Key Takeaways:
- The IDR Waiver account adjustment will occur by July 1 2023. Some borrowers will see their accounts updated sooner if the IDR Waiver would result in full forgiveness of their loans
- Continuous forbearance of at least 12 months or aggregate forbearance of 36 months now counts for IDR and PSLF, even pre-consolidation
- Any repayment plan can now count towards forgiveness, even pre-consolidation
- Most types of deferment now count towards forgiveness excluding in-school
- The IDR Waiver is like a backdoor PSLF Waiver conferring many of the same benefits
- Hundreds of billions in student loan debt could be discharged thanks to the IDR waiver
- Some borrowers need to take action before May 1, 2023, to qualify.
If you’re a student loan borrower paying back your student loans using an income-driven repayment plan (IDR plan), the Biden Administration’s IDR Waiver is a big deal. The Department of Education is using its broad authority over student loans due to the pandemic national public health emergency to provide extraordinarily generous changes to certain forgiveness programs that could get you out of student loan debt years sooner (or even immediately).
Millions of borrowers could receive hundreds of billions in student debt forgiveness under the IDR waiver. It could prove even more generous than President Biden’s student loan cancellation benefit. Let’s see why.
What is the IDR waiver?
The Department of Education enacted a Public Service Loan Forgiveness (PSLF) program Waiver. Under this program, which was announced October 2021 and expired at the end of October 2022, prior payments before consolidation count. Payments made under any repayment plan count, too, as long as you worked full-time for a non-profit or government employer during the period in question.
With the IDR waiver, the administration is trying to broaden that help to a much larger group of borrowers by giving credit towards IDR forgiveness for forbearance periods, some types of deferment and all types of repayment plans.
Like the PSLF waiver, we expect borrowers with commercially held debt with the Federal Family Education Loan program (FFEL) to need to consolidate. The deadline for consolidation to take advantage of these benefits is May 1, 2023. Due to potential legal challenges against the waiver, we would urge borrowers with commercially-held FFEL loans to consolidate immediately.
The IDR waiver includes borrowers working in the public and private sector
The PSLF waiver only applied to borrowers in the public sector or who used to work in the public sector.
The IDR waiver applies to all borrowers. In order to receive credit for PSLF under the IDR waiver rules, you must be employed at a qualifying employer when the Department of Education makes the account adjustment to your forgiveness credit.
For borrowers not pursuing PSLF, you can receive credit towards forgiveness programs like IDR forgiveness over 20 and 25 years.
For example, if you have paid on your undergraduate loans since 2006 and work in the private sector, you could consolidate before May 1 under the IDR waiver and receive up to 16 years of credit towards 20 year forgiveness under the REPAYE plan.
You would only need to pay for four additional years on an IDR plan, and your balance could be completely forgiven.
A physician who deferred her loans during residency for four years can get all 4 of those years counted towards the PSLF program now, thanks to the IDR waiver.
These examples show how the IDR waiver could help all types of borrowers regardless of employment status.
Deferment and Forbearance Now Broadly Qualifies for Forgiveness
PSLF and IDR borrowers would receive credit towards forgiveness if they were in more than 12 months of consecutive forbearance or 36 months of aggregate forbearance.
If you have less than 12 consecutive months of forbearance or 36 months or less of aggregate forbearance, then this credit would not qualify. In this case, you need to file a complaint with the FSA Ombudsman to review your situation.
Deferment before 2013 also counts for IDR and PSLF forgiveness, excluding in-school deferment. This is because the Department cannot identify who was in economic hardship deferment and who was not. So, they’re giving credit for all types of deferments.
For deferments after 2013, you needed to be in a specific type of deferments such as active duty deferment or economic hardship deferment. Most types of deferment will qualify without a time requirement as with the forbearance 12 months consecutive / 36 months aggregate rule.
Payments made under any student loan repayment plan now qualify
The IDR waiver gives borrowers credit for any repayment plan towards IDR forgiveness, even payments made prior to consolidation.
As an example, consider a borrower who has paid her loans under the Extended Repayment Plan since 2002. She would normally receive 0 credit towards IDR forgiveness since the Extended Repayment Plan is not income based.
But under the IDR waiver, she could get credit for all those payments, and either has her loans completely forgiven or be very close to forgiveness.
Related: How to know if a student loan consult is right for you?
Payments made before consolidation now qualify
Borrowers who made payments pre-consolidation can now get credit, too. We expect a similar process to the PSLF waiver, where borrowers can get credit for the loan with the most amount of monthly payments applied to their overall consolidation loan.
If that happens, many borrowers would be able to consolidate older loans along with graduate degree loans and get much faster credit toward forgiveness overall.
Who needs to take action: Borrowers with certain types of FFEL loans
Borrowers with commercially-held FFELP loans probably need to consolidate before the deadline to qualify for the IDR waiver.
This is because program requirements prevent the Department of Education from granting credit automatically on this type of loan.
If you were still required to make payments during the student loan payment pause despite your student debt showing up on the Federal Student Aid website, StudentAid.gov website, then you have this kind of student loan, and you need to consolidate to receive credit under the IDR waiver.
A lawsuit could block this benefit for borrowers with this type of loan, so you should consolidate immediately if you want to secure this IDR waiver benefit if you have commercially-held FFELP loans.
Will the IDR waiver result in immediate forgiveness for millions?
According to NPR, 4.4 million borrowers have been in repayment for at least 20 years. This is the minimum threshold to receive IDR forgiveness. Most of these borrowers would not qualify for Pay As You Earn. Therefore, most would probably have to seek forgiveness under the REPAYE rules, which allow for forgiveness after 20 years for undergraduate loans and 25 years for graduate loans.
According to the Department of Education, “several thousand borrowers with older loans will also receive forgiveness through IDR. More than 3.6 million borrowers will receive at least three years of additional credit toward IDR forgiveness.”
Saying “several thousand borrowers” and “at least three years of additional credit” is a huge understatement. We believe the Department is being cautious publicly on how much the program could save borrowers in case it were to draw legal opposition.
You should know that millions of borrowers could receive complete cancellation of their student loans thanks to the IDR waiver. Until 2026, any cancellation is free from any federal taxation as well. A handful of states (perhaps four) could impose state income tax, so consult with a tax advisor about this aspect.
Could the IDR waiver be subject to legal challenge?
The 118th Congress is scheduled to be sworn in on January 3, 2023. The PSLF waiver did not face resistance legally. This could be in part due to sympathetic stories from service members featured on programs such as 60 Minutes, who were denied benefits under the program.
Most of the benefits of the IDR waiver will be given out in 2023 under a new Congress. Could that Congress sue to block aspects of this program? That’s a serious possibility with the House of Representatives changing hands to the GOP.
We think borrowers with commercially-held FFEL loans have the most to lose, as a lawsuit could block their access to this program. Other borrowers can likely feel more secure knowing the PSLF waiver provided over $15 billion in benefits without succumbing to legal challenges.
Get the Most Out of the IDR Waiver for Your Situation
This IDR waiver could potentially accomplish a very large amount of debt cancellation. Some of that cancellation will be immediate, but much of it will also occur over the next several years as borrowers hit their 10, 20, and 25 year forgiveness counts depending on what program they’re eligible for.
While many borrowers will see their accounts updated in July 2023, if you could obtain forgiveness under the IDR waiver before then, your application could be processed much sooner.
For example, if forbearance and deferment along with your payments puts you above 120 months needed for the PSLF program, you could fill out the PSLF ECF form and check that you believe you qualify immediately. You could follow a similar process for 20 or 25 year IDR forgiveness, but with only a consolidation.
What’s clear is that the IDR waiver creates a massive number of opportunities for borrowers to save money, and most borrowers are unaware of the possibilities for savings if you understand all the rules.
If you need help optimizing your loan repayment strategy under the IDR waiver, we’d love to help. Just check out our paid consult service on that page. In many cases, our team of experts will find you a large multiple of our consult fee in projected savings.
Hi Travis, I benefited from the PSLF waiver which gave me 6 months of PSLF-eligible payment periods, but not across every loan. I was planning on consolidating the loans that did not get those months added to one of the loans that received an increase in count. With this new waiver, I have another 12 months (non-consecutive) that could be potentially counted (not across all loans again). FedLoan steered me into forbearance when I was able and willing to pay during a research year in med school (if I knew better about IDR plans). Should I hold off on consolidating to make it easier for ED to review my count or does it not really matter?
Does the 36 months of “aggregate” forbearance include credit for the 25 months in forbearance due to the COVID-19 payment pause? If so, this is an even bigger boon than it appears at first blush!
Hi Andrew, it seems like it will not, but we are waiting to confirm.
Hi Travis,
With the changes today and the potential counting of loans in forbearance even before consolidation towards forgiveness, will there be a potential tax bomb?
I have loans starting in 1984, went through years of repayment, deferment, forbearance for years, consolidated a few times, finally consolidated and entered PSLF in 2012. I’m hopefully optimistic the changes today may get my loans forgiven but I’m now concerned if they are forgiven using the 20 or 25 year timeframe, that they will be taxed. Any thoughts?
Thanks as always for the immediate writeup on current events, Lori Lee
Lori,
I’m not Travis by any means, but I read all of his student loan planner emails. I seem to remember reading there is no tax bomb for loans forgiven by 2025. Hope this helps relieve some of your anxiety.
Correct, no tax bomb until Dec 2025.
Hi Travis , how does the DOE distinguish the type of deferments before 2013 ? I had a mix of in in school and regular deferments. They all say DA , deferred . And is this counting toward PSLF ?
Hi Joann, in school will not count but other types will.
I was in residency forbearance for about 2 years, 2013-2015. Any indication of whether that will be counted? I don’t see wording from ED regarding the “mandatory” versus “discretionary” forbearance type.
Hi Nick, nothing yet we are waiting.
Hi Travis my daughter has completed all of the paperwork for the PSFL has had her loan since 2007 but they denied her IDR, this was about 2 months ago and she hasn’t heard anything since. She is and has been a public school teacher since 2007 and continues to make her payments but has taken advantage of the hold on the payments but she had to request it. We are totally confused about what the next step will be.
Thank you
Hi there, if you haven’t already you might consolidate and then reapply for the PSLF program at the same link. This is a case where we would recommend a consult with our team https://www.studentloanplanner.com/book.
Thanks for the info! I am waiting on my ECF to be processed for PSLF now that I was finally able to consolidate my FFELP loans knowing that the previous payments would count towards forgiveness. Even with the waiver I think I have only about 107/108 payments that qualify, until this new forbearance waiver was announced! With it I should have 150-160 months of payments when forbearances are added in. My biggest worry is that somehow the budget for the forgiveness will disappear before everything is processed. Have you heard anything about if the forbearance waiver will processed along side the PSLF waiver months or if they will be done separately? I’ve been employed full time in the same school district since January 2008 so I know the employment counts for it all.
Hi JJ, there’s no budget, it’s based on legal authority from the pandemic, if that gets invalidated then we assume everything would stop. But we expect changes will take at least a couple months.
Hello
Has the IDR waiver been blocked by court orders as Student Debt Relief program from President Biden?
Hi Arturo,
No the IDR waiver has not been blocked by courts.