US President Joe Biden speaks in the Eisenhower Executive Office Building, next to the White House . [+] in Washington, DC on July 25, 2023. The Biden administration announced a wave of student loan forgiveness approvals earlier in July (Photo by Mandel NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
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Last month, the Education Department notified over 800,000 borrowers that they qualify for student loan forgiveness. The Biden administration estimated that these borrowers would collectively receive nearly $40 billion in discharges.
But these notifications represented just the first wave of approvals under the IDR Account Adjustment, a temporary initiative being implemented by the Biden administration. More borrowers will qualify for student loan forgiveness soon. And the Education Department just provided updates on when the next batch of borrowers will be notified.
The IDR Account Adjustment, which the Biden administration first unveiled last year, was created to remedy to historic problems with Income-Driven Repayment programs. These plans can provide borrowers with affordable monthly payments tied to their incomes. And for borrowers who are unable to pay off their loans in full, these IDR plans have a safety net in the form of loan forgiveness after 20 or 25 years, depending on the plan. IDR has also been a required component of Public Service Loan Forgiveness, which can provide student loan forgiveness in a little as 10 years.
But IDR and PSLF were plagued by problems for years. They suffered from complex eligibility rules, poor communication by loan servicers, and inadequate oversight by the federal government. The result was that millions of borrowers were misinformed about these programs, steered into costly forbearances, or deemed ineligible for relief.
The IDR Account Adjustment is the Biden administration’s fix to these longstanding issues. The temporary initiative gives the Education Department authority to credit borrowers with months or years toward student loan forgiveness that might otherwise not have counted. Many past periods of repayment, as well some prior periods of forbearance, deferment, and even default (in certain cases) can count toward a borrower’s 20- or 25-year IDR student loan forgiveness term. The periods can also potentially count toward loan forgiveness through PSLF for borrowers who were simultaneously working in qualifying employment.
MORE FROM FORBES ADVISOROn July 14, the Education Department sent out emails to over 800,000 borrowers, notifying them that they qualified for student loan forgiveness under the IDR Account Adjustment. These borrowers reached the 20- or 25-year threshold for loan forgiveness under the adjustment, making them eligible for discharge.
According to Education Department guidance, undergraduate loans and borrowers eligible for the Pay As You Earn (PAYE) plan would be on the 20-year timeline for loan forgiveness. Graduate school borrowers — including borrowers with consolidation loans that contain graduate school loans — would be on a 25-year loan forgiveness term.
While the IDR Account Adjustment is being billed as a “one-time adjustment,” it’s really a “one-time program.” The adjustment itself will be implemented in cycles over the course of at least the next several months.
After the first batch of borrowers was notified that they qualify for student loan forgiveness under the IDR Account Adjustment, the Education Department updated its guidance to provide a timeline on the next wave of approvals.
The Education Department “will continue to identify and notify borrowers who reach the necessary forgiveness threshold of 240 or 300 months’ worth of qualifying payments, depending on the repayment plan and type of loan,” says the updated guidance. “We will send these notifications out every two months until next year.” That means the next group of borrowers eligible for student loan forgiveness under the adjustment will be notified in September.
Next year, “all borrowers who are not yet eligible for forgiveness will have their payment counts updated.” Borrowers who receive credit under the IDR Account Adjustment, but are short of the threshold required to receive student loan forgiveness, will, thus, know where they stand sometime in 2024. These borrowers may need to continue repaying their loans under an IDR plan to make ongoing progress toward eventual loan discharge.
Importantly, borrowers with commercially-held FFEL loans need to consolidate those loans via the federal Direct consolidation loan program before December 31, 2023 in order to benefit from the IDR Account Adjustment.