It’s been a good month for people weighed down by federal student loan debt. First, the Biden administration extended a moratorium on federal student loan payments and interest charges through August. Then on Tuesday, the Department of Education announced it was reviewing payment records to give borrowers more credit for the progress they’ve made in forgiving loans.
The latest changes apply to borrowers enrolled in an “income-controlled repayment plan,” which reduces loan payments for lower-income borrowers. The steps will reduce the time before borrowers’ government student loans are forgiven — and in an estimated 40,000 cases, the borrower’s remaining balance will be wiped out immediately.
Important reminder: The changes only apply to direct federal student loans, which make up the majority of outstanding debt, not privately originated loans. And not every federal loan qualifies for an income-based repayment plan, said Michele Streeter, associate director of policy and advocacy for the Institute for College Access & Success, although borrowers can consolidate their loans into an IDR-eligible loan.
About 9 million borrowers are on IDR plans, which is about 30% of state student loans, said Regan Fitzgerald, manager of the Pew Project on Student Borrower Success.
If you are a borrower, you do not need to ask for the latest changes made to your account. The Department of Education said it will automatically start applying, although you may not see the effects in your account until sometime in the last three months of 2022.
The announced changes will help borrowers already on the path to forgiveness, but they fall far short of proposals from Sen. Bernie Sanders (I-Vt.) and others who are campaigning to make borrowers’ debt easy to be redeemed in whole or in part.
Still, there are steps you can and should take now to ensure you get the full benefit. Here’s a quick summary of what the department is doing and how you should respond.
IDR plans are designed to make it easier for low-income people to enter college by limiting their monthly debt payments to 10% to 15% of their discretionary income, which is defined as the amount they earn above 150% of the federal poverty line . For a single borrower in California, that amount would be any income over $1,700 per month. If they earn less than 150% of the poverty line, their monthly payment is $0.
These plans do not automatically reduce your debt; In fact, if your monthly payment is less than the interest accrued, the amount owed will increase. But if you keep up with your payments for 20 years after signing up for an IDR student loan plan, your remaining balance will be forgiven. (Loans for graduate students require a payment period of 25 years.)
That’s the program target work. In practice, however, it has been marred by gaps in records that have prevented borrowers from complying for months or even years. The Government Accountability Office highlighted these errors in a report this week.
To address the recordkeeping issues, the Federal Student Assistance Office will conduct “a one-time revision of IDR-qualifying payments for all direct student loans and federally administered loans from the federal Family Education Loan Program,” the Department of Education said. The revision will give borrowers credit for all months in which they have made payments, including before their loans are consolidated. They also receive credit for any months prior to 2013 in which their loan payments were deferred due to economic hardship.
If the revision brings borrowers up to the number of payments required for loan forgiveness, their loans will be automatically canceled, the department said. That’s typically 240 to 300 monthly payments, but participants in the Public Service Loan Forgiveness Program would be eligible for payments after 10 years while working at a school, government agency, or nonprofit organization.
The department also promised to better track IDR payments in the future. Among other things, it said the federal student aid website, StudentAid.gov, will begin showing borrowers their payment totals next year so they can monitor their progress toward forgiveness.
When borrowers tell the company servicing their loans that they are having trouble making payments, service providers are supposed to tell them about IDR plans and other lower-cost options, as well as the cost of forbearing their loan — a temporary form of relief that reduces payments or suspends while interest charges and debt mount. But FSA reviews suggest service providers have repeatedly lured borrowers into leniency when IDR would have been a better alternative, the department said. As a result, “long-term use of forbearance was remarkably widespread,” with more than one in eight borrowers being in forbearance for at least three years from July 2009 to March 2020.
Why would a service provider do that when they don’t make more money off borrowers in forbearance than they do on borrowers on an IDR plan? Jaylon Herbin, outreach and policy manager at the Center for Responsible Lending, identified one possible incentive: it’s easier and less time-consuming to put a borrower into leniency.
To balance the forbearance control, the department said it would count any prior forbearance of more than 12 consecutive months or more than 36 months total as keeping borrowers current when calculating progress toward forgiveness in an IDR plan would have stayed. Borrowers who have been steered into shorter forbearance periods can request similar relief by filing a complaint with the FSA Ombudsman at StudentAid.gov/feedback.
The FSA will make this adjustment to qualifying borrowers’ accounts later this year, the department said. Taken together, the adjustments for poor records and forbearance controls should bring more than 3.6 million borrowers at least three years closer to forgiveness, the department estimates.
What you should do now
Cody Hounanian, executive director of the Student Debt Crisis Center, said the starting point is to have an account with studentaid.gov and make sure the agency has your current contact information. It’s also important to monitor the emails the agency sends, he said, adding, “This is an opportunity for borrowers to make sure they’re connected.”
The FSA has also set up a page on its website where borrowers can find the latest information on the IDR revisions.
Herbin said it’s also important to nail down who your servicer is and what type of loan you have — specifically, whether you’re in an IDR plan or the Public Service Loan Forgiveness program. Then, he said, you should find out how many payments you’ve made under that plan or program.
For the record:
7:34 am, April 22, 2022In an earlier version of this story, the student loan service company Maximus was incorrectly identified as Maximum.
Due to the protracted COVID-related moratorium on loan payments, many borrowers may have lost track of who their servicer is. service providers come and go; The largest company, Navient, pulled out of the federal student loan business last year, handing over its 5.6 million accounts to Maximus (which operates as Aidvantage). If you don’t know who your servicer is, check your account at studentaid.gov.
Once you find out which company is servicing your loan, you can call them and ask for an account of how many payments you’ve made for forgiveness on the loan, Fitzgerald said. Then you should compare that to your own records and see how the count changes after the department’s new reforms were introduced.
If you are not acknowledging as much progress toward forgiveness as you deserve, the Department encourages you to file a complaint with your servicer. And if that complaint is not resolved to your satisfaction, you can refer your case to the FSA.
Streeter said that in addition to receiving records from your service provider, you should be able to download them from the Department of Education’s National Student Loan Data System. But one problem with these downloads, Hounanian said, is that they’re long, dense, and potentially confusing. “Most borrowers won’t be able to make much sense out of it,” he warned.
His group works with Savi, a company that helps borrowers figure out where they stand and explore ways to pay down their debt. Borrowers should turn to trusted groups in their community for this type of help, he said, rather than turning to just any company that offers to help borrowers online. There are a lot of debt relief scammers out there, Hounanian said, and “when borrowers get confused, these companies rush.”
The COVID-related moratorium on student loan payments has helped borrowers in many ways, including in terms of IDR forgiveness. If your IDR plan asks you to pay $0 each month, the Department of Education said in an email, you get credit for the months when payments were optional.