What you need to know:
- On April 19, 2022, U.S. Department of Education announced an IDR Waiver program to “remedy years of administrative failures [affecting] certain borrowers in IDR plans”.
- Borrowers with more than 12 months of consecutive forbearance or more than 36 months of aggregate forbearance will receive credit for these months of paused payments towards PSLF and IDR forgiveness plans.
- The Department will make a one-time account adjustment to qualifying payments under the IDR program to include payments made under ANY repayment plan. Payments made prior to consolidation will also count. It is currently unclear if this applies to all payments ever or only those made after a specific date.
- All deferments before 2013 besides in-school deferment will count towards IDR forgiveness.
- Some borrowers who have loans that did not benefit from the federal student loan pause will need to take action before January 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.
We expect a formal FAQ on the Department of Education website in the near future. We will update this article regularly with how the administration plans to implement these promises, so you can benefit from and qualify for the IDR waiver.
What is the IDR waiver?
The Department of Education has already enacted a Public Service Loan Forgiveness (PSLF) program Waiver. Under this program, 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 to take advantage of this benefits before January 1, 2023.
Why the IDR waiver includes both PSLF and non-PSLF borrowers
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 which case, you need to file a complaint with the FSA Ombudsman to review your situation.
Deferment before 2013 also counts at least for IDR payment credit, 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.
Note that we are still trying to verify whether or not the Department will be granting credit towards PSLF for deferments before 2013. They did not specifically mention that deferment would count towards PSLF, so we await further guidance. If it does count, and you were in residency deferment from 2008 to 2012, you just got an additional four years of credit added on to your PSLF count.
We also are still trying to confirm what this means for deferments after 2013.
Payments made under any student loan repayment plan now qualify
The PSLF waiver already provides credit for all types of payments. This relief is just expanding to include IDR borrowers.
The IDR waiver proposes to give credit to borrowers for any repayment plan they have used towards IDR forgiveness.
What’s unclear at the time of publication is will borrowers who made payments before the IBR overhaul in 2007 benefit? Or will those who made payments before 2007 benefit? Or is there a different cutoff date?
Depending on the final rules, a borrower who used the Extended plan could now expect to have all of her decades of monthly payments count towards a program like Income Based Repayment, which forgives loans after 25 years of payments.
We will update the article accordingly when we get more detail.
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 at least the loan with the most amount of monthly credit applied to their overall consolidation loan.
If that happens, then many borrowers would be able to consolidate older loans along with graduate degree loans and get much faster credit towards forgiveness overall.
Who needs to take action: Borrowers with certain types of FFEL loans
Borrowers with 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. StudentAid.gov website, then you have this kind of student loan, and you need to pay close attention to receive credit under the IDR waiver.
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 a 25-year repayment option such as IBR, ICR or REPAYE.
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 also receive at least three years of additional credit toward IDR forgiveness.”
Saying “at least three years of additional credit” feels like a huge understatement depending on the final published rules of the program.
We still have to wait for the formal FAQ. But if you give credit for ANY repayment plan and ALL forbearance that lasted longer than 36 months, then presumably millions of borrowers could qualify for immediate cancellation.
At least a million would meet eligibility requirements right away. And unlike the PSLF Waiver, many borrowers would not need to apply directly to have these benefits applied.
However, borrowers with commercially held FFEL student loans will not receive these benefits unless they consolidate before the IDR waiver deadline, which appears to be January 1, 2023.
Why would the Department not announce this massive cancellation proudly? Either they’ll come out with disappointing guidance making it narrower than their announcement suggests or perhaps they’re unaware of how many people this will help. Alternatively, they want to hide the cost of this waiver for fear of legal challenge.
Could the IDR waiver be subject to legal challenge?
The 118th Congress is scheduled to be sworn in on January 3, 2023. This IDR waiver could bring meaningful relief to millions. However, it also appears designed to deliver as much relief as possible before a potential change of control of Congress or removal of the public health national emergency.
The PSLF waiver did not face substantial 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. Additionally, the PSLF waiver is limited to a particular class of borrowers, who must take action and apply to receive additional credit, thus limiting its cost and limiting the attention drawn to it.
However, the IDR Waiver seems like it could be far more broadly applied to millions of borrowers in a more automated fashion. Perhaps over a million borrowers could see their loans cancelled depending on how they count credit towards IDR, and as many as 4 million or more could receive this benefit if they knew how to apply for it.
Presumably borrowers might also be able to consolidate loans with different numbers of payments to get a higher count towards their loans overall. So, the benefit to borrowers (and cost) could be significantly higher than that of cancelling loans for everyone who is immediately eligible.
Observers expect broad student loan cancellation would undoubtedly face legal obstacles. This IDR waiver could potentially accomplish a very large amount of debt cancellation. Far more than the administration is estimating (pending the formal guidance being released, which could confirm or deny this).
We will of course help borrowers optimize their loan repayment strategies based on whatever happens. That said, we want to wait and see the details before getting too excited. Then, we’ll share next steps to get the most out of student loan forgiveness you might qualify for.