The Biden administration is in the early stages of implementing the IDR Account Adjustment, a major initiative that will result in accelerated student loan forgiveness for many borrowers. And new guidance recently published by the Education Department suggests the program will be even broader than originally envisioned.
Here’s what borrowers should know.
How The IDR Account Adjustment Will Result In Student Loan Forgiveness
The Biden administration first unveiled the IDR Account Adjustment last year as a long-overdue initiative to redress well-documented issues with Income-Driven Repayment (or IDR) programs. IDR, which comprises several distinct repayment plans, permits borrowers to repay their federal student loans in accordance with a formula that factors in their income, marital status, and family size. Payments are recalculated annually, and if any balance remains after 20 or 25 years (depending on the plan), the borrower can receive complete student loan forgiveness.
IDR plans have historically had strict rules. Only time spent in an IDR plan can count toward loan forgiveness, and certain actions — such as consolidating, or failing to re-certify income when required — could derail a borrower’s progress. Investigative reporting also revealed numerous administrative problems with the programs, including loan servicers that wrongfully steered borrowers into costly forbearances (which don’t count toward IDR loan forgiveness) and a system that failed to track borrowers’ IDR progress.
The IDR Account Adjustment is designed to serve as a fix to these historic problems. The initiative will allow the Education Department to credit borrowers with time that otherwise would not count toward their 20- or 25-year IDR student loan forgiveness term, including most periods of repayment as well as some periods of non-payment, such as deferment and forbearance. Borrowers don’t even have to be currently enrolled in an IDR plan to benefit from the initiative.
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The IDR credit can also be counted toward loan forgiveness under the Public Service Loan Forgiveness (PSLF) program, a separate but related program that has also suffered from longstanding problems.
Last month, the Education Department released detailed new guidance on how exactly the IDR Account Adjustment will work. The Biden administration appears to have expanded eligible loan periods that can count toward loan forgiveness, potentially providing even more sweeping relief to millions of borrowers.
Parent PLUS Loans Can Receive Credit Toward Student Loan Forgiveness
Parent PLUS loans have historically been ineligible for many federal student loan relief programs, including IDR plans. Parent PLUS borrowers could consolidate their loans into a federal Direct consolidation loan, which could then qualify for one IDR plan called Income-Contingent Repayment (ICR), but this happens to be the most expensive IDR option. And under the earlier rules, borrowers would receive no IDR or PSLF credit prior to consolidating. Parent PLUS borrowers were also excluded from relief under the Limited PSLF Waiver, another Biden administration initiative, which ended last fall.
However, the new Education Department guidance confirms what had been quietly announced earlier this year — Parent PLUS loans, including unconsolidated Parent PLUS loans, can receive credit toward loan forgiveness under the IDR Account Adjustment. Borrowers who receive 25 years of IDR credit under the adjustment can receive complete loan forgiveness. All other borrowers may accelerate their progress toward eventual loan forgiveness, reducing their remaining time in repayment (and saving money in the long run).
Parent PLUS borrowers may still need to consider Direct loan consolidation, however. That’s because borrowers who are short of the threshold for student loan forgiveness after the IDR account adjustment is implemented would need to continue making payments under an IDR plan to make ongoing progress toward the eventual discharge of their loans. And the only available IDR plan for Parent PLUS borrowers is Income-Contingent Repayment, which is only accessible if their Parent PLUS loans are consolidated into a Direct loan.
Recent Default Periods Can Be Credited Toward Student Loan Forgiveness
The Biden administration had said in earlier guidance that under the IDR Account Adjustment, periods of default would not count toward loan forgiveness. But the updated guidance released in April marks a significant shift. The Education Department will now be able to credit borrowers with “periods in default from March 2020 through the month they exit default,” as long as they do so before the end of the “Fresh Start” period (which is expected to continue for one year after the ongoing student loan pause ends this summer).
For borrowers who had already been in default when the student loan pause began in 2020, this expanded eligibility can result in over three years of additional IDR and PSLF credit toward student loan forgiveness, as long as the borrower takes the required steps to get out of default and back into good standing.
Consolidation Can Accelerate Student Loan Forgiveness
The Education Department said in its new guidance that borrowers who consolidate federal student loans that have varying lengths of time in repayment (and, therefore, different amounts of IDR and PSLF credit) will receive the maximum amount of loan forgiveness credit based on the individual loans being consolidated.
So if one loan has 10 months of credit and another loan has 80 months of credit, a Direct consolidation loan comprised of those two loans could receive 80 months of credit toward loan forgiveness under the IDR Account Adjustment. This is true even if, say, the loan with 10 months of credit has a $50,000 balance and the loan with 80 months of credit has only a $2,000 balance.
What Borrowers Need To Know About Student Loan Forgiveness Under IDR Account Adjustment
The Education Department will be implementing the IDR Account Adjustment automatically for borrowers who have government-held federal student loans. This includes Direct federal student loans, as well as some FFEL-program loans that are administered by the department.
Borrowers who have commercially-held FFEL loans and other non-Direct loans would have to consolidate those loans before December 31, 2023 to qualify for relief. And other borrowers may want to consolidate consolidation as well (such as borrowers with a mix of older and newer loans, as well as Parent PLUS borrowers who may need to access the Income-Contingent Repayment plan). Consolidation may have some downsides, however, that borrowers should consider.
The Biden administration is expected to start discharging federal student loans under the adjustment later this year for borrowers who receive enough IDR or PSLF credit to qualify for student loan forgiveness immediately. All other borrowers will see the benefits of the adjustment sometime in 2024.
In the meantime, House Republicans are moving forward with plans to repeal several Biden administration student loan forgiveness initiatives, including via ongoing debt ceiling negotiations. But with Democrats holding a narrow majority in the Senate and President Biden wielding a veto pen, so far those proposals are not on a clear path to becoming law.
Further Student Loan Forgiveness Reading
$55 Billion In Student Loan Forgiveness Approved, Says Biden Administration — And More May Be Coming
Republicans To Advance Plan Reversing Student Loan Forgiveness Approvals For Millions
The Student Loan Pause May End In Phases, With Some Features Extended — Key Updates On Timing
What The Supreme Court’s Latest Move Means For Student Loan Forgiveness
