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4 Ways to Leverage Nonpayment Periods for Student Loan Forgiveness

The Biden administration has approved over $140 billion in student loan forgiveness since 2021, according to the most recent data released by the Education Department. This relief was authorized under various existing student debt relief programs and addressed long-standing issues, many of which had previously been plagued by poor administering and dismal approval rates.

Two of the most popular student loan forgiveness programs — Public Service Loan Forgiveness (PSLF) and Income-Driven Repayment (IDR) — require years of payments before a borrower can qualify for relief. 

Borrowers pursuing PSLF must make the equivalent of 10 years’ worth of payments on eligible Direct federal student loans through specific repayment plans while working in qualifying public service roles. For IDR plans, loan forgiveness becomes available after 20 or 25 years in repayment (depending on the plan and loan type the borrower has). 

While Biden’s new SAVE plan can shorten the term to as little as 10 years for those who took out low loan amounts, there’s even better news: past periods of nonpayment can count toward loan forgiveness under these programs.

Nonpayment can count toward student loan forgiveness under one-time adjustment

The one-time IDR account adjustment is one of the Biden administration’s most significant “fixes” to the historically problematic PSLF and IDR programs. This temporary initiative credits borrowers for past periods that might not have counted under the standard program rules. 

Several scenarios where non-payment can potentially count toward loan forgiveness under this account adjustment include:

  • Repayment periods, regardless of the repayment plan used or whether a payment was made in full or at all, as long as the loan was in a “repayment” status as reported to the Department of Education.
  • Certain deferment periods, particularly those before 2013 (excluding in-school deferments) and economic hardship deferments from 2013 onwards.
  • Extended forbearances of 12 months or more, and total forbearance periods that add up to 36 months or more for a particular loan. 

It’s important to note that shorter forbearances, by themselves, don’t automatically count toward loan forgiveness under the account adjustment. Although, borrowers can petition the Education Department to credit these periods if they can demonstrate that they were victims of forbearance-steering (pushed into forbearance instead of an IDR plan) by their loan servicer. 

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Some borrowers must take action to get credit for past periods of repayment

Borrowers with Direct federal student loans and government-owned FFEL loans can receive automatic IDR credit under the adjustment. But those with commercially-held FFEL-program loans may need to consolidate through the Direct Loan program before June 30, 2024. In addition, only Direct Loans qualify for PSLF, and borrowers seeking PSLF credit under the adjustment must certify their employment.

Borrowers should carefully review the Department of Education’s detailed guidance on the IDR account adjustment to determine whether they must take action to benefit from this temporary initiative before it comes to an end.

Extended forgiveness eligibility for deferment and forbearance under new PSLF and IDR regulations

While the IDR account adjustment is temporary, new regulations implemented by the Biden administration allow certain deferment and forbearance periods to count toward PSLF in the future. 

What does this mean for you? Periods of nonpayment that wouldn’t have previously counted toward loan forgiveness can potentially now count. Keep in mind that, going forward, these benefits aren’t as generous as those provided under the account adjustment.

Under new PSLF regulations that went into effect July 2023, the following deferment and forbearance periods can count toward loan forgiveness:

  • Cancer treatment deferment
  • Economic hardship deferment
  • Military service deferment
  • Post-active-duty student deferment
  • AmeriCorps forbearance
  • National Guard Duty forbearance
  • U.S. Department of Defense Student Loan Repayment Program forbearance
  • Certain administrative forbearances related to local or national emergencies or military mobilizations, or mandatory administrative forbearances provided to borrowers for collecting supporting documentation

Similar provisions will soon apply to IDR forgiveness under the new SAVE plan, although regulations governing this will not go into effect until later this summer. 

$0 IDR payments create a path toward student loan forgiveness

IDR plans have an income exemption limit based on a percentage of the federal poverty limit, adjusted for a borrower’s family size. 

Put another way — under all IDR plans, a certain amount of income is not counted, and the repayment formula does not kick in until a borrower’s income (specifically, their Adjusted Gross Income, or AGI, as reported on their federal tax return) exceeds that income exemption. 

Borrowers with incomes below that limit have a $0 monthly payment, and these $0 “payments” count toward loan forgiveness under IDR plans (and toward PSLF, if the borrower is also working in qualifying employment). IDR payments are recalculated every 12 months and change if the borrower’s income changes.

Related How to Lower Student Loan Payments: Start With Your Adjusted Gross Income

Income threshold is more generous under SAVE plan

Biden’s new SAVE plan has a particularly generous income exemption of 225% of the federal poverty limit. This is much higher than the limits under other IDR plans. For example, Income-Contingent Repayment exempts 100% of the federal poverty line, while Income-Based Repayment exempts 150%. 

Under SAVE, a single borrower with an AGI of $30,000 or less or a family of four earning $60,000 would have a $0 payment. 

According to the Biden administration, more than 4 million borrowers currently have no payment obligation under SAVE because their income falls below the exemption limit.

Does recent administrative forbearance count toward student loan forgiveness?

Last fall, millions of borrowers were forced into administrative forbearances due to servicer overloads. Servicers became overwhelmed as COVID-related forbearances ended after three and a half years, and repayment abruptly resumed for 40 million borrowers. 

Borrowers experienced processing delays, received erroneous or untimely billing statements, and often could not reach their loan servicer by phone due to impossibly long call wait times.

In response, the Biden administration instructed loan servicers to place borrowers into administrative forbearances so that servicers could sort out these issues. The administration specifically instructed loan servicers to count the time spent in administrative forbearance toward loan forgiveness under IDR and PSLF.

“For some or all of your loans, you will not be due for payment until after December 2023, and your interest rate will be adjusted to 0%,” reads a typical loan servicer notice sent to borrowers last fall. “The months will count toward income-driven repayment forgiveness and Public Service Loan Forgiveness, assuming all other requirements are met.” 

These periods may not yet have been credited toward loan forgiveness for all borrowers, although this should happen in the coming months. 

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