There’s a new student loan update that you need to be aware of if you’re a student loan borrower paying back federal student loans using an income-driven repayment (IDR) plan.
The Biden administration recently came out with the IDR waiver, also known as the IDR account adjustment. This IDR waiver gives federal student loan borrowers credit toward forgiveness. All direct loan program borrowers will receive at least three years of credit toward forgiveness. For many, this could get you out of student loan debts years sooner or even right now.
In 2021, the department of education enacted a Public Service Loan Forgiveness (PSLF) program waiver, where employees who worked full-time for a nonprofit or government employer during the time, had their prior payments before consolidation counted toward loan forgiveness.
This prior PSLF waiver only helped public workers and only awarded credit for the time a borrower was in an actual repayment plan.
With the new IDR waiver, the loan forgiveness assistance has expanded significantly. Now ALL borrowers with federal student loans (both private and public sector workers) can receive credit toward IDR forgiveness for any type of repayment plan, as well as qualifying forbearance periods.
For borrowers pursuing Public Service Loan Forgiveness (PSLF), you can get credit toward your 10-year time requirement for forgiveness. To receive total forgiveness for PSLF under the IDR waiver, you must work for a qualifying employer when the Department of Education makes the IDR account adjustment.
For borrowers not eligible for PSLF, you can get credit toward student loan forgiveness programs over 20 or 25 years. For example, if you work in the private sector and have been paying your loans since 2010, you can receive up to 13 years of IDR payment credit toward 20-year forgiveness under the SAVE plan. You would then only need 7 additional years of payments on an IDR plan and then your loan balance could be completely forgiven.
The following apply towards forgiveness credit with the new IDR waiver:
- Time in any repayment plan, even payments made prior to consolidation.
- If loans were in more than 12 months of consecutive forbearance. The same applies if you have 36 months of cumulative forbearance.
- Deferment before 2013.
- Specific deferments after 2013, such as active-duty deferment or economic hardship.
So, if this applies to you, you may want to consolidate your loans to receive credit… you need to consolidate your loans to get the IDR waiver. But, for some people, specifically those with low IDR payments locked in for the near future, it may be best to take no action.
If this is you, here are the next steps to consider:
- Consider consolidation to take advantage of the IDR waiver. Weigh the pros and cons given your specific situation. If you choose to move forward with the IDR waiver, you must apply before June 30th, 2024 at the following link:
https://studentaid.gov/loan-consolidation
- In you’re on an IDR (Income-driven repayment) plan, utilize tax planning to lower your adjusted gross income (if you’re able to) such as increasing your pre-tax 401(k) contribution or contributing to a health savings account. Lower adjusted gross income will result in a lower monthly payment.
Feel free to reach out with any questions.
1. PaymentCount Adjustments Toward Income-Driven Repayment and Public Service LoanForgiveness Programs | Federal Student Aid
2. IDR AccountAdjustment (studentaid.gov)
3. IDR WaiverAccount Adjustment: 2024 Guide (Deadline: June 30) (studentloanplanner.com)
I'm here to help you feel more confident about your financial future.
Learn more about me
Read more articles by Ryan Johnson