF) program — restricts eligibility to periods after October 2007, when PSLF was first enacted.

ICR — the first major IDR program — was first enacted in 1994, and IBR was not created until 2008. But unlike its guidance for the Limited PSLF Waiver, the Department does not explicitly state that it cannot count loan periods as far back as 2008 or 1994 or even earlier. 

How will the Department of Education handle consolidation of loans with multiple, overlapping payment histories?

For some borrowers seeking relief under the IDR Adjustment, consolidation via the federal Direct consolidation loan program may be required. According to the Department of Education’s current guidance, “If you have commercially held FFEL loans, you can only benefit from the IDR account adjustment if you consolidate before we complete implementation of these changes, which is estimated to be no sooner than Jan. 1, 2023.”

The Department's current guidance indicates that it can count periods of repayment prior to consolidation towards a borrower's IDR repayment term under the IDR Adjustment. This is significant, given that consolidation restarted a borrower's repayment term under the IDR program's original framework.

But the Department has not made clear how, exactly, it will count pre-consolidation payments. For the Limited PSLF Waiver announced in October, the Department indicated that “Your consolidation loan will be credited with at least the largest number of payments on the loans that were consolidated,” based on the underlying loans’ repayment history. The Department has not yet confirmed that this will also be the case for the IDR Adjustment.

Will the Department of Education count deferment and forbearance periods prior to consolidation?

As previously noted, the Department of Education says that certain periods of deferment and forbearance can be counted towards a borrower’s IDR loan forgiveness term. But the Department’s specific language regarding consolidation raises questions.

The Department’s current guidance says, “Any time in repayment prior to consolidation on consolidated loans” can be counted under the IDR Adjustment.

While the Department says elsewhere in the guidance that applicable periods of deferment and forbearance will be counted under the IDR Adjustment as if the borrower was in repayment, the Department’s choice of language – “time in repayment” – when describing what it will count prior to consolidation raises questions about whether it will, in fact, count periods of deferment and forbearance before a consolidation loan was disbursed.

Will Parent PLUS loans be eligible for the IDR adjustment?

As a general rule, Parent PLUS loans are ineligible for IDR plans. However, borrowers who consolidate their Parent PLUS loans via the federal Direct consolidation loan program can repay that Direct consolidation loan specifically under the ICR plan (but not any other IDR plan).

The Department of Education’s current guidance is silent about Parent PLUS loans. It is unlikely that non-consolidated Parent PLUS loans would be eligible for the IDR Adjustment, given their general ineligibility for IDR programs.

Direct consolidation loans that repaid Parent PLUS loans may benefit from the IDR Adjustment. Still, loan periods on individual Parent PLUS loans prior to consolidation may not be counted, despite the Department’s statement that “any time in repayment prior to consolidation” can be counted under the IDR Adjustment.

Ultimately, the Department of Education will need to clarify how it will handle Parent PLUS loans when implementing the IDR Adjustment so that Parent PLUS borrowers know where they stand.

What can borrowers do?

The Department of Education is in the early stages of rolling out the IDR Adjustment, and further guidance may be released in the coming weeks or months. Borrowers can review the current guidance here — and keep in mind, it may be updated periodically.

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