There are four IDR plans that allow borrowers to avoid defaults by reducing their monthly payments based on their income and family size – so that the amounts are lower than they would be under the standard 10-year repayment plan. IDR also promises loan forgiveness after 20 or 25 years of payments, depending on the specific plan.
The actions announced this week aim to address these issues. The Department of Education said it would start implementing the changes immediately, but borrowers may not see an updated account until later this year.
These new movements have the potential to help millions of people. A large majority of borrowers qualify for lower monthly payments under IDR plans, regardless of their income or the amount of debt.
The Ministry of Education estimates that 3.6 million borrowers will be within three years of receiving loan forgiveness under the IDR program and thousands will be eligible for forgiveness immediately after the changes are implemented.
Here’s a breakdown of who could benefit:
Borrowers whose payments were misrecorded
The Department of Education has discovered “significant flaws” in the way its office of federal student aid and loan services track the payment progress of borrowers in IDR plans. Therefore, some borrowers may have made more qualifying payments than they are receiving credit.
To address the issue, the Department of Education is recounting payments for the vast majority of federal student loan borrowers, including all direct loans and federally administered Family Education Loan Program loans.
All payments made, regardless of the repayment plan the borrower was using at the time, will retroactively be counted as an IDR-eligible payment. Payments made before consolidation on consolidated loans will also count.
Borrowers who have been in forbearance
The changes announced this week will also help federal student loan borrowers who haven’t gotten accurate information from their loan officers about their repayment options and have been pressured into forbearance — allowing for a temporary halt to payments. – when they could have been enrolled in an IDR plan.
Forbearance can be a quick and easy solution to help borrowers who are struggling to make their monthly loan payments avoid defaults. But sometimes it is better for borrowers to enroll in an IDR program instead. This way, they can make a smaller monthly payment – which can be as low as $0 – while still getting credit for the rebate.
A review by the Department for Education suggests that loan servicers forced some borrowers to forbear in violation of department rules. Abstention cannot be granted for more than 12 months at a time or for more than 36 months cumulatively.
But more than 13% of all direct loan borrowers between July 2009 and March 2020 used forbearance for at least 36 cumulative months, the Department of Education said.
To address this, the Department of Education will make a one-time count adjustment that will count time spent abstaining for more than 12 consecutive months or for more than 36 cumulative months toward remission under the IDR.
Borrowers seeking loan forgiveness from the public service
The Public Service Loan Cancellation Program cancels the debt of eligible public sector workers after making 10 years of eligible monthly payments.
These payments must be made using an IDR plan, so upcoming adjustments will also help bring some of these borrowers closer to forgiveness. The Department for Education estimates that 40,000 borrowers will receive immediate forgiveness under the Civil Service Loan Forgiveness Scheme as a result of the latest changes.
Borrowers who are still not eligible for relief
The vast majority of federal student loan borrowers are allowed to make payments by an IDR plan. The new changes will ensure that those who pay for 20 or 25 years will receive forgiveness.
Borrowers with very high incomes relative to the amount of their debt may ultimately not benefit from the measures taken this week, as they are more likely to repay their loans before becoming eligible for forgiveness in 20 or 25 years.
Some Democrats urge President Joe Biden will provide broader loan forgiveness to each of the 43 million federal student loan borrowers, regardless of income, debt amount or repayment plan.
But the president has so far resisted that pressure. Instead, he took a piecemeal approach to solving problems with the loan repayment system. In addition to the changes announced this week, the administration has also facilitated debt relief for students who have been defrauded by their for-profit colleges, as well as those who are permanently disabled.