The U.S. Department of Education recently announced that the one-time income-driven repayment adjustments will be finalized by September 1, 2024. Once these adjustments are implemented, some borrowers may qualify for student loan forgiveness.
This one-time IDR adjustment, first announced in 2022, serves as a remedy for a servicing issue that has affected millions of borrowers. You might be curious about how this could impact you.
One-Time IDR Adjustment
In April 2022, student loan borrowers were informed by the U.S. Department of Education about servicing errors that may have led some borrowers to pay their student loans beyond their intended repayment term. This issue primarily affected federal student loan borrowers who had been in repayment for 20+ years. The Department discovered that servicers had not accurately tracked qualifying payment counts toward the forgiveness available under IDR plans.
The problems arose not only from the failure to count qualifying payments toward IDR forgiveness but also because many borrowers were advised for years to use forbearance, or a payment pause instead of enrolling in an income-driven repayment plan. For numerous borrowers facing financial hardship, enrolling in an IDR plan could have resulted in monthly payments as low as $0, allowing them to work toward student loan forgiveness. Additionally, concerns raised by the Consumer Financial Protection Bureau (CFPB) and state attorneys general align with the Department's findings.
Tackling these "historical failures" presented considerable challenges. The Department stated that their solution would involve a one-time payment adjustment, a.k.a., payment recount.
The Payment Recount Fix
Announced in 2022, the payment recount fix will allow the Department to adjust payment counts for federally-held federal student loans under the following conditions:
- Borrowers will receive adjustments for any months in repayment, irrespective of the payment plan, if payments were made, or the loan type. Borrowers with FFEL loans not held by the Department must have consolidated into the Direct Loan program by June 30, 2024, for the recount to take place on their consolidated loan.
- For any periods of 12 or more consecutive months of forbearance or 36 months of cumulative forbearance.
- For months spent in economic hardship or military deferment occurring in 2013 or later.
- For any months in deferment prior to 2013 but excluding periods of in-school deferment.
- For any time spent in repayment before consolidating loans into a consolidation loan.
Borrowers who achieve 20 or 25 years of payments after the recount will receive forgiveness for any remaining debt. Additionally, those who have made payments exceeding 20 or 25 years may be eligible for a refund of their overpayments.
Payment Count and PSLF
For borrowers pursuing Public Service Loan Forgiveness (PSLF), a recent payment recount offers a significant advantage. This recount may allow for additional payments to qualify toward PSLF forgiveness. Borrowers who have dedicated at least ten years to public service could find themselves eligible for forgiveness once the recount is finalized.
FFEL Borrowers and Payment Adjustment
FFEL borrowers with loans not held by the Department must have consolidated their loans into the Direct Loan program by June 30, 2024. If this deadline is missed, they would no longer be eligible for the recount.
For those who consolidated by the deadline, their new loan, a Direct Consolidation Loan, would be eligible for a recount. Borrowers who qualify will automatically receive the adjustment once the Department completes the process. Eligible payments on the consolidation loan will revert to the original start of repayment on their oldest loan.
Consolidation and the Recount
If you consolidated your Direct Loan prior to the recount on your account, the counted period would revert to the earliest eligible repayment status of your oldest loan. As a result, many borrowers are experiencing a much earlier repayment count than anticipated. For instance, if you graduated from your undergraduate program in 2003 and took a few years off before returning to graduate school, your undergraduate loans entered repayment in November 2003. After resuming your studies in 2010 and graduating in 2012, those loans would also have entered repayment. If you then consolidated your loans with a Direct Consolidation Loan, your recount could extend back to November 2003, bringing you closer to forgiveness for your entire debt.
Your Student Loan Account
It's crucial to review your loan status based on your circumstances. If you still have an outstanding balance after this recount, and you wish for your payments to qualify for IDR forgiveness—which entails making payments throughout your repayment term of either 20 or 25 years—you'll need to continue repaying your loan under an IDR plan moving forward. Should you opt not to repay under an IDR plan, your payments will not contribute to the overall forgiveness under IDR.
If you qualify for forgiveness, you will receive a notification, and you may notice a decrease in your account balance. Be sure to check not only your servicer portal but also your StudentAid.gov account. The Department has been implementing updates to the portal, so information may not be immediately available. However, it’s important to keep monitoring it closely.