In mid-April, the Biden administration announced a new initiative to reform already in place income-based repayment programs. According to the Department of Education, at least 40,000 borrowers should immediately receive student loan forgiveness after new reforms for income-driven repayment (IDR) programs and public service loan forgiveness (PSLF). Here’s what you need to know.
IDR plans allow borrowers to take on affordable monthly payments, which are based on their family size and income. After 20 to 25 years, borrowers can receive forgiveness and can pay as little as $ 0 a month depending on their own personal circumstances.
IDR plans were plagued with issues, resulting in many people being unrightfully excluded from the program. Only payments made under an IDR plan – which includes Pay As You Earn Repayment Plan or Income-Based Repayment Plan – were counted towards loan forgiveness, which meant paying through other plans or having periods of nonpayment disqualified people for the programs.
And that’s what the Biden administration took on as it expanded who would qualify for the already existing loan forgiveness programs. And these changes are set to help thousands of borrowers.
The Department suggested that tens of thousands of borrowers will see quick benefits from the reforms. “Federal Student Aid (FSA) estimates that these changes will result in immediate debt cancellation for at least 40,000 borrowers under the Public Service Loan Forgiveness (PSLF) Program,” the Department said in April. “Several thousand borrowers with older loans will also receive forgiveness through IDR.” Millions more are expected to benefit in the coming years.
The PSLF program is designed to forgive student debt for public servants – which includes government workers, public defenders, and teachers – after 10 years of payments received on time. However, since the program’s inception, 98 percent of borrowers who should have qualified for the forgiveness were denied due to several hurdles in the approval process, Fortune reports.
The average balance of PSLF loans discharged is $ 97,289, according to data from the Department. This implies approximately $ 3.9 billion in debt will be wiped out for 40,000 borrowers who have an average outstanding balance of just over $ 99,000.
Under the new changes for IDR, announced by the Biden administration in April, the new qualifications The Education Department will follow include:
- Conducting a one-time adjustment to borrower accounts allowing for past periods of deferment prior to 2013 to count towards a borrower’s 20 or 25-year IDR loan forgiveness term.
- Conducting a one-time adjustment to borrower accounts to allow any past periods of repayment, including repayment under non-IDR plans, to count towards a borrower’s 20 or 25-year IDR loan forgiveness term.
- Conducting a one-time adjustment to borrower accounts to allow for past periods of forbearance of 12 consecutive months or more, or 36 months of cumulative forbearance, to count towards the 20 or 25-year IDR loan forgiveness term.
The Education Department will be automatically implementing many of these new changes which mean in most cases borrowers will not have to take any action to qualify for the loan forgiveness relief. The Department indicated it will begin publishing payment counts and IDR progress reports for borrowers next year.
These new changes are likely to be implemented “no sooner than Jan. 1, 2023, ”said the Department.