Key takeaways:
- The IDR waiver one-time account adjustment will occur for most borrowers later in 2023.
- 12 months of consecutive forbearance (or more) or 36 months of total forbearance (or more) now count toward forgiveness.
- Any time in repayment (or qualifying periods of forbearance or deferment) now counts toward forgiveness, even if you consolidate.
- The IDR waiver applies to private-sector and public-sector workers.
- 4 million or more borrowers could receive total forgiveness if they consolidate before the deadline.
- To qualify, some borrowers must consolidate their loans before December 31, 2023.
If you’re a student loan borrower paying back your federal student loans using an income-driven repayment (IDR) plan, the Biden Administration’s IDR waiver, also known as the IDR Account Adjustment, is a big deal. Any time in repayment and many periods of forbearance or deferment can now be counted toward the 10-year Public Service Loan Forgiveness and 20- or 25-year IDR forgiveness programs.
Perhaps millions of borrowers could see their entire balances wiped away completely. But unfortunately, many borrowers need to take action by the Administration’s December 31, 2023, deadline.
Here’s what know about President Biden’s IDR waiver program and how to use it to shave years or even decades off of your student loan repayment journey.
If you need a customized plan to make the most of the IDR waiver, book a time with one of our top-rated student loan consultants.
1. What is the IDR waiver/IDR Account Adjustment? 2. The IDR waiver covers borrowers working in the public AND private sector 3. Most deferments and forbearances now qualify for forgiveness 4. Time in any repayment plan now qualifies for forgiveness 5. Most payment statuses pre-consolidation now qualify 6. Most borrowers with FFELs from before 2010 must take action 7. Will the IDR waiver bring cancellation relief to millions? 8. Could the IDR waiver be subject to legal challenge? 9. Get the most out of the IDR Waiver for your situation 10. FAQ
What is the IDR waiver/IDR Account Adjustment?
The IDR Waiver is a one-time account adjustment by the Department of Education that gives federal student loan borrowers credit toward forgiveness. All Direct Loan program borrowers, including graduate and Parent PLUS Loan holders, will receive at least three years of credit toward forgiveness. Millions of borrowers who have already been repaying their student loans for more than 20 years will receive student loan forgiveness automatically with this account adjustment (more on this below).
To do this, the U.S. Department of Education is using its broad authority over student loans due to the pandemic national public health emergency. It results in extraordinarily generous changes to specific forgiveness programs that could get you out of student loan debt years sooner (or even immediately).
The Department of Education previously enacted a Public Service Loan Forgiveness (PSLF) program Waiver. Under this program, which was announced in October 2021 and expired at the end of October 2022, prior payments before consolidation were counted for loan forgiveness.
Payments made under any repayment plan counted, too, as long as you worked full-time for a nonprofit or government employer during the period in question.
With the IDR waiver, the Administration has broadened this assistance to a much larger group of borrowers and repayment statuses.
The PSLF Waiver only helped public servants, and it only awarded credit for the time a borrower was in an actual repayment plan.
All borrowers can now receive credit toward IDR forgiveness for any type of repayment plan as well as qualifying forbearance periods and some types of deferment. More on that soon.
Like the PSLF waiver, borrowers with commercially-held debt with the Federal Family Education Loan program (FFEL) need to consolidate.
The deadline for consolidation to take advantage of these benefits is December 31, 2023. Due to potential legal challenges against the waiver, we urge borrowers with commercially-held FFEL loans to consolidate immediately.
If you have loans that weren’t paused during the pandemic that show up when you log in to StudentAid.gov, then you have commercially held FFEL loans.
If you have this type of loan, you should probably consolidate all of your debt together before the deadline. Doing so could bring you very close to having your entire balance forgiven under these new rules.
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The IDR waiver covers borrowers working in the public AND private sector
The PSLF waiver only applied to borrowers in the public sector or who used to work in the public sector.
The IDR waiver now applies to ALL borrowers with federal student loans.
For borrowers pursuing PSLF, you can get credit toward your 10-year time requirement.
For borrowers not pursuing PSLF, you can receive credit toward student loan forgiveness programs, like IDR forgiveness, over 20 or 25 years.
For example, if you have paid on your undergraduate loans since 2006 and work in the private sector, you could consolidate before December 31, 2023, under the IDR waiver. In doing so, you can receive up to 17 years of IDR payment credit toward 20-year forgiveness under the Revised Pay As You Earn (REPAYE) plan.
You would only need three additional years of payments on an IDR plan, and your balance could be completely forgiven.
A physician who deferred her loans during residency for four years can get all four of those years counted toward the PSLF program now, thanks to the IDR waiver.
These examples show how the IDR waiver could help all types of borrowers regardless of employment status.
One minor IDR Waiver caveat for PSLF borrowers
There’s one minor limiting factor about the IDR Waiver that I can find, and it only affects public sector borrowers. To receive total forgiveness for PSLF under the IDR waiver rules, you must be working for a qualifying employer when the Department of Education makes the IDR Account Adjustment to your forgiveness credit.
The PSLF Waiver didn’t require you to work for a qualifying employer when they wiped your debt, so that’s slightly less generous.
Most deferments and forbearances now qualify for forgiveness
PSLF and IDR borrowers would receive credit toward forgiveness if they were in more than 12 months of consecutive forbearance or 36 months of cumulative forbearance.
If you have less than 12 consecutive months of forbearance, or 36 months or less of aggregate forbearance, then this credit doesn’t qualify. In this case, you need to file a complaint with the FSA Ombudsman to review your situation.
Deferment before 2013 also counts for IDR and PSLF forgiveness, excluding in-school deferment. This is because the Department can’t identify who was in economic hardship deferment and who wasn’t. So, they’re giving credit for all types of deferments.
For deferments after 2013, you must’ve been in a specific type of deferment, such as active duty deferment or economic hardship deferment. Most types of deferment qualify without a time requirement, as with the forbearance 12-month consecutive/36-month aggregate rule.
Notably, you can consolidate and still receive credit for qualifying deferments and forbearances before the consolidation.
Time in any repayment plan now qualifies for forgiveness
The IDR waiver gives borrowers credit for any repayment plan toward IDR forgiveness, even payments made prior to consolidation.
As an example, consider a borrower who has paid her loans under the Extended Repayment Plan since 2002. She would normally receive zero credit toward IDR forgiveness since the Extended Repayment Plan isn’t based on income.
But under the IDR waiver, she could get credit for all those now-qualifying payments and either have her loans completely forgiven or be very close to forgiveness.
If she has loans with different payment histories, she could consolidate to get a very large amount of credit on the new consolidation loan based on the old repayment history of her oldest loan.
Related: How to Know If You Need a Consult with Student Loan Planner®: 7 Situations to Consider
Most payment statuses pre-consolidation now qualify
Borrowers who made payments pre-consolidation can now get credit, too.
It appears that the Department of Education is following the same game plan as it did for the PSLF waiver. Borrowers are getting credit for the loan with the most amount of monthly payments applied to their overall consolidation loan.
Many borrowers can consolidate older loans along with graduate degree loans and get much faster credit toward forgiveness overall.
The IDR Waiver is even better than the PSLF Waiver, as forbearance and deferment pre-consolidation also can count toward loan forgiveness.
Most borrowers with FFELs from before 2010 must take action
Borrowers with commercially held FFELP loans urgently need to consolidate before the deadline to qualify for the IDR waiver.
This is because program requirements prevent the Department of Education from granting credit automatically on this type of loan.
It’s also possible that we’ll see a lawsuit from investors to block relief for this type of loan.
As stated earlier, If you were still required to make payments during the student loan payment pause despite your student debt showing up on the Federal StudentAid.gov website, then you have this kind of student loan. You need to consolidate to receive credit under the IDR waiver.
Will the IDR waiver bring cancellation relief to millions?
According to NPR, 4.4 million borrowers have been in repayment for at least 20 years. This is the minimum threshold to receive IDR forgiveness.
Most of these borrowers would not qualify for Pay As You Earn. Therefore, most would probably have to seek forgiveness under the REPAYE rules, which allow for forgiveness after 20 years for undergraduate loans and 25 years for graduate loans.
According to the Department of Education, “Several thousand borrowers with older loans will also receive forgiveness through IDR. More than 3.6 million borrowers will receive at least three years of additional credit toward IDR forgiveness.”
Saying “several thousand borrowers” and “at least three years of additional credit” is one of the biggest understatements in the history of the student loan program.
We believe the Department of Ed. is being extremely cautious about how much the program could save borrowers, in case draws legal opposition.
You should know as many as several million borrowers could receive complete cancellation of their student loans thanks to the IDR waiver.
Until 2026, any cancellation is free from any federal taxation as well. A handful of states (perhaps four) could impose state income tax; so consult with a tax advisor about this aspect.
Could the IDR waiver be subject to legal challenge?
The 118th Congress was sworn in on January 3, 2023. The PSLF waiver didn’t face resistance, legally. This could be in part due to sympathetic stories from service members featured on programs such as 60 Minutes, who were denied benefits under the program.
Most of the benefits of the IDR waiver will be given out in 2023 under this new Congress.
Could the new Congress sue to block aspects of this program? They tried to retroactively take back benefits through a Congressional Review Act joint resolution, but that effort failed.
No other serious lawsuits blocked the PSLF Waiver, so it stands to reason the IDR Waiver would be allowed to stand.
We think borrowers with commercially held FFEL loans face the most legal risk, as a lawsuit from an investor or group of investors might block their access to this relief program.
Other borrowers can likely feel more secure knowing the PSLF waiver provided over $20 billion in benefits without succumbing to legal challenges.
Get the most out of the IDR Waiver for your situation
This IDR waiver could potentially accomplish a very large amount of debt cancellation. Some of that cancellation will be immediate, but much of it will also occur over the next several years, as borrowers hit their 10-, 20-, and 25-year forgiveness payment counts, depending on the program they’re eligible for.
Many borrowers will see their accounts automatically updated with a one-time revision late this year or early next. The Department of Education will instruct student loan servicers to make this update to your account. But if you could obtain forgiveness under the IDR Waiver before then, your application could be processed much sooner.
For example, if forbearance and deferment, along with your payments, puts you above the 120 months needed for the PSLF program, you could fill out the PSLF ECF form and check whether you qualify immediately.
You could follow a similar process for 20- or 25-year IDR forgiveness, but with only a consolidation.
Many borrowers will want to consolidate to get the full benefits of the IDR Waiver. But others who have low IDR payments locked in until 2024 or even 2025, thanks to the student loan pause extensions, should not take any action.
What’s clear is that the IDR waiver creates a massive number of opportunities for borrowers to save money, and most borrowers are unaware of the possibilities for savings due to not understanding all the rules.
We can help optimize your loan repayment strategy under the IDR waiver if you want assistance. Feel free to use tips from this article as well to get the most forgiven under this IDR account adjustment temporary program. We might not see another opportunity like this for student loan borrowers for years to come.
FAQ
What is the difference between IDR waiver and PSLF waiver?
The IDR waiver applies to all borrowers with federal student loans, including individuals in both public- and private-sector jobs. The PSLF waiver, which ended on October 31, 2022, was exclusively designed for current or former public sector employees. However, borrowers pursuing PSLF can take advantage of the IDR waiver to get credit toward the 10-year eligibility period required for loan forgiveness.
Who qualifies for IDR waiver?
Any federal student loan borrower can qualify for the IDR waiver. Borrowers who may benefit from this one-time adjustment include those previously or currently on an IDR plan, those participating in the PSLF program, or those interested in an IDR plan with Direct or FFEL Program loans held by the U.S. Department of Education (ED).
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