As part of its ongoing efforts to improve existing student loan programs, the Department of Education released a new set of solutions for income-driven repayment (IDR) plans on April 19, 2022. The actions outlined in the press release are aimed at improving a few areas of historical oversight that have made it difficult for borrowers to access the benefits of IDR plans. Let’s take a look at the details and what these changes mean for borrowers.
A Quick Refresher
First, a quick refresher on income-driven repayment (IDR): IDR is an umbrella term for a set of repayment plans based on your income. Depending on the plan, the remainder of your loan balance will be forgiven after 20 or 25 years of payments. Monthly payments on these plans can be as low as $0 a month, making them a great option for borrowers who struggle to afford their loan payments on top of other financial obligations.
However, when a borrower calls their loan servicer to say they’re having trouble making payments, the servicer will often direct them toward a forbearance rather than to IDR, even though IDR can be more beneficial. Unlike forbearance, it offers both a $0 monthly payment AND progress toward eventual forgiveness. In the press release, the Department of Education calls this servicer practice “forbearance steering.”
The other issue with IDR it is seeking to address is actually tracking each borrower’s progress along that 20-25 year timeline. Right now there isn’t a way for a borrower enrolled in IDR to have a clear idea of how long they have to go before they get forgiveness, and loan servicers have not been proactive in granting IDR forgiveness to eligible borrowers.
Short Term Changes
In order to address these issues, the Department of Education has outlined two immediate, one-time changes:
1. Long forbearances will retroactively count toward IDR and PSLF
The Department will conduct a one-time audit for borrowers who have been in forbearances for more than 12 consecutive months or more than 36 cumulative months. Those periods of forbearance will retroactively count toward forgiveness timelines for IDR and also for Public Service Loan Forgiveness (PSLF).
It also mentions that borrowers with shorter forbearances can request an account review through the FSA Ombudsman’s office.
2. More repayment periods will also count toward IDR
Previously, only payments on an IDR plan would count toward IDR forgiveness, and consolidating loans into a new Consolidation Loan would reset the 20-25 year timeline and erase all previous progress toward forgiveness. As a one-time adjustment, the Department will now count payments on any repayment plan toward a borrower’s IDR timeline, and payments made on previously consolidated loans will count as well. These are similar to the changes made to the PSLF program through the PSLF Limited Waiver announced last fall.
It’s important to note that this recount does not apply to all federal student loans, but only to those that are “federally held.” If your federal loans have qualified for the payment and interest pause, they’re federally held. If they haven’t, you’ll need to consolidate them by January 1, 2023 to qualify.
While these changes should be applied to borrowers’ accounts automatically, they will take some time to implement. The Department of Education estimates that it may take through the end of 2022.
Looking Ahead
Longer term, the Department is instituting oversight of loan servicers’ use of forbearance in helping individual borrowers, and will also create a process for tracking borrowers’ progress toward IDR forgiveness. In 2023, borrowers will be able to log into Federal Student Aid and view a timeline of how far they’ve come and how far they have to go before receiving forgiveness.
The press release also includes longer term plans to direct Congress to increase the amounts of Federal Pell Grants (to reduce students’ dependence on loans) and to reinstate the FSA Office of Enforcement to maintain oversight over the implementation of other federal programs like Borrower Defense to Repayment.
They predict a large positive impact from these changes, including an estimated additional 40,000 borrowers who will be immediately eligible for forgiveness under PSLF, and 3.6 million borrowers who have made at least three years of progress toward IDR forgiveness. Summer’s team will of course continue to update the borrowers in our network as we receive additional information, and you can always reach our team for questions at hello@meetsummer.org.
