Q&A: Forgiveness Based on New Student Loan Income – NerdWallet

Beginning in November 2022, borrowers who have paid their federal student loans for 20 years or more can expect their remaining debt to be forgiven.

Income-focused plans reduce your payments for 20 or 25 years and waive your remaining balance. IDR was created in his 1990s to protect borrowers from financial hardship. Payments are based on the borrower’s income, not the borrower’s balance.

These changes are the result of new IDR waivers announced by the Biden administration in April 2022, bending the rules by which payments are considered. Now, each month you spend paying off your student loans, or a pause after you leave school, counts toward your one-time waiver.

About 40,000 borrowers with old loans will have their balances wiped in November, and more than 3.6 million borrowers are expected to receive at least three years of additional credit towards IDR exemption, the Department of Education estimates. . The consensus among student loan experts is that the impact of the recount could be more than that.

Who will see their loan fully forgiven?

The most immediate impact will be felt by the thousands of borrowers with the oldest loans – those who have spent at least 240 months repaying them – and see their debt wiped out.

As of March 2021, only 32 borrowers have had their debts forgiven despite decades of payments, according to a study by the Center for National Consumer Law and the Center for Student Borrower Protection.

The one-time amendment will begin in November and address the oldest loans, but is expected to cover all federal loans from July 2023.

“What this is doing is giving credit to your annual repayments, regardless of whether the payments are income-based or not,” says Betsy Mayotte, president and founder of the Association of Student Loan Advisors.

What should I do?

Reaggregation should be automatic. However, certain borrowers may still have to act.

FFELP borrowers with commercial loans must be consolidated. A borrower must have a direct loan to benefit from recounting. This means that borrowers with commercially held loans must consolidate by May 1, 2023.

Borrowers seeking public service loan forgiveness must apply for the PSLF. Government employee borrowers who have not yet applied by October 31, 2022 must submit the Proof of Employment Form and PSLF Application by May 1, 2023 to have their adjusted counts verified against the PSLF . If you have any outstanding payments after your review, you should enroll in an IDR plan.

Some borrowers may be required to enroll in income-driven repayments. Federal borrowers whose debts were not cleared in November will have their past payments reviewed in July. If he is already enrolled in the IDR, the number of payments that count towards the exemption will be adjusted. But if not, you are faced with the decision of whether to enroll in the IDR and take advantage of the recount. If you don’t register, his next payment after July won’t count.

“If you don’t have an IDR plan, you don’t pay IDR,” says Mayotte. “Forgiveness is not the goal. The goal is to minimize the amount you pay over time. It costs less. Borrowers have to do the math on that.”

Why is my payment recalculated?

The new IDR exemption has spurred the education ministry’s perception that millions of borrowers have been unjustly seized by loan servicers, suspending payments but allowing interest rates to rise. Many others made payments that were not counted for technical reasons.

One-year exemption from some payment counting rules Public service loan exemptionEliminate loan balances after 10 years of reduced payments by people in public service jobs.

Although the PSLF exemption expires on October 31, 2022, the IDR payment review is similar in nature, with borrowers who qualified for the PSLF exemption but did not avail themselves of it virtually automatically. canceled automatically.

It’s also a big change for borrowers who don’t have a public service job but are on an IDR plan and have a repayment moratorium after 20 or 25 years. Most are enrolled in her IDR program called Revised Pay As You Earn (REPAYE), which wasn’t available until 2015, so at least he won’t be eligible for the exemption until 2035.

Still, the IDR exemption could significantly increase the number of eligible payments.

What counts in IDR forgiveness?

The review of IDR payments should exempt the following loans:

  • Borrowers who have made 20 or 25 years of payments (240 and 300 monthly payments, respectively) under either payment plan.

  • Borrowers who submitted a PSLF application before October 31, 2022 and have reached 120 payments as a result of a change in deferral eligibility outlined below.

If you’re not sure if this applies to you, here’s what you can expect to count as eligible payments for a one-time review.

  • The months the borrower was paying off regardless of partial payments, delinquency, loan type, or repayment plan.

  • The months in which the loan was in eligible repayment, deferral, or moratorium status prior to consolidation.

  • The month in which the borrower’s loan was deferred for 12 consecutive months.

  • Months in which the borrower’s loan has been in arrears for at least 36 months.

  • Prior to 2013, months spent in deferrals, excluding deferrals at school.

In July 2023, the Department of Education will automatically apply the above payment counting rules to all federally-direct and government-owned Federal Home Education Loan Program loans. Those with undisclosed FFELP loans must consolidate their debt into a new direct loan for past payments to count.

Are Parent PLUS loans eligible?

Note that borrowers of parent company PLUS are not included in the PSLF component of the recount. However, his PLUS loan of the parent company is subject to IDR recalculation.

Will the servicer know if I am eligible?

Servicers are unlikely to get information immediately. Recounts are being processed through the Education Department.

You can get a rough idea of ​​how many months are likely to count toward your IDR waiver by logging into your Federal Student Aid account with your FSA ID. A grace period is displayed. Postponements while in school and grace periods are not counted.

The Federal Student Assistance Administration will issue new guidance to servicers to improve income-driven repayment calculation practices and will track payment times in its own data system.

What happens if I am late or default on my student loan?

As part of pandemic relief, federal student loan payments will be suspended until 2022.as part of Opportunity for a “fresh start” Included in the previous student loan moratorium extension, borrowers whose student loan debts were delinquent or defaulted could get back on track when payments resume in January 2023. Expected.

However, these income-based repayment plan modifications do not apply to forgiveness for borrowers with delinquent or defaulted loans, according to the Department of Education.

How does this fit in with other student debt relief?

Borrowers have had a number of similar-sounding and sometimes overlapping student debt relief efforts to go forward since the pandemic began in 2020.

He also continued the interest-free moratorium on federal student loan payments initiated by President Donald Trump. Payments he expects to resume in January 2023. Even if you anticipate a significant change in the frequency of payments, you will need to resume payments until further notice.

The department also clears a backlog of waiver applications from borrowers who have been deceived by the school, faced school closures before completing their degree, or have permanent disabilities. Those with pending claims are eligible to apply for debt relief while they wait.

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