Critical Student Loan Forgiveness Deadline Is Only Weeks Away

As the Biden administration implements multiple student loan forgiveness initiatives, millions of borrowers have been approved for discharges. But for one particular program, a critical deadline is rapidly approaching.

Under the IDR Account Adjustment initiative, the Education Department can provide retroactive “credit” toward a borrower’s 20- or 25-year student loan forgiveness term for income-driven repayment plans, even for borrowers who have not been in such a plan. Most past periods of repayment, and many prior deferment and forbearance periods, can count. Some periods can also count toward loan forgiveness under the Public Service Loan Forgiveness program, as well.

Borrowers who receive enough credit under the adjustment to qualify for student loan forgiveness under either IDR or PSLF will see their loan balances discharged (and hundreds of thousands of borrowers have already received discharges). Others will effectively get a boost toward their loan forgiveness term, reducing their remaining time in repayment.

While many borrowers will receive the IDR and PSLF credit associated with the adjustment automatically, others will need to consolidate their loans through the federal Direct consolidation loan program by December 31, 2023. Failure to do so could result in some borrowers losing out on the significant benefits of the one-time adjustment, which are expected to be fully implemented sometime in 2024.

FFEL Borrowers Can Consolidate To Qualify For Student Loan Forgiveness Credit Under Adjustment

Only government-held federal student loans qualify for the IDR Account Adjustment. This includes Direct federal student loans, as well as some government-owned FFEL-program loans. The FFEL program is an older loan program whereby a private, commercial lender originated government-backed federal student loans. Some, but not all, FFEL loans were subsequently acquired by, or assigned to, the Education Department.

But borrowers with commercial FFEL student loans and other non-Direct federal loans can only benefit from the IDR Account Adjustment if they apply to consolidate their loans via the federal Direct consolidation loan program before the end of 2023.

“Borrowers who have commercially managed FFEL, Perkins, or Health Education Assistance Loan (HEAL) Program loans, should apply for a Direct Consolidation Loan by the end of 2023, to get the full benefits of the one-time account adjustment,” says the Education Department in published guidance.

Borrowers With Different Loan Histories May Want To Consolidate For Student Loan Forgiveness Adjustment

But it’s not just borrowers with commercially-managed non-Direct loans that should consider Direct loan consolidation. Direct and non-Direct federal student loan borrowers who have multiple loans with different repayment histories can also benefit from Direct consolidation under the IDR Account Adjustment.

Previously, consolidating loans with existing IDR or PSLF credit would wipe out that credit and restart the borrower’s loan forgiveness term. But this is not true under the IDR Account Adjustment. Borrowers can actually maximize their IDR and PSLF credit under the adjustment if they consolidate loans with different repayment histories.

“Assuming your repayment history overlaps for each loan, the consolidation loan will be credited with the longest amount of time in repayment of the loans that were consolidated,” says Education Department guidance. “For example, say you had 50 months of time in repayment on one Subsidized Stafford Loan and 100 months of time in repayment on another Subsidized Stafford Loan. If you consolidated those loans, you would receive credit for 100 months of payments on the new Direct Consolidation Loan.”

Borrowers in this situation should consider consolidating their loans via the federal Direct consolidation program before the December 31, 2023 deadline. “If you have loans with different counts and one of those loans qualifies for forgiveness, you may benefit from consolidating in order to get all of your loans forgiven at the same time,” says the department. “If you do, you will receive forgiveness because the consolidation loan will be credited with the longest amount of time in repayment.”

Borrower’s IDR and PSLF credit may temporarily reset to zero after consolidating, but would then be readjusted sometime in 2024. “Borrowers who consolidate will have their PSLF counts temporarily reset to zero, and these counts will begin adjusting in Fall 2023,” says department guidance. “PSLF counts will continue to be adjusted each month until the IDR counts for all federally held FFELP and Direct Loans are adjusted in 2024.”

Parent PLUS Borrowers Can Consolidate To Benefit From Student Loan Forgiveness Adjustment

Parent PLUS loans are a type of federal loan issued to the parent of an undergraduate student. Only the parent is the borrower on a Parent PLUS loan, not the student. Parent PLUS loans have historically had fewer repayment options than other federal student loans, and more limited access to student loan forgiveness under both IDR and PSLF.

Under the IDR Account Adjustment, though, unconsolidated Parent PLUS loans can receive credit toward student loan forgiveness for both IDR and PSLF. “These changes will be applied automatically, to all PSLF-eligible Direct Loans, including consolidated and unconsolidated parent PLUS loans,” says the department.

However, Parent PLUS borrowers may still want to consider Direct loan consolidation if they anticipate being short of the thresholds for loan forgiveness under IDR and PSLF after the retroactive credit provided by the IDR Account Adjustment. In that case, borrowers would need to continue repaying their loans under an IDR plan, and the only IDR plan available in most cases to Parent PLUS borrowers is Income-Contingent Repayment, or ICR. And ICR is only available to Parent PLUS loans that are consolidated via a Direct consolidation loan.

But borrowers should be cautious about including any non-Parent PLUS loans in a consolidation loan containing Parent PLUS loans. The inclusion of the Parent PLUS loans would restrict the new Direct consolidation loan to only ICR, blocking access to more affordable IDR plans such as President Biden’s new SAVE plan.

“Parent PLUS borrowers who consolidate those loans with their non-PLUS student loans will be credited based on the time in repayment for all their loans,” says Education Department guidance. “However, if your consolidation loan will require additional payments before reaching 25 years, you should consider your options about which loans to consolidate carefully. Consolidation loans that repaid a parent PLUS loan are only eligible for one IDR plan: the Income-Contingent Repayment (ICR) Plan. For many borrowers, the ICR Plan will have a significantly higher monthly payment than other, more affordable repayment plans that are available for non-parent PLUS loans. If you consolidate a parent PLUS loan with one or more non-parent PLUS loans, the new consolidation loan will no longer be eligible for those more affordable plans.”

Further Student Loan Forgiveness Reading

At Least 715,000 Receive Student Loan Forgiveness Under Reforms For Public Servants, Says Biden

Biden’s New Student Loan Forgiveness Plan Starts To Take Shape

5 Categories Of Borrowers Could Get Student Loan Forgiveness Under New Biden Plan

Student Loan Forgiveness Proceeds And Payments ‘Cut In Half,’ But System Buckles