This month marks the end of the student debt forgiveness program approved by President Joe Biden’s Administration.
The Biden Administration approved a range of student debt forgiveness programs, erasing at least $167 million in student loan debt for about 5 million borrowers. However, a significant number of borrowers have been able to make payments based on their income and family size due to the income-driven repayment (IDR) account adjustments, which resulted in many sums being paid off in full after 20-25 years.
Student loan borrowers may receive credit for previous loan periods that did not count toward their IDR plans thanks to the Biden changes to the plans. According to the Education Department, the IDR account changes have resulted in forgiving about 1 million debts.
Regarding the IDR account adjustments, the government stated, “If you’re on an IDR plan or working toward PSLF, your remaining loan balance gets forgiven after you make the required number of payments.”
“In the past, there were a variety of reasons why some months may not have been credited toward loan forgiveness—for example, months when you were in a payment plan that was not eligible. With this payment count adjustment, we will change whether certain months or months are credited toward your loan forgiveness.”
The Biden administration declared that the program would be fully implemented by August, but there is uncertainty over whether potential borrowers will be able to benefit from the program.
The Education Department stated on StudentAid.gov that “The US Department of Education currently expects that the payment count changes will be completed by September 1, 2024.” “When we implement the changes, it will automatically be applied to all FFEL Program loans and Direct Loans that are managed by Education Department at that period. This comprises Direct Consolidation Loans that repaid a privately held FFEL Program loan or Perkins and that are disbursed before the adjustment occurs.”
Borrowers with some Federal Family Education Loan (FFEL) debt had to apply for the direct consolidation program by June 30 in order to be eligible for IDR account adjustments, even though direct federal student loans are automatically eligible for changes.
Before extending the deadline to July 1, the Education Department stated that the IDR account adjustments may be completed by January 1 this year. Borrowers now have about a week remaining.
Even though September 1 is the new deadline, it may take some months for borrowers to get their complete loan forgiveness.
One of the most popular IDR plans, Biden’s SAVE plan, was banned by the federal appeal court, which has resulted in legal pushback against the IDR accounts adjustments problem. As a result, the loans of about 8 million borrowers who were enrolled in the SAVE plan have been placed into forbearance.
The court order also suggested that alternative IDR plans, including pay-as-you-earn or income-contingent repayment programs, may be at risk. The court denied a plea from the Biden Administration for more information regarding how the injunction would affect these efforts.
Michael Ryan, the founder of michaekryanmoney.com and finance expert, reported that loan servicers often incorrectly counted borrowers’ qualified payments under the Public Service Loan Forgiveness program and IDR plans.
Ryan told the media, “The adjustment allowed the Department of Education to go back and review borrowers’ payment histories to ensure they got credit for all eligible payments—even partial or late ones.”
“This was important for borrowers who had been diligently making payments for 20 or 25 years under IDR plans, or 10 years under PSLF only to find out their progress hadn’t been properly tracked.”
He added that the impact was significant for the millions affected by the plans.
Ryan stated, “Providing major financial relief to borrowers who had been saddled with student debt for much of their adult lives.” “People can now finally get out from under this burden and focus on building their futures.”
Ryan said since the IDR plan’s viability is in doubt, borrowers who have not attained their forgiveness levels should monitor the repayment schedules and stay informed of any updates.
He added, “The need for continuous oversight and responsibility in federal student aid programs is crucial.” “The IDR adjustment highlighted how administrative issues can significantly impact borrowers. While this initiative offered important relief…more reforms are still necessary to address the fundamental causes of the student debt crisis.”
According to Michael Lux, an attorney and founder of Students Loan Sherpa, after the government completes its processes this month, many borrowers will find themselves closer to the 20 or 25 years needed for IDR forgiveness.
Lux told the media, “In many cases, pursuing forgiveness may now be a more effective strategy than repayment in full.” “It is a great time to revisit your repayment history and review your strategy moving forward. The IDR adjustment could shift the math for many borrowers.”
