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If you're working toward Public Service Loan Forgiveness (PSLF) or you're on an income-driven repayment (IDR) plan, changes to the program by the Biden administration may result in forgiveness of your debt. At the very least, it accelerates your progress toward forgiveness.
Here's what you need to know about the program changes and how they affect you.
Changes to Student Loan Forgiveness Programs
In April, the U.S. Department of Education announced changes that will result in immediate debt cancellation for at least 40,000 borrowers in the PSLF program and thousands more who are on IDR plans.
In addition to that, more than 3.6 million borrowers on IDR plans will get three or more years' worth of credit toward forgiveness.
For context, the PSLF program offers full forgiveness of all student loans for borrowers who work full time for a government agency or eligible nonprofit organization while making 120 qualifying monthly payments. And if you're on an IDR plan and still have a balance at the end of your repayment term, which can be 20 or 25 years depending on the plan, that amount will be automatically canceled.
The changes come as part of the Biden administration's efforts to provide meaningful debt relief to student loan borrowers, and include the following:
- Forbearance adjustment: The Department of Education will make a one-time adjustment for borrowers who were on a forbearance plan for at least 12 consecutive months and more than 36 months cumulatively and count those months toward PSLF or IDR forgiveness eligibility. The agency found that more than 13% of direct loan borrowers used more than 36 months of cumulative forbearance between July 2009 and March 2020. Forbearance periods do not typically count toward loan forgiveness.
- Revise inaccurate tracking for IDR payments: The Education Department has failed in the past to accurately track the number of eligible IDR payments some borrowers have made. As a result, the agency will revise IDR payment counts to ensure that all borrowers get credit for the payments they've made and will also include deferred payments, with the exception of in-school deferments.
- Fix IDR payment counting: To avoid future inaccurate tracking, the Education Department will modernize its data systems, allow payments paused for certain types of deferment and forbearance to count toward forgiveness eligibility and, starting in 2023, display IDR payment counts on StudentAid.gov so borrowers can track their progress.
Note that while the Education Department will start making these changes immediately, some borrowers may not see changes until later this year.
How Student Loan Forgiveness Changes May Affect You
Depending on your current student loan repayment plan and eligibility for PSLF, here's how these updates may impact your student loans:
- You've been on an IDR plan for a long time: If you're nearing the end of your IDR plan, the forbearance adjustment and payment tracking revision could result in automatic forgiveness of your remaining balance.
- You're on an IDR plan but for a shorter amount of time: If you're more than three years away from IDR plan forgiveness and you've utilized forbearance or deferment in the past, your time to cancellation may be shortened.
- You're working toward PSLF: If you're working toward forgiveness under the PSLF program and have used long-term forbearance in the past, you may be eligible for immediate forgiveness or have your progress accelerated.
Steps You Can Take in the Meantime
The Education Department hasn't laid out exactly when forgiveness will occur for those who qualify and who is eligible. If you're uncertain about your eligibility or aren't sure exactly how these updates will impact your loans, contact your loan servicer.
If you believe you're eligible for immediate forgiveness, continue making payments on your student loans until the process has been completed. If you miss a payment, your loan servicer may assess a late penalty, and if you're late by 30 days or more, it could damage your credit score. Even if you can get the late fee and negative notation on your reports removed, that process can take time.
Additionally, while President Biden has ruled out sweeping student loan forgiveness to the tune of $50,000 across the board, he has signaled consideration of a smaller amount and has supported $10,000 in universal forgiveness in the past. The president is expected to provide more information about his plans in the coming weeks or months. Keep your eyes peeled for more news that might impact your student loans.